Corporate Dividend and Distribution Requirements in Arizona

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

Ariz. Rev. Stat. § 10-140(14), (19) defines the ordinary domestic corporation as a for-profit corporation incorporated under or subject to Title 10, Chapters 1 through 17. Its distribution definition reaches direct and indirect money or property transfers, other than the corporation's own shares, and shareholder debt with respect to shares. It expressly includes dividend declarations and payments, purchases, redemptions, other acquisitions, and debt distributions.

Neither the definition nor Ariz. Rev. Stat. § 10-640(A)-(G) states an express liquidation exclusion. This page nevertheless follows the topic contract and addresses only voluntary nonliquidating distributions, not dissolution or liquidation procedure.

Board, committee, shareholder, and governing-record authority

Section 10-640 assigns authorization to the board, subject to the articles and the financial limits. Arizona's committee rule is stricter than the Model Act pattern in several states: Ariz. Rev. Stat. § 10-825(D)-(F) flatly bars a committee from authorizing distributions. A committee may authorize or approve a share reacquisition according to a board-prescribed formula or method, but that narrow approval power does not replace § 10-640's board-authorization rule.

Ariz. Rev. Stat. § 10-732(A)-(B), (D) permits a compliant all-shareholder agreement to restrict board power and govern authorization, making, and proportionality of distributions. The agreement remains subject to § 10-640 and ceases to operate when shares become listed or regularly traded as described in the statute.

Cash, property, shares, debt, repurchase, and redemption forms

Section 10-140 covers direct and indirect money or other property, indebtedness, dividends, purchases, redemptions, and other share acquisitions. The property branch excludes the corporation's own shares because Ariz. Rev. Stat. § 10-623(A)-(C) separately governs share dividends.

Surplus, net-profit, equity, and capital-source test

Arizona does not add a surplus, retained-earnings, net-profit, or stated-capital source test to § 10-640. Instead, subsection C applies two post-distribution limits, together with the articles and the class terms established under § 10-601. This identifies the statutory architecture without deciding what a corporation may distribute.

Liquidity, balance-sheet, liability, and preference test

Under § 10-640(C), the corporation must remain able to pay debts as they become due in the usual course after giving effect to the distribution. Its total assets also cannot be less than total liabilities plus the amount needed to satisfy superior dissolution preferences, unless the articles permit otherwise. Both limits apply.

Financial statements, valuation, reserves, and reliance

Section 10-640(D) permits reasonable-in-the-circumstances financial statements, which ordinarily means GAAP or applicable regulatory accounting principles in the absence of special circumstances, or a fair valuation or other reasonable method. Ariz. Rev. Stat. § 10-830(B)-(C) permits qualified reliance on corporate officers or employees, professional experts, or a trusted committee unless the director has knowledge making reliance unwarranted. The distribution section states no special reserve formula.

Record date, measurement date, payment delay, and revocation

If the board does not fix a distribution record date, § 10-640(B) makes the authorization date the default except for an own-share acquisition. Section 10-623 uses the same authorization-date default for a share dividend.

The financial-test date depends on form. An own-share purchase, redemption, or other acquisition uses the earlier of the money/property transfer or debt-incurrence date and the date shareholder status ends. Another debt distribution uses the distribution date. Other payments use authorization if completed within 120 days and the payment date if later. Conditional-pay debt is tested each time principal or interest is actually paid. The surveyed section states no general revocation rule.

Class, series, equal treatment, stock distributions, and fractions

Ariz. Rev. Stat. § 10-601(A), (C) generally gives shares in one class identical preferences, limitations, and relative rights, subject to the permitted series structure, while the articles set distribution and dissolution preferences. A share dividend is pro rata by default under § 10-623. Issuing one class or series as a dividend on another requires articles authorization, majority approval by the class or series being issued, or no outstanding shares of that class or series.

Ariz. Rev. Stat. § 10-604(A), (C)-(D) permits fractional-share certificates, fair-value cash, a disposition arrangement, or conditional scrip. A fractional certificate carries shareholder rights; scrip does not unless its terms provide otherwise.

Distribution debt, priority, liquidation, insolvency, and boundaries

Section 10-640(F)-(G) gives compliant distribution debt parity with general unsecured debt unless an agreement subordinates it. Conditional-pay debt can be excluded from liabilities for the financial tests, but every principal or interest payment becomes a distribution tested when actually made. The section states no special rule making distribution debt secured and no separate liquidation rule.

This page reports the statutory tests without applying them. It does not decide solvency or a lawful amount and excludes unlawful-distribution liability, creditor recovery, fiduciary disputes, fraudulent transfers, bankruptcy, debt covenants, dissolution, tax, accounting, valuation, securities, and transaction advice.

What trips people up

A committee's formula-bound reacquisition power is not general distribution authority. Section 10-825 bars the committee from authorizing distributions, while § 10-640 assigns authorization to the board. Those provisions must be read together before treating a committee approval as enough.

The record date and financial-test date also answer different questions. An ordinary payment more than 120 days after authorization must use the payment date for the statutory test even if the authorization date remains the record date.

Common questions

Does Arizona require a dividend to come from surplus or net profits?

No separate source test appears in § 10-640. Arizona instead applies the ability-to-pay and assets-versus-liabilities-plus-preferences tests, subject to the articles and class terms.

Can shareholders agree to non-pro-rata distributions?

Section 10-732 permits a compliant agreement approved or signed by all current shareholders to govern distributions regardless of ownership proportions, but it expressly preserves § 10-640's financial limits.

Can one class receive another class as a share dividend?

Only through one of § 10-623's routes: articles authorization, majority approval by the class or series being issued, or no outstanding shares of that class or series.

Does authorization always control the financial test?

No. Own-share acquisitions, debt distributions, conditional payments, and payments more than 120 days after authorization use different measurement dates.

Statutes and sources

• Ariz. Rev. Stat. § 10-140 — current corporation and distribution definitions, accessed September 3, 2026: https://www.azleg.gov/ars/10/00140.htm
• Ariz. Rev. Stat. § 10-601 — current class, preference, and distribution-right rules, accessed September 3, 2026: https://www.azleg.gov/ars/10/00601.htm
• Ariz. Rev. Stat. § 10-604 — current fractional-share and scrip rules, accessed September 3, 2026: https://www.azleg.gov/ars/10/00604.htm
• Ariz. Rev. Stat. § 10-623 — current share-dividend and record-date rules, accessed September 3, 2026: https://www.azleg.gov/ars/10/00623.htm
• Ariz. Rev. Stat. § 10-640 — current distribution limits, valuation, timing, and debt rules, accessed September 3, 2026: https://www.azleg.gov/ars/10/00640.htm
• Ariz. Rev. Stat. § 10-732 — current shareholder-agreement rule, accessed September 3, 2026: https://www.azleg.gov/ars/10/00732.htm
• Ariz. Rev. Stat. § 10-825 — current committee-authority rule, accessed September 3, 2026: https://www.azleg.gov/ars/10/00825.htm
• Ariz. Rev. Stat. § 10-830 — current director-reliance rule, accessed September 3, 2026: https://www.azleg.gov/ars/10/00830.htm