A firm may be legally prevented from paying dividends if

Question

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If a firm is legally insolvent, it means that its liabilities exceed its assets, and it is not able to meet its financial obligations. In this case, the firm is not allowed to pay dividends to shareholders as it could worsen its financial position and is against the interest of creditors. Debt obligations due within the next month or wanting to save cash for projects do not legally prevent a firm from paying dividends, and having assets greater than liabilities is a positive factor that could enable a firm to pay dividends.

A Firm May Be Legally Prevented from Paying Dividends If