(a) A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the charter and the limitation in subsection (c).
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Terms Used In Tennessee Code 48-16-401

  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • board of directors: means the governing board of a corporation, whether denominated the board of directors or otherwise, except that no person or group of persons is the board of directors because of powers delegated to that person or group pursuant to §. See Tennessee Code 48-51-201
  • Business: includes every trade, occupation, profession, investment activity and other lawful purpose for gain or the preservation of assets whether or not carried on for profits. See Tennessee Code 48-202-101
  • Charter: includes amended and restated charters and articles of merger. See Tennessee Code 48-11-201
  • 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.
  • delivery: means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and, if authorized in accordance with §. See Tennessee Code 48-11-201
  • Directors: means natural persons, designated in the charter or bylaws or elected or appointed by the incorporators, and their successors and natural persons elected or appointed to act as members of the board, irrespective of the names or titles by which such persons are described. See Tennessee Code 48-51-201
  • Dissolution: means that the LLC has incurred an event under §. See Tennessee Code 48-202-101
  • Distribution: means a direct or indirect transfer of money or other property (except its own membership interests) with or without consideration, or an incurrence or issuance of indebtedness, (whether directly or indirectly, including through a guaranty) by an LLC to or for the benefit of any of its members in respect of membership interests. See Tennessee Code 48-202-101
  • Interest: means either or both of the following rights under the organic law of an unincorporated entity:
    (A) The right to receive distributions from the entity either in the ordinary course or upon liquidation. See Tennessee Code 48-11-201
  • Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
  • Lien: A claim against real or personal property in satisfaction of a debt.
  • Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
  • Property: includes both personal and real property. See Tennessee Code 1-3-105
  • Record date: means the date established under chapter 16 or 17 on which a corporation determines the identity of its shareholders for purposes of chapters 11-27 of this title. See Tennessee Code 48-11-201
  • 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 Tennessee Code 48-11-201
(b) If the board of directors does not fix 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 charter permits 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) 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.
(e) Except as provided in subsection (g), the effect of a distribution under subsection (c) 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 or distribution through the incurrence of indebtedness, as of the date the indebtedness is distributed or incurred. In a case in which the incurrence of indebtedness is the granting of a mortgage, security interest, lien, or other encumbrance of the corporation’s assets, the indebtedness shall be deemed to be incurred on the date of the execution and delivery of the security instrument granting such mortgage, security interest, lien, or other encumbrance; and
(3) In all other cases, as of:

(A) The date the distribution is authorized if the payment occurs within four (4) months after the date of authorization; or
(B) The date the payment is made if it occurs more than four (4) months 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.
(g) Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under subsection (c) if its terms provide that payment of principal and interest are to be made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If the indebtedness referred to in the preceding sentence 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.
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