Quick Answer
Dividends are declared by the board of directors, never guaranteed, and you must buy before the ex-dividend date to receive one. Qualified dividends get capital-gains rates; stock dividends are untaxed until sold. Cumulative voting helps minority shareholders. Restricted securities always carry a holding period; affiliates face volume limits and filings even on control stock bought in the open market.
The whole unit on one sheet: dividends, voting methods, restricted-stock resale, and employee stock options.
Which One-Liners Win Points?
- Only the board of directors declares dividends. Shareholders do NOT vote on dividends and have no standing right to demand them.
- Buy before the ex-dividend date to receive the dividend. Under one-business-day (T+1) settlement, the ex-date is typically the same day as the record date.
- On the ex-date the stock opens lower by roughly the dividend amount.
- Cash dividends are taxable when received; stock dividends are not. A stock dividend spreads the same total cost across more shares: lower basis per share, same total value.
- Qualified dividends get long-term capital-gains rates; ordinary dividends are taxed as ordinary income.
- Cumulative preferred arrearages must be paid in full before common stockholders get anything. The most tested preferred-dividend concept.
- Cumulative voting lets minority shareholders concentrate all votes on one candidate; statutory voting lets majority shareholders win every seat.
- Preemptive rights (antidilution), where the charter grants them, belong to common stock only and protect ownership percentage, not price.
- Common stockholders are last in liquidation (residual claim); all debt ranks ahead of all equity.
- Restricted securities are restricted for what they are (unregistered); control securities are restricted for who holds them (an affiliate).
- Affiliate status is a functional-control test, not an automatic trigger: officer/director status or owning 10%+ of shares is evidence of control, but the rule turns on the actual control relationship.
- Affiliate status looks back 90 days. A former affiliate stays bound by affiliate-level volume limits, Form 144, and manner-of-sale requirements during that window.
- Incentive stock options (ISOs) go to employees only. A consultant or independent contractor with options means a nonqualified stock option (NQSO).
Which Numbers Matter Most?
| Item | Value |
|---|---|
| Qualified dividend holding period | more than 60 days in the 121-day window beginning 60 days before the ex-date |
| Preferred voting (contingent) | granted only if dividends in arrears for a specified period |
| Subscription (preemptive) rights expiry | typically 30 to 45 days |
| Restricted-stock holding period, reporting issuer | 6 months |
| Restricted-stock holding period, non-reporting issuer | 12 months (1 year) |
| Affiliate volume limit (per 3 months) | greater of 1% of shares outstanding OR average weekly volume over prior 4 weeks |
| Affiliate-status lookback after leaving affiliate role | 90 days (volume limits, Form 144, manner-of-sale still apply) |
| Form 144 filing trigger | more than 5,000 shares OR $50,000 in any 3 months |
| Form 4 (insider ownership change) | within 2 business days of the transaction |
| ISO annual vesting limit | $100,000 fair market value (FMV) per calendar year |
| ISO maximum term | 10 years from grant (5 years and 110% of FMV exercise price for an employee owning more than 10% of voting stock) |
| ISO plan approval / grant window | shareholder-approved within 12 months before or after adoption; granted within 10 years of that adoption or approval |
| ISO holding for favorable rate | at least 1 year after exercise AND 2 years after grant AND continuous employment (with the granting company, parent, or subsidiary) until no more than 3 months before exercise (1 year if disabled) |
Which Gotchas Trip Students Up?
- Ex-date vs record date: under T+1 the ex-date equals the record date, but the rule you get tested on is "buy before the ex-date," not "buy on the record date."
- Statutory vs cumulative voting: statutory casts votes seat-by-seat (majority dominates); cumulative pools all votes (shares times seats) onto fewer candidates so a minority can win a seat.
- Preemptive rights never attach to preferred stock, only to common, and only where the charter grants them.
- Affiliates never escape the resale rule. Volume limits, Form 144, and manner-of-sale apply even to control shares bought on the open market, regardless of how long held.
- Form 4 is about timing, not size. Even a single-share insider trade triggers the 2-business-day filing; the 5,000-share / $50,000 threshold belongs to Form 144.
- ISOs owe no regular tax at exercise, but the spread is an alternative minimum tax (AMT) preference item. Miss either ISO holding rule and it becomes a disqualifying disposition taxed as ordinary income.
- An ISO is non-transferable except by will or the laws of descent, and exercisable only by the holder during their lifetime. Preemptive rights, by contrast, ARE tradable in the secondary market.
- The company gets no deduction for a qualifying ISO disposition; a disqualifying one, or an NQSO exercise, gives it a deduction equal to the employee's ordinary income.
One-Breath Recap
Only the board declares dividends, and you must buy before the ex-dividend date (the record date under T+1 settlement) to collect. Cash dividends are taxed on receipt while stock dividends just lower your per-share cost basis; qualified dividends earn capital-gains rates, and cumulative preferred arrearages clear before any common dividend. Cumulative voting helps the minority, statutory helps the majority, preemptive rights guard common-stock ownership percentage where granted, and common stock stands last in liquidation. Restricted securities carry holding periods (6 months reporting, 1 year non-reporting), and affiliates also face volume limits and Form 144 filings even on control stock bought in the open market. Incentive stock options go to employees only with alternative minimum tax at exercise, and non-qualified options tax the spread as ordinary income.
Need more than the recap? Read the full Equity Characteristics unit.