When Is The "Time Of Distribution" To Shareholders?

Allen Matkins
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Allen Matkins

"As I was walking down the street one day
A man came up to me and asked me what the time was that was on my watch, yeah
And I said . . ."*

Chapter 5 of the California General Corporation law prohibits a distribution to shareholders unless certain conditions are met.  In order to determine whether these conditions are met it is necessary to know when the distribution occurs.  In the case of a dividend, there are several possibilities: when the board declares the dividend, the record date for the distribution, or the payment date.  The drafters of the current law decided the declaration date was the most appropriate date because that is when the board must decide whether and to what extent it can legally pay a dividend.   Accordingly, Section 166 provides the "time of any distribution by way of dividend shall be the date of declaration thereof . . .". 

It should be noted that Section 701 provides that if the board fixes a record date for a dividend, that date may not be more than 60 days before the payment date.   While limiting the amount of time that may elapse between the record and payment dates, the statute does not limit the interval between the declaration date and the record date. 

Section 166 imposes has different rules when the distribution is the form of a purchase or redemption of shares, but that is the subject of another post.   

* Robert Lamm (Chicago)

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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.

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