A corporation cannot declare a dividend that would cause stockholders' equity to fall below the legal capital.

Question

Quizplus · Accepted Answer

This statement is true. Legal capital is the amount of money that a company must keep in its retained earnings account to protect its creditors and shareholders. It is the minimum amount of equity that a company must maintain in order to operate legally. Therefore, a corporation cannot declare a dividend that would cause stockholders' equity to fall below the legal capital, as doing so would mean that the company is no longer in compliance with legal requirements.

A Corporation Cannot Declare a Dividend That Would Cause Stockholders