§ 6.40.
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/vt/6-40A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
§ 6.40. Distributions to shareholders
(a)A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the articles of incorporation and the limitation in subsection
(c)of this section.
(b)If the board of directors does not set the record date for determining shareholders entitled to a distribution (other than one involving a repurchase or reacquisition of shares), it is the date the board of directors authorizes the distribution.
(c)No distribution may be made if, after giving it effect:
(1)the corporation would not be able to pay its debts as they become due in the usual course of business; or
(2)the corporation’s total assets would be less than the sum of its total liabilities plus (unless the articles of incorporation permit otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
(d)The board of directors may base a determination that a distribution is not prohibited under subsection
(c)of this section on financial statements prepared on the basis of generally accepted accounting practices and principles, or on the basis of professional appraisals, or on the basis of any other method that is reasonable under the circumstances.
(e)The effect of a distribution under subsection
(c)of this section is measured:
(1)in the case of distribution by purchase, redemption, or other acquisition of the corporation’s shares, as of the earlier of:
(A)the date money or other property is transferred or debt incurred by the corporation; or
(B)the date the shareholder ceases to be a shareholder with respect to the acquired shares;
(2)in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed;
(3)in all other cases, as of:
(A)the date the distribution is authorized if the payment occurs within 120 days after the date of authorization; or
(B)the date the payment is made if it occurs more than 120 days after the date of authorization.
(f)A corporation’s indebtedness to a shareholder 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. (Added 1993, No. 85, § 2, eff. Jan. 1, 1994.)