Scrip Dividend Law and Legal Definition

Scrip dividend is a dividend paid in certificates entitling the holder to ownership of capital stock to be issued in the future. It is a certificate issued by a corporation to its stockholder evidencing the holder's title to the same extent of interest in the property and franchise as a stock dividend, except that the corporation has the right to pay the scrip dividend out of future earnings, and except also that the scrip dividend confers no right to vote.

Scrip dividend consist of a scrip or certificate entitling stockholders who receive it to the privileges and rights specified therein, sometimes a right to distribution of accumulated earnings at a later date, at other times a right to additional stock, bonds, or other obligations of the corporation.

This type of dividend usually signals that the corporation’s cash flow is poor. It is payable in the form of scrip or certificate when the company is short of cash but has adequate retained earnings.

Scrip dividend is also termed as liability dividend.