14A:7-14.1. Limitations on distributions to shareholders
319 words·~1 min read·
/nj/title-14a/chapter-7/14a-7-14-1·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
(1)"Distribution" means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a dividend, a purchase, redemption or other acquisition of its shares, or otherwise.
(2)A corporation may not make a distribution if, after giving effect thereto, either:
(a)The corporation would be unable to pay its debts as they become due in the usual course of its business; or
(b)The corporation's total assets would be less than its total liabilities.
(3)Determinations under paragraph 14A:7-14.1(2)(b) may be based upon
(i)financial statements prepared on the basis of generally accepted accounting principles,
(ii)financial statements prepared on the basis of other accounting practices and principles that are reasonable in the circumstances, or
(iii)a fair valuation or other method that is reasonable in the circumstances.
(4)In the case of a purchase, redemption or other acquisition by a corporation of its own shares, the effect of a distribution shall be measured as of the earlier of
(i)the date money or other property is transferred or debt is incurred by the corporation, or
(ii)the date the shareholder ceases to be a shareholder with respect to the acquired shares. In all other cases, the effect of a distribution shall be measured
(i)as of the date of its authorization if payment occurs 120 days or less following the date of authorization, or
(ii)as of the date of payment if payment occurs more than 120 days following the date of authorization.
(5)A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section shall not be subordinated to the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.
(added) 1988,c.94,s.44.