Distributions to stockholders.
1. Except as otherwise provided in subsection 2 and the articles of incorporation, a board of directors may authorize and the corporation may make distributions to its stockholders, including distributions on shares that are partially paid.
2. 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 usual course of business; or
(b) Except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution.
3. The board of directors may base a determination that a distribution is not prohibited pursuant to subsection 2 on:
(a) Financial statements prepared on the basis of accounting practices that are reasonable in the circumstances;
(b) A fair valuation, including, but not limited to, unrealized appreciation and depreciation; or
(c) Any other method that is reasonable in the circumstances.
4. The effect of a distribution pursuant to subsection 2 must be measured:
(a) In the case of a distribution by purchase, redemption or other acquisition of the corporation’s shares, as of the earlier of:
(1) The date money or other property is transferred or debt incurred by the corporation; or
(2) The date upon which the stockholder ceases to be a stockholder with respect to the acquired shares.
(b) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed.
(c) In all other cases, as of:
(1) The date the distribution is authorized if the payment occurs within 120 days after the date of authorization; or
(2) The date the payment is made if it occurs more than 120 days after the date of authorization.
5. A corporation’s indebtedness to a stockholder 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.
6. Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations pursuant to subsection 2 if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to stockholders could then be made pursuant to this section. If the indebtedness is issued as a distribution, each payment of principal or interest must be treated as a distribution, the effect of which must be measured on the date the payment is actually made.
Last modified: February 26, 2006