D. Distributions

 

[§414-111]  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 therecord date for determining shareholders entitled to a distribution (other thanone involving a purchase, redemption, or other acquisition of the corporation'sshares), it is the date the board of directors authorizes the distribution.

(c)  No distribution may be made if, aftergiving it effect:

(1)  The corporation would not be able to pay itsdebts as they become due in the usual course of business; or

(2)  The corporation's total assets would be less thanthe sum of its total liabilities plus (unless the articles of incorporationpermit otherwise) the amount that would be needed, if the corporation were tobe dissolved at the time of the distribution, to satisfy the preferentialrights upon dissolution of shareholders whose preferential rights are superiorto those receiving the distribution.

(d)  The board of directors may base adetermination that a distribution is not prohibited under subsection (c) 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.

(e)  Except as provided in subsection (g), theeffect of a distribution under subsection (c) is measured:

(1)  In the case of distribution by purchase,redemption, or other acquisition of the corporation's shares, as of the earlierof:

(A)  The date money or other property istransferred or debt incurred by the corporation; or

(B)  The date the shareholder ceases to be ashareholder with respect to the acquired shares;

(2)  In the case of any other distribution ofindebtedness, as of the date the indebtedness is distributed; and

(3)  In all other cases, as of:

(A)  The date the distribution is authorized ifthe payment occurs within one hundred twenty days after the date ofauthorization; or

(B)  The date the payment is made if it occursmore than one hundred twenty days after the date of authorization.

(f)  A corporation's indebtedness to a shareholderincurred by reason of a distribution made in accordance with this section is atparity with the corporation's indebtedness to its general, unsecured creditorsexcept to the extent subordinated by agreement.

(g)  Indebtedness of a corporation, includingindebtedness issued as a distribution, is not considered a liability forpurposes of determinations under subsection (c) if its terms provide thatpayment of principal and interest are made only if and to the extent thatpayment of a distribution to shareholders could then be made under thissection.  If the indebtedness is issued as a distribution, each payment ofprincipal or interest is treated as a distribution, the effect of which ismeasured on the date the payment is actually made. [L 2000, c 244, pt of §1]