TITLE 7
Corporations, Associations, and Partnerships

CHAPTER 7-1.2
Rhode Island Business Corporation Act

PART 7-1.2-601
Shares Issuance and Distributions

SECTION 7-1.2-614


§ 7-1.2-614 Distributions to shareholders.

(a) Distributions of other than shares.

(1) The board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction the articles of incorporation and the limitation in subdivision (a)(3) of this section.

(2) If the board of directors does not fix 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), it is the date the board of directors authorizes the distribution.

(3) No distribution may be made if, after giving it effect:

(i) The corporation would be insolvent; or

(ii) 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 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 (unless such preferential rights are waived by a majority of the shareholders entitled to such preferential rights, voting by class).

(4) The board of directors may base a determination that a distribution is not prohibited under subdivision (a)(3) of this section 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.

(5) Except as provided in subdivision (7) of this section, the effect of a distribution under subdivision (a)(3) of this section is measured:

(i) 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;

(ii) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and

(iii) In all other cases, as of (A) the date the distribution is authorized if the payment occurs within one hundred twenty (120) days after the date of authorization or (B) the date the payment is made if it occurs more than one hundred twenty (120) days after the date of authorization.

(6) 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.

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

(b) Distributions of shares.

(1) Unless the articles of incorporation provide otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one or more classes or series. An issuance of shares under this subsection is a share distribution.

(2) Shares of one class or series may not be issued as a share distribution in respect to shares of another class or series unless (i) the articles of incorporation so authorize, (ii) a majority of the votes entitled to be cast by the class or series to be issued approve the issue, or (iii) there are not outstanding shares of the class or series to be issued.

(3) If the board of directors does not fix a record date for determining shareholders entitled to share distribution, then it is the date the board of directors authorizes the share distribution.

History of Section.
(P.L. 2004, ch. 216, § 2; P.L. 2004, ch. 274, § 2; P.L. 2005, ch. 120, § 1; P.L. 2005, ch. 130, § 1; P.L. 2006, ch. 163, § 1; P.L. 2006, ch. 188, § 1.)