16-10a-640 - Distributions to shareholders.
16-10a-640. Distributions to shareholders.
(1) A board of directors may authorize and the corporation may make distributions to itsshareholders subject to any restriction in the articles of incorporation and the limitations inSubsection (3).
(2) The bylaws or, in the absence of an applicable bylaw, the board of directors may fix afuture date as the record date for determining shareholders entitled to a distribution, other thanone involving a purchase, redemption, or other acquisition of the corporation's shares. If a recorddate is necessary but no future date is so fixed, the record date is the date the board of directorsauthorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(a) the corporation would not be able to pay its debts as they become due in the usualcourse of business; or
(b) the corporation's total assets would be less than the sum of its total liabilities plus,unless the articles of incorporation permit otherwise, the amount that would be needed, if thecorporation were to be dissolved at the time of the distribution, to satisfy the preferential rightsupon dissolution of shareholders whose preferential rights are superior to those receiving thedistribution.
(4) The board of directors may base a determination that a distribution is not prohibitedunder Subsection (3) either on financial statements prepared on the basis of accounting practicesand principles that are reasonable in the circumstances, including consolidated financialstatements, or on a fair valuation or other method that is reasonable in the circumstances.
(5) Except as provided in Subsection (7), the effect of a distribution under Subsection (3)is measured:
(a) in the case of distribution by purchase, redemption, or other acquisition of thecorporation's shares, as of the earlier of:
(i) the date money or other property is transferred or debt is incurred by the corporation;or
(ii) the date the shareholder ceases to be a shareholder with respect to the acquired shares;
(b) in the case of any other distribution of indebtedness, as of the date the indebtedness isdistributed; and
(c) in all other cases, as of:
(i) the date the distribution is authorized if the payment occurs within 120 days after thedate of authorization; or
(ii) the date the payment is made if it occurs more than 120 days after the date ofauthorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of a distributionmade in accordance with this section, if the indebtedness is unsecured, is on a parity with thecorporation's indebtedness to its general, unsecured creditors except to the extent subordinated byagreement.
(7) Indebtedness of a corporation, including indebtedness issued as a distribution, is notconsidered a liability for purposes of determinations under Subsection (3) if its terms provide thatpayment of principal and interest are made only if and to the extent that payment of a distributionto shareholders could then be made under this section. If the indebtedness is issued as adistribution, each payment of principal or interest on the indebtedness is treated as a distribution,the effect of which is measured on the date the payment is actually made.
Enacted by Chapter 277, 1992 General Session