Under what condition can a company have negative Shareholders' equity?

A company can have negative Shareholders' equity primarily when it experiences consistent losses, which directly decrease the retained earnings balance. Retained earnings represent the cumulative profit or loss of a company that has not been distributed to shareholders as dividends. When a company incurs repeated losses, these losses accumulate over time, effectively eroding the retained earnings. If these losses are substantial enough, they can lead to a situation where the total liabilities of the company exceed its total assets, resulting in negative Shareholders' equity.

In contrast, while increased dividends paid or aggressive debt repayment might strain cash flow, they do not directly lead to negative Shareholders' equity unless accompanied by significant operational losses. High growth and expansion might temporarily inflow liabilities but are generally associated with positive equity if the business is performing well and generating profits. Thus, consistent operational losses present the most straightforward and direct route to negative Shareholders' equity by diminishing the company's retained earnings.