Question

Shareholders receive __________ from the company as a benefit against their investment.

• A. Interest
• B. Commission
• C. Profit
• D. Dividend

Hint:

* Debt holders receive Interest (Fixed). * Equity holders receive Dividends (Variable based on profit).

Answer 1

The Correct Option is D

Concept: A company is owned by its shareholders who provide the capital. When a company earns a profit, it can either reinvest that money or distribute it to the owners as a return on their investment risk.

Step 1: Evaluating the nature of payments.
• Interest: Paid to lenders and debenture holders. It is a fixed liability.
• Commission: Paid to agents for facilitating business transactions.
• Profit: This is the total surplus earned by the company. Shareholders only receive a part of this distributed surplus.

Step 2: Identifying the specific term for shareholder returns. The specific portion of the company's net profit that is officially declared and distributed to shareholders is known as the Dividend. It is the reward for holding equity shares in the company.