Is the term "dividend" relevant only for companies?

Question

Is the term "dividend" relevant only for companies?

Or is it relevant to other types of corporations as well (such as a simple partnership of 2 or more partners)?

Answer 1

Is the term "dividend" relevant only for companies?

Or is it relevant to other types of corporations as well (such as a simple partnership of 2 or more partners)?

It doesn't even apply to all companies.

"Company" means a firm operated for profit without regard to entity type or form, and not just to for profit corporations. All for profit corporations are companies but not all companies are for profit corporations (which is a narrower term). Limited liability companies, for example, are not corporations, but are companies. Partnerships are also not corporations, but might be companies.

Also, to be clear, a "for profit" company is one operated with an intent to carry on business for a profit (or at a minimum, without a loss that must be subsidized by donations in the long run), even if it does not always actually earn profits (many "for profit" firms incur losses in the early start up years and during economic downturns or in the way of bad developments for their business).

Generally, the term "dividend" is used with respect to corporations and cooperatives (including mutual companies) in U.S. tax law and in U.S. state entity law.

In corporations, dividends are paid to shareholders who have transferrable ownership rights in the company. Membership rights in other kinds of companies often are not fully transferrable for money with all voting rights.

In cooperatives and mutual companies, dividends are paid to cooperative/mutual company members. Most cooperatives and mutual companies are either owned by producers-members, or are owned by customer-members. These dividends are often on the basis of patronage or dollar volume of dealings with the cooperative, rather than on the basis of a fixed ownership percentage.

Many firms in agriculture and rural economies in the U.S., many college bookstores, some college housing and dining facilities, and many finance and insurance companies, are organized as cooperatives or mutual companies. So are most plywood firms in the Pacific Northwest and most taxi companies in the Eastern U.S.

Dividends are discretionary distributions decided by directors or managers elected by some or all of the people with an entitlement to dividend distributions when or if dividends are paid. There is not a contractual right for a shareholder or member of a company to receive dividends, unlike the right of a bondholder or other debt holder to receive payments of interest. The discretionary nature of the payment, for example, is what distinguishes a dividend payable on account of preferred stock at a fixed interest rate or in a fixed dollar amount, from a bond holder.

Dividends are a subset of distributions from such an entity that are derived from earnings and profits, rather than from capital investments (e.g. upon the liquidation of a company or in a redemption of ownership interests) without the surrender of the ownership or membership interest that entitled someone to the dividend.

Partnerships distinguish between allocations of gain and loss on one hand, whether or not it is distributed, and distributions of assets, on the other. In contrast, the concept of a dividend usually collapses allocation of gains and distribution of gains into a single concept.

Terminology in other types of entities isn't as clear cut and uniform. Sometimes distributions from business trusts are called dividends (especially real estate investment trusts and certain mutual funds), while others business trusts call profit payments to members "distributions". Likewise, there isn't a clear consensus for uncommon forms of organizations like corporations sole, and limited partnership associations, or joint ventures.

The term "dividends" is not commonly used in reference to limited liability companies in the U.S. even when the payment is conceptually similar to a dividend. Usually, partnership language is used in reference to limited liability companies.

There is a sense of the word "dividends" that refers broadly to any return on an investment, rather than more narrowly to a specific kind of distribution from a legally recognized entity. But this doesn't appear to be the sense of the word to which the question is referring.

I can't speak to non-U.S. practice. Many financial terms are different in different dialects of English, and of course, in legal systems where languages other than English are used, the appropriate technical terms of the local language rather than the English term "dividends" is used.