§ 1551. Distributions to shareholders.
(a) General rule.--Unless otherwise restricted in the bylaws, the board of directors may authorize and a business corporation may make distributions. A provision in the articles setting forth a par value for any authorized shares or class or series of shares shall not restrict the ability of a corporation to make distributions.
(b) Limitation.--A distribution may not be made if, after giving effect thereto:
(1) the corporation would be unable to pay its debts as they become due in the usual course of its business; or
(2) the total assets of the corporation would be less than the sum of its total liabilities plus (unless otherwise provided in the articles) the amount that would be needed, if the corporation were to be dissolved at the time as of which the distribution is measured, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
(c) Valuation.--The board of directors may base its determination that a distribution is not prohibited under subsection (b)(2) on one or more of the following:
(1) the book values of the assets and liabilities of the corporation, as reflected on its books and records;
(2) a valuation that takes into consideration unrealized appreciation and depreciation or other changes in value of the assets and liabilities of the corporation;
(3) the current value of the assets and liabilities of the corporation, either valued separately or valued in segments or as an entirety as a going concern; or
(4) any other method that is reasonable in the circumstances.
In determining whether a distribution is prohibited by subsection (b)(2), the board of directors need not consider obligations and liabilities unless they are required to be reflected on a balance sheet (not including the notes thereto) prepared on the basis of generally accepted accounting principles, or such other accounting practices and principles as are used generally by the corporation in the maintenance of its books and records and as are reasonable in the circumstances.
(d) Date of distribution.--The effect of a distribution shall be measured:
(1) as of the date specified by the board of directors when it authorizes the distribution if the distribution occurs within 125 days of the earlier of the date so specified or the date of authorization; or
(2) as of the date of distribution in all other cases.
In the case of a purchase, redemption or other acquisition of its own shares by a corporation, the distribution shall be deemed to occur as of the date money or other property is transferred or debt is incurred by the corporation or as of the date the shareholder ceases to be a shareholder of the corporation with respect to the shares, whichever is earlier.
(e) Redemption related and similar debt.--Indebtedness of a corporation to a shareholder incurred by reason of a distribution made in accordance with this section shall be at least on a parity with the indebtedness of the corporation to its general unsecured creditors except to the extent subordinated by agreement.
(f) Certain subordinated debt.--Indebtedness of a corporation, including indebtedness issued as a distribution, shall not be considered a liability for purposes of determinations under subsection (b) if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If such indebtedness is issued as a distribution, each payment of principal or interest shall be treated as a distribution, the effect of which shall be measured on the date the payment is actually made.
(g) Cross references.--See Subchapter B of Chapter 17 (relating to fiduciary duty) and section 3122 (relating to distributions by insurance corporations).
(Dec. 19, 1990, P.L.834, No.198, eff. imd.)
Cross References. Section 1551 is referred to in sections 1521, 1552, 1932, 2125, 2703, 2907 of this title.
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