The capital impairment restriction, a legal constraint on dividend payments, states that ____.
A) only the current year's earnings may be used for dividend payments
B) dividends may not be paid out of stockholders' equity
C) a firm's capital cannot be used to make dividend payments
D) a firm's capital surplus can be used to make dividend payments

Question

Quizplus · Accepted Answer

The capital impairment restriction is a legal constraint designed to prevent a company from making dividend payments if doing so would impair its capital. This means that dividends cannot be paid out in a way that would reduce the firm's capital below a certain level, ensuring that the firm maintains enough capital to operate effectively.

The Capital Impairment Restriction, a Legal Constraint on Dividend Payments