Corporate Dividend and Distribution Requirements in District of Columbia
At a glance
| Governing law, entity, distribution, and scope | D.C. Business Corporation Act, especially §§ 29-301.02(4)-(5), 29-304.01, 29-304.23, 29-304.60; ordinary domestic for-profit corporation; distribution includes money/property transfers, shareholder debt, dividends, purchases, redemptions, other share acquisitions, and other methods, but excludes own-share transfers; § 29-304.60 separately excludes liquidation |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles and § 29-304.60 limits. Committee may approve only under board-prescribed formula/method or limits (§ 29-306.25(e)(1)). Qualifying shareholder agreement may govern authorization/making and disproportionality but remains subject to § 29-304.60 (§ 29-305.42(a)(2)) |
| Cash, property, shares, debt, repurchase, and redemption forms | Direct/indirect money or other property and incurred shareholder debt; dividend, purchase, redemption, other share acquisition, distributed debt, or another form (§ 29-301.02(5)). Own shares excluded from distribution definition and issued under separate share-dividend § 29-304.23 |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, stated-capital, or other lawful-source test in § 29-304.60; operative limits are the two post-distribution tests plus articles and class/series terms |
| Liquidity, balance-sheet, liability, and preference test | After effect: corporation must be able to pay debts as due in usual course, and total assets cannot be below total liabilities plus superior dissolution preferences unless articles permit otherwise (§ 29-304.60(c)) |
| Financial statements, valuation, reserves, and reliance | Board may use financial statements based on reasonable-in-the-circumstances accounting practices/principles, fair valuation, or another reasonable method (§ 29-304.60(d)); general § 29-306.30(d)-(e) reliance covers qualifying officers/employees, retained professionals, or committee. No special reserve formula |
| Record date, measurement date, payment delay, and revocation | Board-fixed record date; default for non-acquisition distribution is authorization date (§ 29-304.60(b)). Acquisition measured at earlier transfer/debt or end of holder status; debt when distributed; other distribution at authorization if paid within 120 days, otherwise payment (§ 29-304.60(e)). No general revocation rule |
| Class, series, equal treatment, stock distribution, and fractions | Articles state class/series terms; ordinarily same-class/series terms identical unless express article variation (§ 29-304.01). Share dividend pro rata by default; cross-class issue needs articles, issued-class majority, or no outstanding issued-class shares; default record date is authorization (§ 29-304.23). Fractions, value cash, disposition, or registered/bearer scrip allowed (§ 29-304.04) |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Compliant distribution debt at parity with general unsecured debt unless subordinated (§ 29-304.60(f)). Conditional debt excluded from liabilities and each principal/interest payment retested (§ 29-304.60(g)). Liquidation distributions expressly excluded (§ 29-304.60(h)); insolvency, creditor, tax, accounting, fiduciary, and valuation advice outside scope |
Requirements one by one
Governing law, entity, distribution, and scope
D.C. Code § 29-301.02(4)-(5) defines the ordinary domestic business corporation as a District corporation for profit and defines “distribution” broadly. It includes direct or indirect money or other-property transfers and debt incurred for shareholders with respect to their shares. The listed forms are a dividend, purchase, redemption, other share acquisition, distributed debt, and another method. The corporation's own shares are excluded from the property-transfer definition and use the separate share-dividend section.
Board, committee, shareholder, and charter authority
Under D.C. Code § 29-304.60, the board may authorize and the corporation may make a distribution, subject to article restrictions and the two financial limits. D.C. Code § 29-306.01(a)-(b) confirms the board-centered governance default.
Under D.C. Code § 29-306.25(a), the board may create a committee subject to the chapter, articles, and bylaws. D.C. Code § 29-306.25(d)-(f) permits that committee to act only within the authority specified by the board, articles, or bylaws. It may authorize or approve a distribution only according to a board-prescribed formula or method or within board-prescribed limits. A qualifying shareholder agreement may separately govern authorization or making, including a distribution not proportional to share ownership, but § 29-305.42(a)(2) keeps that arrangement subject to § 29-304.60.
Cash, property, shares, debt, repurchase, and redemption forms
The § 29-301.02(5) definition reaches direct and indirect money or other- property transfers, incurred shareholder debt, dividends, purchases, redemptions, other share acquisitions, distributed debt, and other forms. It excludes the corporation's own shares from the property-transfer definition; D.C. Code § 29-304.23 governs those share dividends separately.
Surplus, net-profit, equity, and capital-source test
Section 29-304.60 states no separate surplus, retained-earnings, net-profit, stated-capital, or other lawful-source test. Its financial limits are the two post-distribution tests in subsection (c), together with article restrictions and applicable class or series terms.
Liquidity, balance-sheet, liability, and preference test
Both § 29-304.60(c) tests apply after giving the distribution effect. First, the corporation must remain able to pay its debts as they become due in the usual course of business. Second, total assets may not fall below total liabilities plus the amount needed on a hypothetical dissolution to satisfy preferences superior to those of the recipients, unless the articles permit otherwise.
Financial statements, valuation, reserves, and reliance
Section 29-304.60(d) permits the board to base its determination on financial statements prepared using accounting practices and principles reasonable in the circumstances, fair valuation, or another reasonable-in-the-circumstances method. The section states no separate reserve formula.
Under § 29-306.30(d)-(e), a director without knowledge making reliance unwarranted may rely on specified performance, information, opinions, reports, statements, financial statements, and financial data. The permitted sources include qualifying officers or employees, retained professionals, and a board committee the director reasonably believes merits confidence.
Record date, measurement date, payment delay, and revocation
The board may fix the distribution record date. For a distribution other than a purchase, redemption, or other share acquisition, § 29-304.60(b) makes the authorization date the default when the board fixes none. Section 29-304.23(c) uses the same authorization-date default for a share dividend.
Section 29-304.60(e) measures a purchase, redemption, or other share acquisition at the earlier of the money or property transfer or debt incurrence and the end of the seller's shareholder status. Other distributed debt is tested when distributed. An ordinary distribution paid within 120 days is tested when authorized; one paid later is tested when paid. The section states no general distribution-revocation rule.
Class, series, equal treatment, stock distribution, and fractions
D.C. Code § 29-304.01(a) ordinarily gives shares within a class or series identical preferences, rights, and limitations. D.C. Code § 29-304.01(c) permits cumulative, noncumulative, or partly cumulative dividends and distribution or dissolution preferences, while § 29-304.01(e) permits holder-level variation expressly written into the articles.
Section 29-304.23 makes a share dividend pro rata by default. Issuing one class or series on another requires authorization in the articles, approval by a majority of votes entitled to be cast by the class or series being issued, or no outstanding shares of the class or series being issued. D.C. Code § 29-304.04 permits fractional shares, value cash, shareholder disposition arrangements, or scrip in registered or bearer form; scrip lacks shareholder rights unless its terms provide them.
Distribution debt, priority, liquidation, insolvency, and boundaries
D.C. Code § 29-304.60(f) puts compliant distribution debt at parity with general unsecured debt unless an agreement subordinates it. Subsection (g) excludes debt from balance-sheet liabilities when its terms make principal and interest payable only to the extent a distribution could then be made; every principal or interest payment on debt issued as a distribution is itself retested on the payment date.
Subsection (h) expressly removes liquidation distributions under Subchapter XII from this framework. This survey does not apply those liquidation rules or decide insolvency, creditor, fiduciary, accounting, tax, or valuation questions.
What trips people up
The financial tests and lawful authority are separate. A board resolution, committee formula, or qualifying shareholder agreement does not establish that the post-distribution liquidity and balance-sheet limits are met.
The 120-day period changes the measurement date. An ordinary distribution paid within that period is tested at authorization; a later payment is tested when made.
Conditional distribution debt has a second-stage test. Its payment condition can keep it out of balance-sheet liabilities, but every actual principal or interest payment is treated as a distribution on the payment date.
Common questions
Must a District distribution come from surplus or retained earnings?
No separate source test appears in § 29-304.60. The board still must apply both post-distribution tests, the articles, and the affected share terms.
May a board committee authorize a distribution?
Only within § 29-306.25(e)(1). A committee may authorize or approve according to a formula or method, or within limits, prescribed by the board.
May one class receive a different class as a share dividend?
Section 29-304.23 permits that only if the articles authorize it, a majority of votes entitled to be cast by the class or series being issued approves it, or no shares of that class or series are outstanding.
Does a shareholder agreement avoid the financial tests?
No. Section 29-305.42(a)(2) permits a qualifying agreement to govern distributions, including disproportional distributions, but expressly keeps the arrangement subject to § 29-304.60.
Statutes and sources
- D.C. Code §§ 29-301.02(4)-(5), 29-304.01, 29-304.04, 29-304.23 — covered corporation and distribution, class and series terms, fractions and scrip, and share dividends. Official D.C. Law Library chapter text, accessed September 4, 2026.
- D.C. Code § 29-304.60 — authority, record date, financial tests and valuation, measurement dates, distribution debt, and liquidation exclusion. Official D.C. Law Library chapter text, accessed September 4, 2026.
- D.C. Code §§ 29-305.42(a)(2), 29-306.01, 29-306.25 — shareholder- agreement route, board governance, and committee limits. Official D.C. Law Library chapter text, accessed September 4, 2026.
- D.C. Code § 29-306.30(d)-(e) — director reliance. Official D.C. Law Library chapter text, accessed September 4, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
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