Common stock record date: Overview, definition, and example
What is a common stock record date?
The common stock record date is the specific date set by a company to determine which shareholders are eligible to receive dividends, vote at shareholder meetings, or exercise certain rights associated with their common stock. Shareholders who are listed on the company's books as of the record date are entitled to receive any dividends or benefits declared by the company. The record date serves as a cutoff to identify the shareholders who will receive corporate benefits, such as dividends or the right to vote in elections.
The record date is crucial in shareholder activities because it determines who is recognized as a shareholder for specific events, regardless of when the actual transaction to buy or sell the stock occurred. If an individual buys stock after the record date, they will not receive the dividend or other rights tied to that period, even though they may own the stock at the time of distribution.
Why is the common stock record date important?
The common stock record date is important because it establishes a clear and fair process for determining who is entitled to specific rights and benefits. For companies, setting a record date helps ensure that dividends are paid to the correct shareholders and that voting rights are granted to those who are actually invested in the company as of the specified date.
For shareholders, the record date determines eligibility for receiving dividends or voting on corporate matters, and understanding it helps them plan their investments, especially in relation to dividends and corporate elections.
Understanding the common stock record date through an example
Imagine that a company, XYZ Corp., declares a dividend of $1 per share. The company sets a record date of March 31st. If an investor owns XYZ Corp. stock as of the close of trading on March 31st, they will be eligible to receive the $1 dividend.
If an investor buys shares of XYZ Corp. on April 1st, they will not receive the dividend, as they did not hold the shares on the record date, even though they own the stock after that date.
In another example, XYZ Corp. is holding an annual shareholder meeting to elect new board members. The company sets a record date of April 15th. Only shareholders who are recorded as owning shares of common stock as of April 15th are eligible to vote in the election. Shareholders who purchase stock after April 15th will not be eligible to vote at this particular meeting.
An example of a common stock record date clause
Here’s how a common stock record date clause might appear in a corporate resolution or dividend declaration:
“The Board of Directors of XYZ Corporation has declared a dividend of $0.50 per share, payable on April 30, 2023. The record date for determining shareholders eligible to receive the dividend shall be March 31, 2023. Shareholders of record on this date will be entitled to the dividend payment.”
Conclusion
The common stock record date is a key date that determines which shareholders are eligible for specific benefits, such as dividends and voting rights. It helps companies ensure that shareholder activities, such as dividend distributions and elections, are accurately aligned with ownership on a particular date.
For SMB owner-managers, understanding and setting a clear record date is essential for managing shareholder relationships and ensuring that dividends and voting rights are distributed fairly and transparently.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.