September 28, 2021

Volume XI, Number 271

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September 28, 2021

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September 27, 2021

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May The Board Cancel A Declared Dividend?

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).

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 123
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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