Corporate Dividend and Distribution Requirements in Louisiana
At a glance
| Governing law, entity, distribution, and scope | Louisiana Business Corporation Act, La. R.S. 12:1-101 et seq.; ordinary domestic for-profit corporation. Distribution includes direct/indirect money or property except own shares, debt, dividends, purchases, redemptions, and other acquisitions; § 12:1-640 expressly excludes Part 14 liquidation distributions (§§ 12:1-140, 12:1-640) |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles and § 12:1-640(C). Committee may authorize/approve only by board-prescribed formula, method, or limits. No general shareholder approval; articles/bylaws may constrain delegation (§§ 12:1-640, 12:1-825) |
| 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, debt, or any other form (§ 12:1-140(6)); share dividends under § 12:1-623; redemption may use cash, debt, securities, or property (§ 12:1-601(C)(2)) |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, stated-capital, or other capital-source test in § 12:1-640; Louisiana uses the dual post-distribution limits plus articles and class/series terms |
| 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 (§ 12:1-640(C)) |
| Financial statements, valuation, reserves, and reliance | Board may use reasonable-in-circumstances accounting statements, fair valuation, or another reasonable method (§ 12:1-640(D)); qualified reliance on reliable officers/employees, retained experts, or trusted committee absent contrary knowledge (§ 12:1-830(D)–(F)); no reserve formula |
| Record date, measurement date, payment delay, and revocation | Board-set record date; default is authorization except acquisitions. Acquisition: earlier transfer/debt or status end; other debt: distribution; other payments: authorization if ≤120 days, payment if later (§ 12:1-640(B), (E)); no general revocation rule or stated record-date maximum |
| Class, series, equal treatment, stock distribution, and fractions | Same-class/series terms identical except articles may expressly vary among holders; articles set preferences (§ 12:1-601). Share dividends pro rata; cross-class issue needs articles, issuing-class majority, or no outstanding shares (§ 12:1-623). Fractions, value cash, disposition, or scrip (§ 12:1-604) |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Compliant distribution debt is at parity with general unsecured debt unless subordinated. Conditional debt may be excluded from liabilities, with principal/interest retested when paid (§ 12:1-640(F)–(G)); Part 14 liquidation excluded; liability, creditor, bankruptcy, covenant, tax, valuation, and advice issues outside scope |
Requirements one by one
Governing law, entity, distribution, and scope
La. R.S. §§ 12:1-140 and 12:1-640 apply Louisiana's Business Corporation Act to an ordinary 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.
The financial section does not apply to Part 14 liquidation distributions. This page covers the nonliquidating branch.
Board, committee, shareholder, and charter authority
La. R.S. § 12:1-640(A) assigns authorization to the board, subject to articles restrictions and the financial tests. The surveyed provisions state no general shareholder-approval step.
Under La. R.S. § 12:1-825(E), a committee may authorize or approve a distribution only according to a formula or method, or within limits, prescribed by the board. The articles, bylaws, or board may further define committee authority.
Cash, property, shares, debt, repurchase, and redemption forms
La. R.S. § 12:1-140(6) reaches money, other property, incurred debt, dividend declarations and payments, purchases, redemptions, other acquisitions, debt distributions, and any other form. Section 12:1-601(C)(2) 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 § 12:1-623 share-dividend rules.
Surplus, net-profit, equity, and capital-source test
La. R.S. § 12:1-640 states no separate surplus, retained-earnings, net-profit, stated-capital, or other source test. Louisiana instead uses the two post- distribution limits in Subsection C, 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
La. R.S. § 12:1-640(C) 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
La. R.S. § 12:1-640(D) 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 La. R.S. § 12:1-830(D)–(F), qualified reliance may extend to reliable and competent officers or employees, retained experts, or a trusted board committee. Knowledge making reliance unwarranted defeats that route.
Record date, measurement date, payment delay, and revocation
La. R.S. § 12:1-640(B) 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 E 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
La. R.S. § 12:1-601 ordinarily makes terms identical within a class or series, but the articles may expressly vary terms among holders. They may also establish cumulative or noncumulative dividends, redemption terms, and distribution or dissolution preferences.
Under La. R.S. § 12:1-623, 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 12:1-604 permits fractions, value cash, holder disposition, or registered/bearer scrip; fractions carry dividend rights, while scrip does so only if its terms provide.
Distribution debt, priority, liquidation, insolvency, and boundaries
La. R.S. § 12:1-640(F) places compliant distribution debt at parity with general unsecured debt unless subordinated by agreement. Under Subsection G, 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.
Subsection H excludes Part 14 liquidation distributions. 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.
- Terms can vary within a class or series. They may do so only when the articles expressly state the variations.
- The record-date subsection has no nonretroactivity sentence. Do not import that wording from another state's newer Model Act version.
- 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 Louisiana require surplus or current net profits?
No separate source test appears in La. R.S. § 12:1-640. 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 § 12:1-640 govern liquidation distributions?
No. Subsection H expressly excludes distributions in liquidation under Part 14.
Statutes and sources
- La. R.S. § 12:1-140(4), (6) — corporation and distribution definitions. Official Louisiana Legislature text (accessed 2026-09-03).
- La. R.S. §§ 12:1-601 and 12:1-604 — class/series terms, preferences, redemption forms, and fractions. 12:1-601 text and 12:1-604 text (accessed 2026-09-03).
- La. R.S. § 12:1-623 — share dividends and record dates. Official text (accessed 2026-09-03).
- La. R.S. § 12:1-640 — authority, solvency, valuation, timing, debt, and liquidation exclusion. Official text (accessed 2026-09-03).
- La. R.S. §§ 12:1-825 and 12:1-830 — bounded committee authority and qualified reliance. 12:1-825 text and 12:1-830 text (accessed 2026-09-03).
Source links
Every statute quoted above, linked, with the date we checked it.
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