Bill Would Ease Corporate Distributions Test

Last week, Assembly Member Curt Hagman introduced AB 571 on behalf of the Business Law Section of the California State Bar. The bill would ease the restrictions on distributions to shareholders, as defined in Corporations Code § 166. These limitations apply to California corporations and foreign corporations subject to Corporations Code Section 2115.

California’s current statute does not rely on the archaic concept of “surplus” still used by Delaware (See DGCL §§ 154 & 170). Instead, the limitations on dividends and other distributions to shareholders are governed by more modern accounting concepts set forth in Chapter 5 of the General Corporation Law.

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