Which type of dividend results in an increase in the legal capital of a company?

A stock dividend results in an increase in the legal capital of a company because it involves issuing additional shares to existing shareholders in proportion to their current holdings. When a company declares a stock dividend, it typically transfers a specific amount from retained earnings to the common stock account, increasing the total legal capital. This process does not involve any cash outflow or change in the overall equity structure, but it does increase the number of shares outstanding and the par value designated to common stock, thus impacting the legal capital.

Given that legal capital represents the total amount of capital that must be maintained by the company to protect creditors, this increase through stock dividends reflects a commitment to uphold that capital base, as the existing shareholders now have more shares, albeit with a reduced value per share due to the increase in total shares outstanding. Other forms of dividends, such as cash or property dividends, do not affect legal capital since they typically distribute resources rather than allocate additional equity.