Corporate Dividend and Distribution Requirements in Indiana
At a glance
| Governing law, entity, distribution, and scope | Indiana Business Corporation Law, IC 23-1-20, -25 to -28, -33 to -35; ordinary domestic for-profit corporation. Distribution covers direct/indirect money or property (not own shares), incurred/transferred debt, dividends, purchases/redemptions/acquisitions, and otherwise; reasonable compensation/benefits and bona fide guaranty arrangements excluded, subject to statutory non-determinative caveat |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles (IC 23-1-28-1). Corporation with ≤50 shareholders may dispense with/limit board in articles and name substitute duty-holders (IC 23-1-33-1(c)). Committee or designated executive officer may approve only by board-prescribed formula/method/range (IC 23-1-34-6(e)(1)) |
| Cash, property, shares, debt, repurchase, and redemption forms | Direct/indirect money or other property, incurred/transferred debt, dividend declaration/payment, purchase, redemption, other acquisition, or otherwise (IC 23-1-20-7); own shares excluded from property branch but separately governed as share dividends/splits (IC 23-1-26-4); acquired shares governed by Chapter 27 |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, stated-capital, or capital-source test in IC 23-1-28; Indiana uses dual post-distribution limits, subject to articles and class/series terms |
| Liquidity, balance-sheet, liability, and preference test | After distribution: corporation must be able to pay debts as due, and total assets must be ≥ total liabilities plus amount needed for superior dissolution preferences unless articles permit otherwise (IC 23-1-28-3) |
| Financial statements, valuation, reserves, and reliance | Board may use reasonable-in-circumstances accounting statements, fair valuation, or another reasonable method (IC 23-1-28-4); qualified reliance on reliable officers/employees, experts, or trusted committee absent contrary knowledge (IC 23-1-35-1(b)-(c)); no special reserve formula |
| Record date, measurement date, payment delay, and revocation | Board may fix record, declaration, and payment dates; default nonreacquisition record date is authorization (IC 23-1-28-2). Acquisition: earlier transfer/debt or status end; ordinary debt: distribution; other payments: authorization if ≤120 days, payment if later (IC 23-1-28-5); no conditional-debt timing or general revocation rule |
| Class, series, equal treatment, stock distribution, and fractions | Same-class and same-series rights identical subject to permitted series terms; articles set distribution preferences (IC 23-1-25-1 to -2). Share dividend/split pro rata by default; cross-class issue needs articles, majority class/series approval, or no outstanding shares (IC 23-1-26-4). Fractions, value cash, disposition arrangement, or conditional scrip (IC 23-1-25-4) |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Compliant distribution debt is at parity with general unsecured debt unless subordinated by agreement (IC 23-1-28-6). Chapter 28 has no conditional-debt liability exclusion, payment retest, special security rule, or express liquidation exclusion; financial application, liability, creditor, insolvency, liquidation, and advice questions outside scope |
Requirements one by one
Governing law, entity, distribution, and scope
Ind. Code §§ 23-1-20-5 and 23-1-20-7 apply the Indiana Business Corporation Law to an ordinary domestic for-profit corporation and define distributions to include direct or indirect money or property, other than the corporation's own shares, and incurred or transferred debt. Dividends, purchases, redemptions, other acquisitions, and debt distributions are named forms.
Reasonable compensation for services, reasonable ordinary-course bona fide retirement or benefit payments, and bona fide guaranty or similar arrangements are excluded. But the statute cautions that failure to qualify for an exclusion does not by itself determine that the payment is a distribution.
Board, committee, shareholder, and governing-record authority
Ind. Code §§ 23-1-28-1 through 23-1-28-6 ordinarily assign authorization to the board subject to the articles and financial limits. Ind. Code § 23-1-33-1(a)-(c) creates a small-corporation alternative: a corporation with 50 or fewer shareholders may dispense with or limit its board in the articles and name who performs some or all board duties. Statutory references to the board then include those persons.
Ind. Code § 23-1-34-6(d)-(f) permits a committee or a board-designated executive officer to authorize or approve a reacquisition or other distribution only according to a board-prescribed formula or method or within a board-prescribed range.
Cash, property, shares, debt, repurchase, and redemption forms
IC 23-1-20-7 covers direct and indirect money or other property, incurred or transferred debt, dividends, purchases, redemptions, and other acquisitions. The property branch excludes the corporation's own shares because Ind. Code § 23-1-26-4(a)-(c) separately governs share dividends and splits. Chapter 27 governs reacquired shares.
Surplus, net-profit, equity, and capital-source test
Indiana does not add a surplus, retained-earnings, net-profit, or stated-capital source test to Chapter 28. It instead uses the two post-distribution limits in IC 23-1-28-3, together with restrictions in the articles and share terms. This reports the statutory architecture without deciding an available amount.
Liquidity, balance-sheet, liability, and preference test
IC 23-1-28-3 bars a distribution that would leave the corporation unable to pay debts as they become due in the usual course. Total assets also cannot fall below 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
IC 23-1-28-4 permits accounting statements based on practices and principles reasonable in the circumstances, a fair valuation, or another reasonable method. Ind. Code § 23-1-35-1(b)-(c) permits qualified reliance on reliable officers or employees, professional experts, or a trusted committee unless the director knows facts making reliance unwarranted. Chapter 28 states no special reserve formula.
Record date, measurement date, payment delay, and revocation
IC 23-1-28-2 lets the board fix record, declaration, and payment dates. If it does not fix the record date, authorization is the default except for a repurchase or reacquisition.
IC 23-1-28-5 measures an own-share acquisition at the earlier of the 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. Chapter 28 states no conditional-debt exclusion or payment-retesting rule and no general revocation rule.
Class, series, equal treatment, stock distributions, and fractions
Ind. Code §§ 23-1-25-1 and 23-1-25-2 generally require identical same-class and same-series preferences, limitations, and relative rights, subject to the authorized series structure; the articles set distribution and dissolution preferences. Section 23-1-26-4 makes a share dividend or split pro rata by default. A cross-class issuance needs articles authorization, majority approval by the class or series being issued, or no outstanding shares of it.
Ind. Code § 23-1-25-4(a), (c)-(d) permits fractions, money for their value, a disposition arrangement, or conditional scrip. A fractional share carries shareholder rights; scrip does not unless its terms provide otherwise.
Distribution debt, priority, liquidation, insolvency, and boundaries
IC 23-1-28-6 gives compliant distribution debt parity with general unsecured debt unless an agreement subordinates it. Unlike several Model Act states, Indiana's Chapter 28 contains no conditional-debt liability exclusion or rule that retests every principal or interest payment. It also states no special security rule or express liquidation exclusion.
This page reports the 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, covenants, liquidation, tax, accounting, valuation, securities, and transaction advice.
What trips people up
The reference to the board may include other people in a qualifying small-corporation structure. When articles for a corporation with 50 or fewer shareholders dispense with or limit the board, the named duty-holders inherit the Act's board references.
Indiana also should not be given a conditional-debt rule borrowed from another Model Act state. Chapter 28 ends with parity for compliant debt and contains no conditional liability exclusion or payment retest.
Common questions
Does Indiana use a surplus or net-profit test?
No separate source test appears in Chapter 28. Indiana instead applies the ability-to-pay and assets-versus-liabilities-plus-preferences limits, subject to the articles and share terms.
Can a committee approve any dividend amount?
No. Section 23-1-34-6 limits a committee or designated executive officer to a board-prescribed formula, method, or range.
Can one class receive another class as a share dividend?
Only through one of § 23-1-26-4's routes: articles authorization, majority approval by the class or series being issued, or no outstanding shares of it.
Does authorization always control the financial test?
No. Own-share acquisitions, debt distributions, and payments more than 120 days after authorization use other measurement dates.
Statutes and sources
- Indiana Code 2026, IC 23-1-20 — current corporation and distribution definitions: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_20.pdf
- Indiana Code 2026, IC 23-1-25 — current class, series, and fractional-share rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_25.pdf
- Indiana Code 2026, IC 23-1-26 — current share-dividend rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_26.pdf
- Indiana Code 2026, IC 23-1-27 — current own-share-acquisition rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_27.pdf
- Indiana Code 2026, IC 23-1-28 — current distribution authority, solvency, valuation, timing, and priority rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_28.pdf
- Indiana Code 2026, IC 23-1-33 — current board and small-corporation governance rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_33.pdf
- Indiana Code 2026, IC 23-1-34 — current committee-authority rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_34.pdf
- Indiana Code 2026, IC 23-1-35 — current director-reliance rules: https://iga.in.gov/ic/2026/Title_23/Article_1/Chapter_35.pdf
- All official Indiana Code PDFs accessed September 3, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
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