Which of the following statements about issuing common shares is true?
A)The total amount received is referred to as legal capital and it cannot be paid out as dividends.
B)The total amount received is referred to as legal capital and it may be paid out as dividends once the company is profitable.
C)All classes of common shares pay identical dividends.
D)All classes of common shares have the same voting rights.

Question

Quizplus · Accepted Answer

When a company issues common shares, the total amount received is referred to as legal capital. This amount cannot be paid out as dividends because it represents the owners' equity in the company. Dividends can only be paid out of retained earnings, which is the portion of profits that the company decides to keep and reinvest back into the business.

Which of the Following Statements About Issuing Common Shares Is