§ 7-106-401 — Distributions to shareholders

(1) A board of directors may
authorize, and the corporation may make, distributions to its shareholders subject
to any restriction in the articles of incorporation and subject to the limitations set
forth in subsection (3) of this section.

(2) The bylaws or, in the absence of an applicable bylaw, the board of
directors may fix a future date as 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. If a record date is necessary but no future
record date is so fixed, the record date is the date the board of directors authorizes
the distribution.

(3) No distribution may 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
under the circumstances or on a fair valuation or other method that is reasonable
under the circumstances.

(5) Except as provided in subsection (6) of this section, the time for
measuring the effect of a distribution under subsection (3) of this section is:

(a) In the case of distribution by purchase, redemption, or other acquisition of
the corporation's shares, 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;

(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 either:

(I) The date the distribution is authorized, if the payment occurs within one
hundred twenty days after the date of authorization; or

(II) The date the payment is made, if it occurs more than one hundred twenty
days after the date of authorization.

(6) Indebtedness of a corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) of this section if its terms provide that payment of principal and
interest thereon 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 thereon is treated as a
distribution the effect of which is measured on the date the payment is actually
made.

(7) Unless otherwise expressly provided in the articles of incorporation or
bylaws, a statement of par value for shares shall not impose any limitation on
distributions and shall not require any separate designation, restriction, reservation,
or other segregation of any capital account of a corporation.

Legislative History

Source: L. 93: Entire article added, p. 762, � 1, effective July 1, 1994.