Corporate Dividend and Distribution Requirements in Kentucky

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

Ky. Rev. Stat. §§ 271B.1-400 and 271B.6-400 apply Chapter 271B to an ordinary Kentucky domestic for-profit corporation. A distribution includes 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, debt, and other forms are expressly listed.

Unlike newer Model Act formulations, § 271B.6-400 contains no express liquidation exclusion. This survey nevertheless addresses voluntary nonliquidating distributions and does not apply liquidation rules.

Board, committee, shareholder, and charter authority

Ky. Rev. Stat. § 271B.6-400(1) assigns authorization to the board, subject to articles restrictions and the financial tests. The surveyed provisions state no general shareholder-approval step.

Under Ky. Rev. Stat. § 271B.8-250(5), a committee may authorize or approve a distribution only according to a formula or method, or within limits, prescribed by the board. The chapter, articles, or bylaws may further restrict committee authority.

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

Ky. Rev. Stat. § 271B.1-400(7) reaches money, other property, incurred debt, dividend declarations and payments, purchases, redemptions, other acquisitions, debt distributions, and other forms. Section 271B.6-010(3) also permits articles to make a class or series redeemable for cash, indebtedness, securities, or other property.

The corporation's own shares are excluded from the definition's property branch and follow the separate § 271B.6-230 share-dividend rules.

Surplus, net-profit, equity, and capital-source test

Ky. Rev. Stat. § 271B.6-400 states no separate surplus, retained-earnings, net-profit, stated-capital, or other source test. Kentucky instead uses the two post-distribution limits in Subsection (3), together with articles restrictions and class or series preferences.

This reports the statutory test without applying it to a corporation's numbers.

Liquidity, balance-sheet, liability, and preference test

Ky. Rev. Stat. § 271B.6-400(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 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

Ky. Rev. Stat. § 271B.6-400(4) permits financial statements prepared under accounting practices and principles reasonable in the circumstances, or a fair valuation or another reasonable method. The distribution section supplies no reserve formula.

Under Ky. Rev. Stat. § 271B.8-300(3)-(4), qualified reliance may extend to reliable and competent officers or employees, experts within their competence, or a trusted board committee. Knowledge making reliance unwarranted defeats that route.

Record date, measurement date, payment delay, and revocation

Ky. Rev. Stat. § 271B.6-400(2) makes authorization the default record date for a nonacquisition distribution unless the board fixes a different date. The subsection states no forward maximum or nonretroactivity condition.

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

Ky. Rev. Stat. §§ 271B.6-010 and 271B.6-020 ordinarily make terms identical within a class and within a series, while permitting articles-authorized board determination of class or series terms before issuance. The articles may also establish cumulative or noncumulative dividends, redemption terms, and distribution or dissolution preferences.

Under Ky. Rev. Stat. § 271B.6-230, 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. Section 271B.6-040 permits fractions, value cash, holder disposition, or registered or bearer scrip; fractions carry dividend rights, while scrip does so only if its terms provide.

Distribution debt, priority, liquidation, insolvency, and boundaries

Ky. Rev. Stat. § 271B.6-400(6) places compliant distribution debt at parity with general creditors unless subordinated by agreement. Under Subsection (7), debt payable only when a distribution could then be made is excluded from liabilities; if issued as a distribution, each principal or interest payment is retested when actually paid.

The section has no express liquidation exclusion. Liability, recovery, fraudulent transfer, bankruptcy, covenants, fiduciary duties, tax, accounting, and valuation advice remain outside scope.

What trips people up

• Committee authority is bounded. The committee must stay within a board- prescribed formula, method, or limit.
• The 120-day rule changes the test date. An ordinary payment within 120 days uses authorization; a later payment is measured when paid.
• The statute says general creditors, not general unsecured creditors. Do not import the narrower wording used in some newer state enactments.
• 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 Kentucky require surplus or current net profits?

No separate source test appears in Ky. Rev. Stat. § 271B.6-400. 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.

Does the record date always control the financial-test date?

No. The record-date rule identifies eligible shareholders, while Subsection (5) separately sets the measurement date by distribution form and payment timing.

Statutes and sources

• Ky. Rev. Stat. § 271B.1-400(5), (7), (26) — corporation, distribution, and record-date definitions. Official Kentucky Legislative Research Commission text (accessed 2026-09-03).
• Ky. Rev. Stat. §§ 271B.6-010 and 271B.6-020 — class and series terms, preferences, redemption forms, and equal treatment. Section 271B.6-010 text and § 271B.6-020 text (accessed 2026-09-03).
• Ky. Rev. Stat. §§ 271B.6-040 and 271B.6-230 — fractions, scrip, share dividends, and record dates. Section 271B.6-040 text and § 271B.6-230 text (accessed 2026-09-03).
• Ky. Rev. Stat. § 271B.6-400 — authority, solvency, valuation, timing, and distribution debt. Official text (accessed 2026-09-03).
• Ky. Rev. Stat. §§ 271B.8-250 and 271B.8-300 — bounded committee authority and qualified reliance. Section 271B.8-250 text and § 271B.8-300 text (accessed 2026-09-03).