The dividend is a portion of a company's profits distributed to shareholders.
Which of the following is an example of using internal funds to finance a company's operations?
Miami Ltd started trading in 2013 and made a profit for the year of $100,000. In 2014, it made a loss of $60,000. For 2014, its board of directors decided to distribute dividends of $45,000. This decision is lawful.
Companies are allowed to use their profits and distribute it as dividend. However, they are prohibited from distributing its capital. What is the rational behind this restriction?
Which of the following statement is TRUE?