Corporate Dividend and Distribution Requirements in Illinois
At a glance
| Governing law, entity, distribution, and scope | 805 ILCS 5/1.80, 6.05, 6.15, 7.25, 8.05, 8.40, 9.05-9.10, 12.30; ordinary Illinois domestic corporation under the Business Corporation Act; covers distributions and own-share acquisitions, with dissolution distributions separately sequenced |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles (§ 9.10(a)). Committee generally cannot authorize distributions except preferred/special-class dividends and may approve reacquisitions only under a board formula/method (§ 8.40(c)); no ordinary shareholder-approval route in § 9.10 |
| Cash, property, shares, debt, repurchase, and redemption forms | Section 9.10 covers distributions and expressly treats purchase, redemption, or other own-share acquisition using money, property, or incurred debt; § 9.05 authorizes own-share acquisition/treasury shares. Share dividends and splits are separately recognized; fractional shares, fair-value cash, or scrip under § 6.15 |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, paid-in-capital, or current-net-profit source test in § 9.10; the operative equity floor is net assets ≥ zero and ≥ superior liquidation amount |
| Liquidity, balance-sheet, liability, and preference test | After distribution: corporation must not be unable to pay debts as due; net assets cannot be below zero or below maximum then payable on liquidation to shareholders with preferential rights (§§ 1.80(k), (m), 9.10(c)) |
| Financial statements, valuation, reserves, and reliance | Board may use financial statements prepared under reasonable-in-the-circumstances accounting practices/principles, fair valuation, or another reasonable method (§ 9.10(d)); no special depletion-reserve or director-reliance formula in the distribution section |
| Record date, measurement date, payment delay, and revocation | Board may set dividend record date ≤60 days before the action; bylaws may set a mechanism; default is board-resolution date (§§ 7.25, 9.10(b)). Authorization date controls if paid ≤120 days, otherwise payment date; own-share acquisition uses earlier of transfer/debt or shareholder-status end (§ 9.10(e)); no express revocation rule |
| Class, series, equal treatment, stock distribution, and fractions | Articles state class designations, preferences, limits, and special/relative rights; common shares cannot prefer over another class for dividends/liquidation (§ 6.05). Share dividends affect paid-in capital/treasury shares; § 6.15 permits fractions, proportionate fair-value cash, or conditional scrip |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Debt incurred for an own-share acquisition fixes the § 9.10 measurement event, but Article 9 states no distribution-debt parity, security, or conditional-debt exclusion. Dissolution under § 12.30 pays/provides liabilities before distributing remaining assets by shareholder interests |
Requirements one by one
Governing law and covered transactions
Under § 1.80(a), this page addresses an Illinois domestic corporation under the Business Corporation Act. Section 9.10 governs distributions generally and expressly treats a purchase, redemption, or other acquisition of the corporation's shares as a distribution measured when money or property moves, debt is incurred, or the holder ceases to be a shareholder. Section 9.05(a)-(b), (d) separately authorizes the acquisition and explains the treasury-or- cancellation result.
Board, article, and committee authority
Section § 9.10(a)-(d) gives the board authority subject to the articles and the statutory financial tests. Ordinary corporate management is board-directed under § 8.05(a), outside the Act's separately classified close-corporation exception.
Committee power is unusually narrow. Under § 8.40(a), (c), a delegated committee generally cannot authorize a distribution; it may authorize dividends on preferred or special classes or series. It may approve an own-share reacquisition only under a general formula or method prescribed by the board.
No separate surplus or net-profit source
Illinois does not identify surplus, retained earnings, paid-in capital, or net profits as a separate lawful source in § 9.10. Instead, subsection (c) asks the two post-distribution questions below. Section § 1.80(a), (j)-(k), (m), (t), (x) defines net assets as assets minus liabilities for dividend, distribution, and own-share-purchase purposes; its paid-in-capital definition does not become an additional § 9.10 payment cap.
Insolvency, net assets, and preferences
The first test bars a distribution if the corporation would be insolvent, which § 1.80(m) defines as inability to pay debts as they become due in the usual course. The second bars it if net assets would fall below zero or below the maximum payable at that time to shareholders with preferential liquidation rights. Section 6.05 keeps common shares from having a dividend or liquidation preference over another class and places class rights in the articles.
Financial statements and valuation
Section § 9.10(a)-(d) allows financial statements based on accounting practices and principles reasonable in the circumstances, fair valuation, or another reasonable method. It does not choose among those methods, define a special reserve, or establish that a particular valuation supports a payment.
Record date and measurement date
Section § 7.25 lets the board set a dividend record date no more than 60 days in advance, and the bylaws may supply a record-date mechanism. If neither does so, § 9.10(b) makes the board resolution date the default.
Under § 9.10(e), authorization is the financial-test date if payment occurs within 120 days; after that, payment date controls. An own-share acquisition instead uses the earlier of the money/property transfer or debt incurrence and the time the holders cease to be shareholders for the acquired shares.
Class terms, share dividends, and fractions
Section § 6.05 places designations, preferences, qualifications, limitations, restrictions, and special or relative class rights in the articles. Section 1.80 separately recognizes paid-in-capital changes from a share dividend or split and treats a share dividend on treasury shares as issued but not outstanding treasury shares.
Under § 6.15, a corporation may issue a fractional share, pay cash equal to its proportionate fair value without a minority discount and ordinarily without a marketability discount, or issue scrip. A fractional certificate carries fractional voting, dividend, and liquidation rights; scrip does so only if its terms provide.
Dissolution and distribution debt boundaries
Section § 12.30(a)-(b) gives dissolution its own sequence: discharge or provide for liabilities, then distribute remaining assets according to shareholder interests. Section 9.10(e) makes incurred debt a measurement trigger for an own-share acquisition, but Article 9 does not assign distribution debt a special priority or conditional-liability exclusion. Debt terms, security, creditor rights, insolvency, and bankruptcy analysis remain outside this page.
What trips people up
A committee's general delegated authority is not enough for an ordinary cash dividend. Section 8.40(c) reserves distributions to the full board except for dividends on preferred or special classes or series, and it separately limits committee-approved reacquisitions to a board-prescribed formula or method.
The 120-day rule concerns the financial-test date, not the shareholder record date. The record date comes from § 7.25 and § 9.10(b); a payment after the 120-day window must be tested at payment even if the shareholder list was fixed earlier.
Common questions
Does Illinois require a dividend to come from surplus?
Section 9.10 states no separate surplus or net-profit source. The corporation must instead pass both the due-debt insolvency test and the net-assets/preference test after giving the distribution effect.
Can the board use a fair valuation rather than only financial statements?
Yes. Section 9.10(d) lists fair valuation or another reasonable method as alternatives to financial statements prepared under reasonable accounting practices and principles.
Can a corporation pay cash instead of issuing a fractional share?
Yes. Section 6.15 permits proportionate fair-value cash and specifies no minority discount and, absent extraordinary circumstances, no marketability discount for that fractional-share cashout.
Statutes and sources
- 805 ILCS 5/1.80, 6.05, 6.15, and 7.25 — entity and financial definitions, class terms, fractions, and record dates. Business Corporation Act (accessed September 3, 2026).
- 805 ILCS 5/8.05, 8.40, 9.05, and 9.10 — board and committee authority, own-share acquisitions, distribution tests, valuation, and timing. § 9.10 (accessed September 3, 2026).
- 805 ILCS 5/12.30 — post-dissolution liability and asset-distribution sequence. Official text (accessed September 3, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
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