Distributions

Question 1

General Right to Distribution

Answer 1

No right to receive unless/until declared by board

Question 2

Limitations on Corp ability to distribute dividends

Answer 2

1. Corporation unable to pay its debts as they become ue
2. Total assets are less than total liabilities

Question 3

Preferences in Distribution

Answer 3

1. Cumulative = where distribution not declared or paid in a certain year, it accumulates until paid
2. Cumulative if Earned: Preference accumulates only if profits for year were sufficient to pay preference
3. Participating = received state preference and a share of distribution made to common shareholders

Question 4

Director Liability for Distributions

Answer 4

Voting for unlawful distribution = personal liability but may seek contrbution from other directors who voted and may recover from shareholder who received a distribution knowing it was unlawful

Good Faith Defense: may rely on accountants or reliable officers and employees who indicate distribution is lawful

Question 5

Distributions upon Dissolution

Answer 5

Claim against dissolved corporation for undistributed assets or distributed assets to shareholders (pro rata) to the extent of the assets distributed