Iowa Code 490.640 – Distribution to shareholders
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1. 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 3.
Terms Used In Iowa Code 490.640
- Articles of incorporation: means the articles of incorporation described in section 490. See Iowa Code 490.140
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Distribution: means a direct or indirect transfer of cash or other property, except a corporation's own shares, or incurrence of indebtedness by a corporation to or for the benefit of its shareholders in respect of any of its shares. See Iowa Code 490.140
- following: when used by way of reference to a chapter or other part of a statute mean the next preceding or next following chapter or other part. See Iowa Code 4.1
- Interest: means either or both of the following rights under the organic law governing an unincorporated entity:a. See Iowa Code 490.140
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- property: includes personal and real property. See Iowa Code 4.1
- Record date: means the date fixed for determining the identity of the corporation's shareholders and their shareholdings for purposes of this chapter. See Iowa Code 490.140
- Shareholder: means a record shareholder. See Iowa Code 490.140
- Shares: means the units into which the proprietary interests in a domestic or foreign corporation are divided. See Iowa Code 490.140
2. The board of directors may fix the record date for determining shareholders entitled to a distribution, which date shall not be retroactive. If the board of directors does not fix a record date for determining shareholders entitled to a distribution, other than one involving a purchase, redemption, or other acquisition of the corporation’s shares, the record date is the date the board of directors authorizes the distribution.3. A distribution shall not be made if, after giving it effect, any of the following would result:a. The corporation would not be able to pay its debts as they become due in the usual course of business.b. 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.4. The board of directors may base a determination that a distribution is not prohibited under subsection 3 either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.5. Except as provided in subsection 7, the effect of a distribution under subsection 3 is measured as follows:a. In the case of distribution by purchase, redemption, or other acquisition of the corporation’s shares, as of the earlier of the following:(1) The date cash or other property is transferred or debt to a shareholder is incurred by the corporation.(2) The date the shareholder ceases to be a shareholder 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 the following:(1) The date the distribution is authorized if the payment occurs within one hundred twenty days after the date of authorization.(2) The date the payment is made if it occurs more than one hundred twenty days after the date of authorization.6. 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.7. Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under subsection 3 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 is treated as a distribution, the effect of which is measured on the date the payment is actually made.8. This section shall not apply to distributions in liquidation under subchapter XIV.