Restrictions on the sale of assets and Dividend Restrictions are some covenant types that can prevent the transfer of corporate assets to shareholders.
What is a covenant?
A promise is a promise, and an accounting covenant is no different. Covenants in accounting relate to monetary promises. As part of a contract with a lender or investor, a corporation enters into a covenant. It consents to maintain its financial ratios at predetermined levels.
How long does a covenant last?
It is claimed that a covenant "runs with the land" if it is affixed to the land. It, therefore, remains applicable to the land regardless of whether the burdened or adjacent lands have been sold. Therefore, even though a restricted covenant's original intent looks outmoded today, it can nonetheless be in effect forever.
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