§ 7-1.2-614 - Distributions to shareholders.
SECTION 7-1.2-614
§ 7-1.2-614 Distributions to shareholders.– (a) Distributions of other than shares.
(1) The board of directors may authorize and the corporationmay make distributions to its shareholders subject to restriction the articlesof incorporation and the limitation in subdivision (a)(3) of this section.
(2) If the board of directors does not fix the record datefor determining shareholders entitled to a distribution (other than oneinvolving a purchase, redemption, or other acquisition of the corporation'sshares), it is the date the board of directors authorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(i) The corporation would be insolvent; or
(ii) The corporation's total assets would be less than thesum of its total liabilities plus (unless the articles of incorporation permitotherwise) the amount that would be needed, if the corporation to be dissolvedat the time of the distribution, to satisfy the preferential rights upondissolution of shareholders whose preferential rights are superior to thosereceiving the distribution (unless such preferential rights are waived by amajority of the shareholders entitled to such preferential rights, voting byclass).
(4) The board of directors may base a determination that adistribution is not prohibited under subdivision (a)(3) of this section eitheron financial statements prepared on the basis of accounting practices andprinciples that are reasonable in the circumstances or on a fair valuation orother method that is reasonable in the circumstances.
(5) Except as provided in subdivision (7) of this section,the effect of a distribution under subdivision (a)(3) of this section ismeasured:
(i) In the case of distribution by purchase, redemption orother acquisition of the corporation's shares, as of the earlier of (A) thedate money or other property is transferred or debt incurred by the corporationor (B) the date the shareholder ceases to be a shareholder with respect to theacquired shares;
(ii) In the case of any other distribution of indebtedness,as of the date the indebtedness is distributed; and
(iii) In all other cases, as of (A) the date the distributionis authorized if the payment occurs within one hundred twenty (120) days afterthe date of authorization or (B) the date the payment is made if it occurs morethan one hundred twenty (120) days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred byreason of a distribution made in accordance with this section is at parity withthe corporation's indebtedness to its general, unsecured creditors except tothe extent subordinated by agreement.
(7) Indebtedness of a corporation, including indebtednessissued as a distribution, is not considered a liability for purposes ofdeterminations under subdivision (a)(3) of this section if its terms of theindebtedness provide that payment of principal and interest are made only ifand to the extent that payment of a distribution to shareholders could then bemade under this section. If the indebtedness is issued as a distribution, eachpayment of principal or interest is treated as a distribution, the effect ofwhich is measured on the date the payment is actually made.
(b) Distributions of shares.
(1) Unless the articles of incorporation provide otherwise,shares may be issued pro rata and without consideration to the corporation'sshareholders or to the shareholders of one or more classes or series. Anissuance of shares under this subsection is a share distribution.
(2) Shares of one class or series may not be issued as ashare distribution in respect to shares of another class or series unless (i)the articles of incorporation so authorize, (ii) a majority of the votesentitled to be cast by the class or series to be issued approve the issue, or(iii) there are not outstanding shares of the class or series to be issued.
(3) If the board of directors does not fix a record date fordetermining shareholders entitled to share distribution, then it is the datethe board of directors authorizes the share distribution.