Corporate Dividend and Distribution Requirements in Colorado
At a glance
| Governing law, entity, distribution, and scope | Colorado Business Corporation Act, C.R.S. arts. 101–117 of title 7; ordinary domestic for-profit corporation. Distribution includes direct/indirect money or property except own shares, debt, dividends, purchases, redemptions, and other acquisitions; share dividends separately governed (§§ 7-101-401, 7-106-204, 7-106-401) |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles and § 7-106-401(3). Committee may not authorize distributions; it may approve a reacquisition only by board- prescribed formula/method. No general shareholder approval; articles/bylaws may constrain authority (§§ 7-106-401, 7-108-206) |
| Cash, property, shares, debt, repurchase, and redemption forms | Direct/indirect money or other property except own shares, incurred debt, dividend declaration/payment, purchase, redemption, other acquisition, or debt distribution (§ 7-101-401(13)); share dividends under § 7-106-204; redeemable shares may use money, debt, securities, or property (§ 7-106-101(3)(b)) |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, stated-capital, or other source test. Par value imposes no distribution limit or capital-account segregation unless articles/bylaws expressly provide (§ 7-106-401(7)) |
| Liquidity, balance-sheet, liability, and preference test | After distribution: corporation must be able to pay debts as due, and assets must be ≥ liabilities plus amount needed for superior dissolution preferences unless articles permit otherwise (§ 7-106-401(3)) |
| Financial statements, valuation, reserves, and reliance | Board may use reasonable-under-the-circumstances accounting statements, fair valuation, or another reasonable method (§ 7-106-401(4)); qualified reliance on reliable officers/employees, retained experts, or trusted committees under § 7-108-401(2)–(3); no distribution-specific reserve formula |
| Record date, measurement date, payment delay, and revocation | Bylaws or board may set a future record date; default is authorization except acquisitions. Acquisition: earlier transfer/debt or status end; other debt: distribution; other payment: authorization if ≤120 days, payment if later (§ 7-106-401(2), (5)); no general revocation rule or stated record-date maximum |
| Class, series, equal treatment, stock distribution, and fractions | Same-class rights identical subject to permitted series terms; articles set preferences (§§ 7-106-101–102). Share dividends pro rata; cross-class issue needs articles, issuing-class majority, or no outstanding shares (§ 7-106-204). Fractions, value cash, disposition, or scrip (§ 7-106-104) |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Section 7-106-401 states no general distribution-debt parity or security rule. Properly conditional debt is excluded from liabilities, and payments on debt issued as a distribution are retested when paid (§ 7-106-401(6)). Liquidation, liability, creditor, bankruptcy, covenant, tax, valuation, and advice issues outside scope |
Requirements one by one
Governing law, entity, distribution, and scope
C.R.S. §§ 7-101-401 and 7-106-401 apply the Colorado Business Corporation Act to an ordinary domestic for-profit corporation and define a distribution as a direct or indirect transfer of money or property other than the corporation's own shares, or incurred debt, to or for shareholders with respect to shares. Dividends, purchases, redemptions, other acquisitions, and debt distributions are named forms.
Own shares are excluded from the property branch and handled as share dividends under C.R.S. § 7-106-204.
Board, committee, shareholder, and charter authority
C.R.S. § 7-106-401(1) assigns authorization to the board, subject to articles restrictions and the financial tests. The surveyed provisions state no general shareholder-approval step.
C.R.S. § 7-108-206(4) bars a committee from authorizing distributions. A committee may authorize or approve a reacquisition of shares only according to a formula or method the board prescribed. That narrow reacquisition route does not become open-ended authority to declare dividends.
Cash, property, shares, debt, repurchase, and redemption forms
C.R.S. § 7-101-401(13) reaches money, property, incurred debt, dividend declarations and payments, purchases, redemptions, other acquisitions, and debt distributions. Section 7-106-101(3)(b) also permits articles to make a class redeemable for money, indebtedness, securities, or other property at stated events and terms.
The corporation's own shares follow the separate § 7-106-204 share-dividend rules.
Surplus, net-profit, equity, and capital-source test
C.R.S. § 7-106-401 states no separate surplus, retained-earnings, net-profit, stated-capital, or other source test. Subsection (7) goes further: unless the articles or bylaws expressly provide otherwise, par value creates no distribution limit and requires no designation, restriction, reservation, or segregation of a capital account.
Colorado instead uses the two post-distribution tests in subsection (3).
Liquidity, balance-sheet, liability, and preference test
C.R.S. § 7-106-401(3) bars a distribution that would leave the corporation unable to pay debts as they become due in the usual course. It also bars a distribution that would leave assets below liabilities plus the amount needed for shareholders' superior dissolution preferences.
The articles may permit departure from the preference add-on, but the exception does not extend to the debts-as-due or basic assets-versus-liabilities parts.
Financial statements, valuation, reserves, and reliance
C.R.S. § 7-106-401(4) permits financial statements prepared under accounting practices and principles reasonable under the circumstances, or a fair valuation or another reasonable method. The distribution section gives no reserve formula.
Under C.R.S. § 7-108-401(2)–(3), qualified reliance may extend to reliable and competent officers or employees, retained experts, or a trusted board committee. Knowledge making the reliance unwarranted defeats that route.
Record date, measurement date, payment delay, and revocation
C.R.S. § 7-106-401(2) lets the bylaws or, absent an applicable bylaw, the board set a future record date for a nonacquisition distribution. If a record date is needed but none is fixed, the authorization date controls. The subsection states no maximum interval.
For a purchase, redemption, or other acquisition, subsection (5) uses the earlier of property transfer or debt incurrence and the end of shareholder status. Other debt distributions are measured when distributed. Other payments use authorization when paid within 120 days and payment when later. The section states no general revocation power.
Class, series, equal treatment, stock distributions, and fractions
C.R.S. §§ 7-106-101–102 make same-class rights identical subject to permitted series terms and make same-series rights identical. Articles may establish cumulative or noncumulative dividends, redemption terms, and distribution or dissolution preferences.
Under C.R.S. § 7-106-204, share dividends are pro rata and without consideration. A cross-class or cross-series dividend requires articles authorization, majority approval by the class or series to be issued, or no outstanding shares of that class or series. C.R.S. § 7-106-104 permits fractions, value cash, shareholder disposition, or registered scrip; fractions carry dividend rights, while scrip does so only if its terms provide.
Distribution debt, priority, liquidation, insolvency, and boundaries
C.R.S. § 7-106-401 states no general parity or security rule for distribution debt. Under subsection (6), debt payable only when a distribution could then be made is excluded from liabilities; if issued as a distribution, each principal or interest payment becomes a distribution measured when actually paid.
The hypothetical-dissolution preference calculation does not resolve an actual liquidation. Liability, recovery, fraudulent transfer, bankruptcy, covenants, fiduciary duties, tax, accounting, and valuation advice remain outside scope.
What trips people up
- Par value is not automatically a capital lock. It limits distributions only when the articles or bylaws expressly say so.
- A committee's reacquisition exception is formula-bound. It does not permit the committee to authorize ordinary dividends or choose an unconstrained reacquisition.
- A future record date has no maximum in the distribution subsection. The statute does not supply a 60- or 70-day ceiling there.
- Conditional debt is retested. Each actual principal or interest payment on debt issued as a distribution becomes a new distribution measured then.
Common questions
Does Colorado require surplus or current net profits?
No separate source test appears in C.R.S. § 7-106-401. The operative limits are the debts-as-due and assets-versus-liabilities-plus-preferences tests.
May the articles remove both financial tests?
No. The articles exception reaches the superior-preference add-on, not the debts-as-due requirement or the basic assets-versus-liabilities comparison.
May a committee declare an ordinary dividend?
No. C.R.S. § 7-108-206 expressly withholds distribution authorization from a committee, while allowing only a board-formula or board-method reacquisition.
Statutes and sources
- C.R.S. § 7-101-401(11), (13) — domestic corporation and distribution definitions. Official Colorado Revised Statutes Title 7 (accessed 2026-09-03).
- C.R.S. §§ 7-106-101–104 — classes, series, preferences, redemption forms, and fractions. Official Title 7 (accessed 2026-09-03).
- C.R.S. § 7-106-204 — share dividends and record dates. Official Title 7 (accessed 2026-09-03).
- C.R.S. § 7-106-401 — board authority, solvency tests, valuation, timing, conditional debt, and par-value treatment. Official Title 7 (accessed 2026-09-03).
- C.R.S. § 7-108-206 — committee authority and reacquisition exception. Official Title 7 (accessed 2026-09-03).
- C.R.S. § 7-108-401 — qualified director and officer reliance. Official Title 7 (accessed 2026-09-03).
Source links
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