Texas Business Corporation Act - Article 2.38. Distributions

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Art. 2.38. Distributions                                                      

A. The board of directors of a corporation may authorize and the 
corporation may make distributions subject to any restrictions in 
its articles of incorporation and to the limitations set forth in 
this Article.

B. A distribution may not be made by a corporation if:                        

(1) after giving effect to the distribution, the corporation would 
be insolvent;  or

(2) the distribution exceeds the surplus of the corporation.                  

C. Notwithstanding the limitation set forth in Subsection (2) of 
Section B of this Article, if the net assets of a corporation are 
not less than the amount of the proposed distribution:

(1) the corporation may make a distribution involving a purchase or 
redemption of any of its own shares if the corporation is an 
open-end investment company, registered as such under the Federal 
Investment Company Act of 1940 (15 U.S.C.A. Sec. 80a-1 (1986)), and 
its articles of incorporation provide in effect that it may 
purchase its own shares out of stated capital;

(2) the corporation may make a distribution involving a purchase or 
redemption of any of its own shares if the purchase or redemption is 
made by the corporation to:

(a) eliminate fractional shares;                                              

(b) collect or compromise indebtedness owed by or to the 
corporation;       

(c) pay dissenting shareholders entitled to payment for their 
shares under this Act;  or

(d) effect the purchase or redemption of redeemable shares in 
accordance with this Act;  and

(3) the corporation may make a distribution not involving a 
purchase or redemption of any of its own shares if the corporation 
is a consuming assets corporation.

D. Notwithstanding the limitations set forth in Section B of this 
Article, the corporation may make distributions in compliance with 
Article 6.04, 7.09, or 7.12 of this Act.

E. A corporation's indebtedness to a shareholder incurred by reason 
of a distribution made in accordance with this Article shall be at 
parity with the corporation's indebtedness to its general, 
unsecured creditors, except to the extent the indebtedness is 
subordinated, or payment of that indebtedness is secured, by 
agreement.

Acts 1955, 54th Leg., p. 239, ch. 64, eff. Sept. 6, 1955.  Amended by 
Acts 1987, 70th Leg., ch. 93, Sec. 15, eff. Aug. 31, 1987;  Acts 
1989, 71st Leg., ch. 801, Sec. 21, eff. Aug. 28, 1989.

Last modified: August 10, 2007