May The Board Cancel A Declared Dividend?

Allen Matkins
Contact

Allen Matkins

A dividend involves three steps.  First, the dividend is declared by the board of directors, second a record date is determined by the board (or by corporate law), and lastly the dividend is paid.  Occasionally, the question arises whether a board may cancel a dividend after it has been declared and before either the record or payment dates.

The Court of Appeal in Smith v. Taeker, 133 Cal. App. 351, 352, 24 P.2d 182 (1933), found that it was "universally held" that the mere declaration of a dividend creates debts against the corporation in favor of the stockholders as individuals.  The Court went on to suggest that the board could by resolution fix this right no later than the record date.  The California Supreme Court, citing Smith, subsequently stated: "Each holder of common stock acquired a vested right to the payment of the dividend, which cannot be defeated by later revocation of the dividend without his consent."  Meyers v. El Tejon Oil and Refining Co., 29 Cal. 2d 184, 188, 174 P.2d 1, 3 (1946).   Both of these cases are admittedly long in the tooth.  However, the California Supreme Court has subsequently cited both opinions for these propositions in Stephenson v. Drever, 16 Cal. 4th 1167, 1177, 947 P.2d 1301, 1307 (1997).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins
Contact
more
less

Allen Matkins on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.