13.1-653 - Distributions to shareholders.
§ 13.1-653. Distributions to shareholders.
A. A board of directors may authorize and the corporation may makedistributions to its shareholders, subject to restriction by the articles ofincorporation and the limitation in subsection C.
B. If the board of directors does not fix the record date for determiningshareholders entitled to a distribution, other than one involving a purchase,redemption or other acquisition of the corporation's shares, it is the datethe 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 inthe usual course of business; or
2. The corporation's total assets would be less than the sum of its totalliabilities plus (unless the articles of incorporation permit otherwise) theamount that would be needed, if the corporation were to be dissolved at thetime of the distribution, to satisfy the preferential rights upon dissolutionof shareholders whose preferential rights are superior to those receiving thedistribution.
D. The board of directors may base a determination that a distribution is notprohibited under subsection C either on financial statements prepared on thebasis of accounting practices and principles that are reasonable in thecircumstances or on a fair valuation or other method that is reasonable inthe circumstances. For any public corporation, reliance upon the most recentfinancial statements that have been prepared in accordance with accountingprinciples generally accepted in the United States shall be deemed to bereasonable in the circumstances if the financial statements have been auditedby independent certified public accountants whose certification does notinclude a going concern qualification.
E. Except as provided in subsection G, the effect of a distribution undersubsection C is measured:
1. In the case of a distribution by purchase, redemption, or otheracquisition of the corporation's shares, as of the earlier of (i) the datemoney or other property is transferred or debt incurred by the corporation or(ii) the date the shareholder ceases to be a shareholder with respect to theacquired shares;
2. In the case of any other distribution of indebtedness, as of the date theindebtedness is distributed; and
3. In all other cases, as of (i) the date the distribution is authorized ifthe payment occurs within 120 days after the date of authorization or (ii)the date payment is made if it occurs more than 120 days after the date ofauthorization.
F. A corporation's indebtedness to a shareholder incurred by reason of adistribution made in accordance with this section is at parity with thecorporation's indebtedness to its general, unsecured creditors except to theextent subordinated by agreement.
G. Indebtedness of a corporation, including indebtedness issued as adistribution, is not considered a liability for purposes of determinationsunder subsection C if its terms provide that payments of principal andinterest are made only if and to the extent that payment of a distribution toshareholders could then be made under this section. If the indebtedness isissued as a distribution, each payment of principal or interest is treated asa distribution, the effect of which is measured on the date the payment isactually made.
H. This section shall not apply to distributions in liquidation under Article16 (§ 13.1-742 et seq.) of this chapter.
(Code 1950, §§ 13-206, 13.1-4, 13.1-43, 13.1-62; 1956, c. 428; 1962, c. 14;1979, c. 175; 1985, c. 522; 2005, c. 765.)