Corporate Dividend and Distribution Requirements in Maryland
At a glance
| Governing law, entity, distribution, and scope | Md. Code, Corps. & Ass'ns §§ 2-105, 2-309–2-311; ordinary Maryland corporation. Covers board-authorized distributions, stock dividends/splits, own-share acquisitions, and distribution indebtedness; liquidation remains a separate Title 3 process |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to charter and § 2-311. Board may delegate amount and terms to an officer under a general authorization with a maximum-method; a board committee may exercise delegated authority because distributions are not excepted. No general stockholder vote (§§ 2-309, 2-411) |
| Cash, property, shares, debt, repurchase, and redemption forms | Distribution provisions reach purchases, redemptions, other share acquisitions, indebtedness distributions, and other payments; § 2-309 separately authorizes own-share stock dividends/splits, and § 2-310 governs own-share acquisitions (§§ 2-309–2-311) |
| Surplus, net-profit, equity, and capital-source test | No separate surplus or stated-capital source test for ordinary distributions. As an alternative to the balance-sheet limb, distribution may come from net earnings for the current fiscal year, preceding fiscal year, or preceding 8 fiscal quarters (§ 2-311(a)(2)) |
| Liquidity, balance-sheet, liability, and preference test | After distribution: must be able to pay indebtedness as due; assets must be ≥ liabilities plus superior dissolution preferences unless charter permits otherwise. Net-earnings routes except only the second limb (§ 2-311(a)) |
| Financial statements, valuation, reserves, and reliance | Board may use reasonable-in-circumstances accounting statements, fair valuation, or another reasonable method. Qualified reliance extends to reliable officers/employees, competent experts, and trusted board committees absent contrary knowledge (§§ 2-311(b), 2-405.1(d)); no reserve formula |
| Record date, measurement date, payment delay, and revocation | Board/bylaws may set dividend record date ≤90 days before action or close books ≤20 days; default is declaration date and payment ≤60 days. Acquisition: earlier transfer/debt or status end; debt: distribution; other payment: authorization if ≤120 days, otherwise payment (§§ 2-311(c), 2-511) |
| Class, series, equal treatment, stock distribution, and fractions | Charter sets dividend/liquidation preferences and may vary terms among holders by stated external-fact method. Stock dividend/split needs board authority and is subject to charter; capital transfers differ by par status. Fractions, rounding, disposition, fair-value cash, or scrip (§§ 2-105, 2-214, 2-309) |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Compliant distribution debt is at parity with general unsecured debt unless subordinated. Properly conditional debt is excluded from liabilities and principal/interest payments are retested when paid. Liquidation, liability, creditor, bankruptcy, covenant, tax, valuation, and advice issues outside scope (§ 2-311(d)–(e)) |
Requirements one by one
Governing law, entity, distribution, and scope
Md. Code, Corps. & Ass'ns §§ 2-309–2-311 govern board-authorized distributions, own-share acquisitions, financial limits, measurement timing, and distribution debt for an ordinary Maryland corporation. Section 2-309 also separates stock splits and stock dividends, while § 2-310 expressly subjects an acquisition of the corporation's own shares to the charter and § 2-311.
The financial test refers to purchases, redemptions, other share acquisitions, indebtedness distributions, and all other distributions. This page does not apply those rules to a liquidation or insolvency proceeding.
Board, committee, shareholder, and charter authority
Md. Code, Corps. & Ass'ns § 2-309(b) requires board authorization and subjects the distribution to the charter and § 2-311. If the board gives a general authorization and supplies a method or procedure for the maximum amount, § 2-309(d) lets it delegate to an officer the power to fix amount and other terms within that authorization.
Under § 2-411(a), a committee of one or more directors may receive any board power except the four listed exclusions. Distribution authorization is not one of those exclusions. The surveyed provisions state no general stockholder vote, but class terms and charter restrictions still control.
Cash, property, shares, debt, repurchase, and redemption forms
Md. Code, Corps. & Ass'ns § 2-311(c) supplies the transaction map. It separately addresses purchases, redemptions, and other acquisitions in which money or property is transferred or debt is incurred; other distributions of debt; and all other payments. Section 2-310 confirms the board-authorized own-share acquisition route.
Section 2-309(c) separately permits board-authorized own-share stock dividends or splits unless the charter provides otherwise. The statute therefore does not reduce every shareholder transfer to an ordinary cash dividend.
Surplus, net-profit, equity, and capital-source test
Maryland does not impose a separate surplus or stated-capital source test on an ordinary distribution in Md. Code, Corps. & Ass'ns § 2-311. It does, however, create a net-earnings alternative to the balance-sheet limb: the corporation may make a distribution from net earnings for the fiscal year in which it is made, the preceding fiscal year, or the sum of the preceding eight fiscal quarters.
That alternative does not displace § 2-311(a)(1)(i)'s debts-as-due test. The placement of the exception in subsection (a)(1)(ii) preserves the first limb.
Liquidity, balance-sheet, liability, and preference test
Md. Code, Corps. & Ass'ns § 2-311(a)(1) prohibits a distribution if, after giving it effect, the corporation could not pay indebtedness as it becomes due in the usual course of business. It also ordinarily requires total assets to be at least total liabilities plus the amount needed for superior stockholder preferences on a hypothetical dissolution.
The charter can permit departure from the superior-preference add-on. The three net-earnings routes in subsection (a)(2) are alternatives to the second limb, not to the debts-as-due bar.
Financial statements, valuation, reserves, and reliance
Md. Code, Corps. & Ass'ns § 2-311(b) lets the board use financial statements prepared on reasonable-in-the-circumstances accounting practices and principles, or a fair valuation or other reasonable-in-the-circumstances method. The distribution section supplies no separate reserve formula.
The general reliance rule in § 2-405.1(d) covers information, opinions, reports, financial statements, and other financial data from reasonably reliable and competent officers or employees, appropriate professionals, or a committee that merits confidence. Knowledge making reliance unwarranted defeats that rule.
Record date, measurement date, payment delay, and revocation
Md. Code, Corps. & Ass'ns § 2-511 permits the bylaws or board to set a record date no more than 90 days before the relevant action, or to close the transfer books for no more than 20 days. Without either step, the dividend record date is the close of business when the board adopts the declaration resolution, and payment must occur within 60 days after that resolution.
Section 2-311(c) separately measures a purchase, redemption, or other acquisition at the earlier of property transfer or debt incurrence and the end of stockholder status. Other debt distributions are measured when distributed. Other payments use authorization if paid within 120 days and payment if later. The surveyed sections state no general revocation rule.
Class, series, equal treatment, stock distributions, and fractions
Md. Code, Corps. & Ass'ns § 2-105 lets the charter establish dividend rates, timing, cumulation, priority, redemption terms, and liquidation preferences by class or series. The charter may also make those terms depend on clearly stated external facts and permit variation among holders through the stated method.
Under § 2-309(c), a same-class division without a stated-capital change is a stock split; a division with a change is a stock dividend. A par-value stock dividend moves at least aggregate par value from surplus to stated capital. A no-par dividend uses a board-set aggregate amount. Section 2-214 permits fractions, rounding, disposition arrangements, fair-value cash, or scrip; scrip ordinarily carries no voting, dividend, or liquidation rights.
Distribution debt, priority, liquidation, insolvency, and boundaries
Md. Code, Corps. & Ass'ns § 2-311(d) places compliant distribution debt at parity with general unsecured debt unless an agreement subordinates it. Under subsection (e), properly conditional principal-and-interest debt is excluded from liabilities for the distribution test. If issued as a distribution, each principal or interest payment becomes a new distribution measured when paid.
The hypothetical-dissolution preference calculation does not resolve an actual liquidation. Liability, recovery, fraudulent transfer, bankruptcy, covenants, fiduciary duties, tax, accounting, and valuation advice remain outside scope.
What trips people up
- The net-earnings exception is not a liquidity exception. It supplies an alternative to the asset-versus-liability limb, while the debts-as-due bar remains.
- Record-date timing and solvency-test timing are different. Section 2-511 identifies recipients and limits default payment delay; § 2-311 decides when the financial effect is measured.
- Officer delegation needs a bounded board authorization. The board must establish a method or procedure for the maximum amount before the officer may fix amount and terms.
- Conditional debt is retested. Exclusion from liabilities at issuance does not avoid the payment-date distribution test for principal and interest.
Common questions
May the charter remove the debts-as-due test?
No. Md. Code, Corps. & Ass'ns § 2-311(a) lets the charter affect the superior- preference add-on, not the separate requirement that the corporation remain able to pay indebtedness as it becomes due.
What happens if the board sets no dividend record date?
The default under § 2-511(c)(2) is the close of business on the day the board adopts the declaration resolution, and payment may not occur more than 60 days later.
Does scrip automatically receive dividends?
No. Section 2-214 says scrip ordinarily does not carry voting, dividend, or liquidation rights unless otherwise provided.
Statutes and sources
- Md. Code, Corps. & Ass'ns § 2-105(a)(4)–(6), (10), (b)(2) — class and series dividends, liquidation preferences, redemption, and permitted holder-level variation. Official Maryland General Assembly text (accessed 2026-09-03).
- § 2-214 — fractions, rounding, cash, disposition, and scrip. Official text (accessed 2026-09-03).
- §§ 2-309–2-311 — authorization, stock distributions, officer delegation, own-share acquisition, financial limits, valuation, timing, and debt. § 2-309, § 2-310, and § 2-311 (accessed 2026-09-03).
- § 2-405.1(d) — qualified director reliance. Official text (accessed 2026-09-03).
- § 2-411(a) — board-committee authority and exceptions. Official text (accessed 2026-09-03).
- § 2-511(a)–(c) — dividend record dates, transfer-book closing, default, and 60-day payment limit. Official text (accessed 2026-09-03).
Source links
Every statute quoted above, linked, with the date we checked it.
What does Maryland law mean for your facts?
You just read the general rule. Ask your own question and see which parts of current Maryland law apply to your situation, with citations you can check.
Opens in Ezel Pro.
- Starts from the statutes this survey is built on
- Cites every source it relies on, so you can verify it
- Chat, drafting and research in one workspace