Cash in lieu

Cash in lieu
See also

Cash in Lieu (CIL) means in the literal sense - "cash instead". It is payment made by using cash, instead of, for example, using bank transfers or securities. But, when used, it rarely means its literal sense. We can use the payment in cash in lieu in situations like (Tax Partners and Professionals of Ernst & Young LLP, 2015, page 203):

  • Fractional share payment,
  • Cash in lieu of something (for example: in lieu of repair).

Definition of fractional share

Cash in lieu method is used, when there occurs fractional share. Fractional share means that share of equity is less than one (0.5, 0.7 etc.). Fractional share can be a result of stock splits, DRIPs (dividend reinvestment plans), or actions similar to previous ones. They happen rarely, usually, fractional shares are not available to occur at the market, and also they are more difficult to sell. That is why we can use payment as cash in lieu (of stocks) (Farm Credit Administration, 1940, page 117).

Stocks payments in cash in lieu

Definition of Cash in Lieu is mostly used, when there happens need of payment for stocks. In situations where you can not pay the whole sum of stock because of the stock split, and the owner of the stock owns only partial share, there is no possibility to make payment with stock itself. Cash in lieu is a payment that will pay for that partial share. For example: There occurs a situation where one company (first one) is merged by the second company (the second one). The owner of the first company's shares has 250.56 shares. In this situation, he will receive 250 shares instead of 250.56, and the rest of it (.56 of shares) will be paid by cash in lieu (Tax Partners and Professionals of Ernst & Young LLP, 2015, page 203).

Meaning of the phrase "In Lieu"

"In lieu" means itself "instead". In the context of cash in lieu, we might understand as well payments made by cash in lieu instead of prepaid cash cards. It is well known, more and more popular these days that people are using debit and prepaid cash cards in lieu of cash. We can not mistake the term of in lieu of cash with cash in lieu (Friedberg B., 2015, page 36).

References

Author: Mateusz Paduch