Sec. 33-687. Distributions to shareholders.
Sec. 33-687. Distributions to shareholders. (a) A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction
by the certificate of incorporation and the limitation in subsection (c) of this section.
(b) If the board of directors does not fix the record date for determining shareholders
entitled to a distribution, other than one involving a purchase, redemption or other acquisition of the corporation's shares, it is the date the board of directors authorizes the
distribution.
(c) No distribution may be made if, after giving it effect: (1) The corporation would
not be able to pay its debts as they become due in the usual course of business; or (2)
the corporation's total assets would be less than the sum of its total liabilities plus, unless
the certificate of incorporation permits otherwise, the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to
those receiving the distribution.
(d) The board of directors may base a determination that a distribution is not prohibited under subsection (c) of this section either on financial statements prepared on the
basis of accounting practices and principles that are reasonable in the circumstances or
on a fair valuation or other method that is reasonable in the circumstances.
(e) Except as provided in subsection (g) of this section, the effect of a distribution
under subsection (c) of this section is measured: (1) In the case of distribution by purchase, redemption or other acquisition of the corporation's shares, as of the earlier of
(A) the date money or other property is transferred or debt incurred by the corporation
or (B) the date the shareholder ceases to be a shareholder with respect to the acquired
shares; (2) in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and (3) in all other cases, as of (A) the date the distribution is
authorized if the payment occurs within one hundred twenty days after the date of authorization or (B) the date the payment is made if it occurs more than one hundred twenty
days after the date of authorization.
(f) A corporation's indebtedness to a shareholder incurred by reason of a distribution
made in accordance with this section is at parity with the corporation's indebtedness to
its general, unsecured creditors except to the extent subordinated by agreement.
(g) Indebtedness of a corporation, including indebtedness issued as a distribution,
is not considered a liability for purposes of determinations under subsection (c) of this
section if its terms provide that payment of principal and interest are made only if and
to the extent that payment of a distribution to shareholders could then be made under
this section. If the indebtedness is issued as a distribution, each payment of principal or
interest is treated as a distribution, the effect of which is measured on the date the payment
is actually made.
(h) This section shall not apply to distributions in the course of dissolution under
sections 33-880 to 33-887, inclusive.
(P.A. 94-186, S. 55, 215; P.A. 96-271, S. 45, 46, 254; P.A. 03-18, S. 5.)
History: P.A. 94-186 effective January 1, 1997; P.A. 96-271 replaced "articles" of incorporation with "certificate"
of incorporation where appearing, effective January 1, 1997; P.A. 03-18 added Subsec. (h) re section not applicable to
distributions in the course of dissolution, effective July 1, 2003.
Annotations to former section 33-27:
Equity will not interfere where directors, in the exercise of reasonable discretion, carry earnings to surplus account
instead of declaring dividends. 33 C. 446. Dividends declared are a debt of the company which a stockholder may enforce
in equity. 42 C. 17; 81 C. 528. Impairment of capital prior to issue of preferred stock held not to prevent dividends on such
stock. 54 C. 156. Dividend even on preferred stock can be declared only from profits. 72 C. 118; 81 C. 528; 85 C. 452.
Right of stockholder only matures on declaration and this rests in discretion of directors. 73 C. 114; 77 C. 554; 78 C. 75;
Id., 532; 79 C. 639; 97 C. 366. Dividend not apportionable. 73 C. 114. It is presumed to be from profits. 78 C. 457. Nature
of stock dividend. 83 C. 43. Distribution of stock of another company. 85 C. 452. Right of directors to declare dividend
payable at a definite future date to stockholders of record at a definite intermediate date. 97 C. 367; 109 C. 279. Right of
transferee of stock to dividend where transfer not made on corporate books. 97 C. 371. Cited. 101 C. 724. Dividends must
be declared only out of profits or surplus. 104 C. 684. Dividends in stock of another corporation held equivalent of cash
dividend. 106 C. 19. Dividend becomes debt upon separation from corporate fund; declaration of dividend payable to
stockholders of record on a future date establishes directors' intent that separation be then made, unless contrary intent
appears. 109 C. 268.
Annotation to former section 33-63:
Stock held in another corporation may be distributed as a dividend if it represents a surplus of assets. 131 C. 27.