December 3, 2021

Volume XI, Number 337

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When Is The "Time Of Distribution" To Shareholders?

 

"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 . . ."

Robert Lamm (Chicago)

Chapter 5 of the California General Corporation law prohibits 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. 

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 294
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

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...

949-851-5428
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