Corporate Dividend and Distribution Requirements in Arkansas

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

Ark. Code § 4-27-140(4), (6) limits this page to a domestic for-profit corporation and defines a distribution as a direct or indirect transfer of money or property, other than the corporation's own shares, or an incurrence of debt for shareholders with respect to their shares. The definition expressly includes a declared or paid dividend, purchase, redemption, other share acquisition, and distribution of indebtedness.

Neither § 4-27-140 nor § 4-27-640 states an express liquidation-distribution exclusion. This page nevertheless addresses only the topic's voluntary nonliquidating transaction and does not apply the dissolution or winding-up rules.

Board, committee, shareholder, and article authority

Ark. Code § 4-27-640(a) assigns authorization to the board, subject to the articles and the statutory financial limits. Section 4-27-825(e) makes Arkansas unusually explicit that a board committee may not authorize a distribution. A committee may authorize or approve a reacquisition only according to a formula or method prescribed by the board.

The surveyed provisions state no general shareholder-approval step for an ordinary distribution. Act 583 of 1989 added § 4-27-640(g), which allows an articles-or-bylaws-authorized delegation to a committee or officers for a registered investment company operating under board policies. That specialized exception does not govern the ordinary corporation covered here.

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

The § 4-27-140(6) definition reaches direct and indirect transfers of money or other property, incurred indebtedness, declared and paid dividends, purchases, redemptions, and other share acquisitions. Because the corporation's own shares are excluded from the property branch, § 4-27-623 supplies the distinct share-dividend route.

No surplus or net-profit source test

Ark. Code § 4-27-640 states no separate lawful-source test based on surplus, retained earnings, stated capital, or current or preceding-year net profits. It instead asks the two post-distribution questions in subsection (c), subject also to restrictions in the articles. This page reports that architecture without deciding what any corporation's accounts show.

Liquidity, assets, liabilities, and preferences

Section 4-27-640(c)(1) bars a distribution if the corporation would be unable to pay its debts as they become due in the usual course. Paragraph (2) separately requires total assets to remain at least equal to total liabilities plus the amount needed on an immediate hypothetical dissolution to satisfy superior shareholder preferences. The articles may permit omission of that preference add-on, but the text does not permit them to omit total liabilities.

Ark. Code §§ 4-27-601 to 4-27-602 place the class and series terms in the articles or an articles-authorized board determination. Those terms can specify cash, indebtedness, securities, or property redemption and conversion forms, dividend calculations, and preference over another class.

Statements and valuation

Under § 4-27-640(d), the board may use financial statements prepared on accounting practices and principles reasonable in the circumstances, a fair valuation, or another reasonable method. The distribution section does not add a depletion-reserve formula, a current-valuation disclosure, or a specialized adviser-reliance list. It does not decide which method or value is reasonable in a particular transaction.

Record date, measurement, delayed payment, and revocation

Ark. Code § 4-27-640(b), (e) lets the board fix the distribution record date and uses authorization as the default when the board does not do so, except for a repurchase or reacquisition. A share acquisition is measured at the earlier of the property-transfer or debt-incurrence date and the date the holder ceases to be a shareholder for the acquired shares. Other distributed debt is measured when distributed.

For all other payments, authorization is the measurement date only when payment occurs within 120 days; payment after that uses the payment date. Section 4-27-640 states no general revocation rule for an authorized distribution.

Share dividends, class terms, and fractions

Ark. Code § 4-27-623 makes a share dividend pro rata and without consideration unless the articles provide otherwise. Issuing one class or series to holders of another requires authorization in the articles, majority approval from the class or series being issued, or no outstanding shares of that issued class or series. If the board does not fix a share-dividend record date, authorization is the record date.

Ark. Code § 4-27-604 permits an actual fractional share, cash equal to the fraction's value, a shareholder disposition arrangement, or registered or bearer scrip. The board may put conditions on scrip, including an exchange deadline and sale of the underlying shares for payment of proceeds.

Distribution debt and boundaries

Ark. Code § 4-27-640(f) places debt arising from a compliant distribution at parity with general unsecured debt unless an agreement subordinates it. Unlike some newer Model Act enactments, the Arkansas section states no special rule excluding conditional distribution debt from liabilities or retesting each payment of that debt.

The statute supplies financial tests, not a solvency or valuation conclusion. Director or recipient liability, creditor recovery, fraudulent transfer, bankruptcy, covenants, fiduciary duties, tax, accounting, and transaction advice remain outside this survey.

What trips people up

A committee cannot simply declare the dividend. The general committee power in § 4-27-825(d) is followed by a distribution-specific prohibition. The narrow formula-or-method route concerns reacquisitions; the registered-investment- company delegation in § 4-27-640(g) is outside this page's ordinary-company scope.

Both financial tests apply. Debt-paying ability and the asset-liability- preference comparison are separate, cumulative constraints. A board resolution does not establish either factual result.

The 120-day line changes the measurement date. An ordinary payment within the line uses authorization; a later one uses payment. The statute therefore does not let a delayed payment rely indefinitely on the original measurement.

Common questions

Do Arkansas shareholders usually approve an ordinary dividend?

Section 4-27-640 assigns authorization to the board and states no general shareholder vote. The articles and class or series terms can still restrict the distribution, so the corporation's current records matter.

Can an Arkansas corporation issue its own shares as a dividend?

Yes, through § 4-27-623 rather than the ordinary property-distribution branch. Its pro rata default and cross-class authorization alternatives must be checked against the articles and outstanding share structure.

Does a shareholder note avoid the distribution limits?

No. Incurring or distributing indebtedness falls within the definition, and § 4-27-640 supplies both its measurement date and its default parity with general unsecured debt.

Statutes and sources

• Ark. Code §§ 4-27-140, 4-27-601 to -604, 4-27-623, 4-27-640(a)-(f), and 4-27-825 — definitions, class terms, fractions, share dividends, board and committee authority, financial tests, valuation, timing, and debt priority. Official Arkansas Act 958 of 1987, accessed September 4, 2026.

• Ark. Code § 4-27-640(g) — registered-investment-company delegation added outside ordinary-company scope. Official Arkansas Act 583 of 1989, accessed September 4, 2026.