Unpaid Dividend Definition
An unpaid dividend refers to the dividend that a company has announced but has not been paid to stockholders. Dividends are profits that a company distributes to its shareholders. Corporations distribute money to its shareholders when profits are made.
An unpaid dividend is a divided which the company has declared but had not been distributed to stockholders. From the moment a company announces dividends to the moment shareholders receive their dividends, an unpaid dividend exists.
A Little More on What is an Unpaid Dividend
The date a company announces dividend is the record date, this is when shareholders of the company are eligible to receive distribution of dividends. If after declaring dividend, a company does not distribute dividends to shareholders, there will be a record of unpaid dividends. A space between the record or declaration date and the payment date results in unpaid dividend.
Unpaid dividend do not occur frequently, board of directors most companies announce dividends only when all is set to distribute dividends to shareholders.
Not to be Confused with ‘Unclaimed Dividends’
Unpaid dividends are different from unclaimed dividends. When companies pay dividends to their shareholders, they are meant to claim the paid dividend. An unclaimed dividend is recorded when a shareholder fails to claim an already paid dividend while an unpaid dividend is the failure of a company to distribute dividends to shareholders after it has been announced.
Shareholders are required to claim dividend within 30 days of when the dividend are declared. When dividends are claimed, shareholders are required by the Internal Revenue Service to disclose the current addition to their income for tax purposes. For shareholders that get their dividends sent to them in checks, they can also have unclaimed dividends if they do not cash the dividend. Unclaimed dividends are kept in separate unpaid dividend account.
Accounting Implications of Unpaid Dividends
Unpaid dividends have certain implications on a company, so also are unclaimed dividends. Both unpaid and unclaimed dividends are recorded as current liabilities on a company’s balance sheet. The current liabilities account is cleared when the unpaid and unclaimed dividends are paid.
Also, the total amount that a company is to pay as dividend is recorded as dividends payable, this account is reversed only when the company has distributed dividends to its shareholders.
References for “Unpaid Dividend”
Academic research for “Unpaid Dividend”
Corporations: Elimination of Dividend Arrearages on Cumulative Preferred Stock by Amendment of the Articles of Incorporation, Linde, H. (1949). Corporations: Elimination of Dividend Arrearages on Cumulative Preferred Stock by Amendment of the Articles of Incorporation. California Law Review, 129-134.
Corporations: Dividend Rights: Elimination of Dividend Accumulations by Direct Charter Amendment, Waterbury, T. L. (1950). Corporations: Dividend Rights: Elimination of Dividend Accumulations by Direct Charter Amendment. Michigan Law Review, 48(5), 657-666.
Announcement Effect of Dividend in Presence of Dividend Tax: Possible Agency Problem and Macro Level Inefficiency?, Datta, D., Ganguli, S. K., & Chaturvedi, M. (2014). Announcement Effect of Dividend in Presence of Dividend Tax: Possible Agency Problem and Macro Level Inefficiency?. South Asian Journal of Macroeconomics and Public Finance, 3(2), 195-220.