Kentucky Statutes 271B.6-400 – Distributions 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) of this section.
(2) If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption or other acquisition of the corporation‘s shares), it shall be the date the board of directors authorizes the distribution.
(3) No distribution shall 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) 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) of this section 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) of this section, the effect of a distribution under subsection (3) of this section shall be measured:
(a) In the case of 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 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; and
(c) In all other cases, as of:
1. The date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization; or
2. The date the payment is made if it occurs more than one hundred twenty
(120) days after the date of authorization.
(6) A corporation’s indebtedness to a shareholder incurred by a reason of a distribution made in accordance with this section shall be at parity with the corporation’s indebtedness to its general creditors except to the extent subordinated by agreement.
(7) Indebtedness of a corporation, including indebtedness issued as a distribution, shall not be considered a liability for purposes of determinations under subsection (3) of this section 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 the indebtedness is issued as a distribution, each payment of principal or interest shall be treated as a distribution, the effect of which is measured on the date the payment is actually made.
Effective: January 1, 1989
History: Created 1988 Ky. Acts ch. 23, sec. 48, effective January 1, 1989.
(2) If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption or other acquisition of the corporation‘s shares), it shall be the date the board of directors authorizes the distribution.
Terms Used In Kentucky Statutes 271B.6-400
- Articles of incorporation: include amended and restated articles of incorporation and articles of merger. See Kentucky Statutes 271B.1-400
- 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.
- Corporation: may extend and be applied to any corporation, company, partnership, joint stock company, or association. See Kentucky Statutes 446.010
- Directors: when applied to corporations, includes managers or trustees. See Kentucky Statutes 446.010
- 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. See Kentucky Statutes 271B.1-400
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Record date: means the date established under Subtitle 6 or 7 of this chapter on which a corporation determines the identity of its shareholders and their shareholdings for purposes of this chapter. See Kentucky Statutes 271B.1-400
- Shareholder: means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. See Kentucky Statutes 271B.1-400
(3) No distribution shall 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) 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) of this section 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) of this section, the effect of a distribution under subsection (3) of this section shall be measured:
(a) In the case of 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 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; and
(c) In all other cases, as of:
1. The date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization; or
2. The date the payment is made if it occurs more than one hundred twenty
(120) days after the date of authorization.
(6) A corporation’s indebtedness to a shareholder incurred by a reason of a distribution made in accordance with this section shall be at parity with the corporation’s indebtedness to its general creditors except to the extent subordinated by agreement.
(7) Indebtedness of a corporation, including indebtedness issued as a distribution, shall not be considered a liability for purposes of determinations under subsection (3) of this section 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 the indebtedness is issued as a distribution, each payment of principal or interest shall be treated as a distribution, the effect of which is measured on the date the payment is actually made.
Effective: January 1, 1989
History: Created 1988 Ky. Acts ch. 23, sec. 48, effective January 1, 1989.