Corporate Dividend and Distribution Requirements in Massachusetts
At a glance
| Governing law, entity, distribution, and scope | G.L. c. 156D §§ 1.40, 6.01-.40; ordinary domestic for-profit corporation. Distribution covers direct/indirect money or property (not own shares), debt, dividends, purchases/redemptions/acquisitions, and voluntary/involuntary liquidation; § 6.40 separates going-concern and liquidation tests |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles (§ 6.40(a)). Committee cannot authorize distributions; may approve reacquisition only by board-prescribed formula/method (§ 8.25(e)). Compliant unanimous shareholder agreement may alter authority/proportionality but remains subject to § 6.40 and ends on public trading (§ 7.32). H.3323 would broaden formula-bound committee authority |
| Cash, property, shares, debt, repurchase, and redemption forms | Direct/indirect money or other property, debt, dividend declaration/payment, purchase, redemption, other acquisition, or voluntary/involuntary liquidation (§ 1.40); own shares excluded from property branch but separately governed as share dividends (§ 6.23) |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, stated-capital, or capital-source test in § 6.40; Massachusetts uses going-concern solvency limits plus a separate liquidation-provision test, subject to articles and class/series terms |
| Liquidity, balance-sheet, liability, and preference test | Going concern: must pay existing/reasonably foreseeable obligations—liquidated or not, matured, asserted, or contingent—as due, and assets must be ≥ liabilities plus superior dissolution preferences unless articles permit otherwise (§ 6.40(c)); liquidation needs adequate provision for those obligations and superior liquidation rights (§ 6.40(h)) |
| Financial statements, valuation, reserves, and reliance | Board may use reasonable-in-circumstances accounting statements, fair valuation, or another reasonable method (§ 6.40(d)); qualified reliance on reliable officers/employees, retained experts, or trusted committee absent contrary knowledge (§ 8.30(b)); liquidation requires adequate provision, not a fixed reserve formula |
| Record date, measurement date, payment delay, and revocation | Board may fix record date; default for nonacquisition distribution/share dividend is authorization date (§§ 6.40(b), 6.23(c)). Acquisition: earlier transfer/debt or status end; ordinary debt: distribution; other payments: authorization if ≤120 days, payment if later; conditional-debt payments tested when paid (§ 6.40(e), (g)); the statute tests payments at those dates |
| Class, series, equal treatment, stock distribution, and fractions | Articles prescribe identical same-class/series terms and distribution preferences (§ 6.01). Share dividends pro rata by default; cross-class and intervening third-class preference approvals apply (§ 6.23). Fractions, money/property for value, disposition arrangement, or conditional scrip (§ 6.04). H.3323 would revise voting-denominator wording |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Compliant distribution debt is at parity with general unsecured debt unless subordinated by agreement; conditional-pay debt is excluded from liabilities and each payment retested (§ 6.40(f)-(g)). Liquidation needs adequate provision for foreseeable obligations and superior rights (§ 6.40(h)); § 6.40(f) states parity with general unsecured creditors. H.3323 would require express subordination wording |
Requirements one by one
Governing law, entity, distribution, and scope
Mass. Gen. Laws ch. 156D, § 1.40(a) applies to a domestic for-profit business corporation and defines a distribution to include direct or indirect money or property transfers, other than the corporation's own shares, plus shareholder debt. It expressly reaches dividends, purchases, redemptions, other acquisitions, debt, and voluntary or involuntary liquidation.
Mass. Gen. Laws ch. 156D, § 6.40(a)-(h) distinguishes a going-concern distribution from liquidation. This page focuses on the former, but the separate liquidation-provision rule is reported so the two cannot be confused.
Board, committee, shareholder, and governing-record authority
Section 6.40 assigns authorization to the board subject to the articles and the financial limits. Mass. Gen. Laws ch. 156D, § 8.25(d)-(f) bars a committee from authorizing distributions, though it permits a reacquisition approved under a board-prescribed formula or method.
Mass. Gen. Laws ch. 156D, § 7.32(a)-(b), (d) allows a compliant all-shareholder agreement to eliminate or restrict the board and govern authorization, making, and proportionality of distributions. The agreement remains subject to § 6.40, ordinarily defaults to 10 years unless it says otherwise, and automatically terminates when the shares become listed or regularly traded as the statute describes.
Cash, property, shares, debt, repurchase, and redemption forms
Section 1.40 covers money, other property, shareholder indebtedness, dividends, purchases, redemptions, and other acquisitions. The definition excludes the corporation's own shares from its property branch because § 6.23(a)-(c) separately governs share dividends.
Surplus, net-profit, equity, and capital-source test
Massachusetts does not add a surplus, retained-earnings, net-profit, or stated-capital source test to § 6.40. It instead uses going-concern solvency limits, a separate liquidation-provision test, restrictions in the articles, and the distribution and preference terms established under § 6.01. This page does not translate those tests into an amount available for distribution.
Liquidity, balance-sheet, liability, and preference test
For a going concern, § 6.40(c) bars a distribution that would leave the corporation unable to pay existing and reasonably foreseeable debts, liabilities, and obligations as due. The text expressly includes obligations whether liquidated or not, matured, asserted, or contingent. Total assets also cannot fall below total liabilities plus superior dissolution preferences, unless the articles permit otherwise.
Section 6.40(h) separately bars a liquidation distribution unless adequate provision has been made for those existing and reasonably foreseeable obligations as they arise and for superior liquidation rights.
Financial statements, valuation, reserves, and reliance
Section 6.40(d) permits financial statements based on accounting practices and principles reasonable in the circumstances, a fair valuation, or another reasonable method. Mass. Gen. Laws ch. 156D, § 8.30(b) permits qualified reliance on reliable officers or employees, retained professional experts, or a trusted board committee when the director lacks knowledge making reliance unwarranted. Liquidation requires adequate provision, not a fixed statutory reserve amount.
Record date, measurement date, payment delay, and revocation
The board may fix the distribution record date; if it does not, § 6.40(b) makes authorization the default except for an own-share acquisition. Section 6.23 uses the same authorization-date default for share dividends.
The financial-test date depends on form. An own-share acquisition uses 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. Conditional-pay debt is tested whenever principal or interest is actually paid. These are the statutory dates for measuring the distribution under § 6.40(e) and (g).
Class, series, equal treatment, stock distributions, and fractions
Mass. Gen. Laws ch. 156D, § 6.01(a), (c) makes articles-prescribed same-class or same-series rights identical and lets the articles establish distribution and dissolution preferences. Section 6.23 makes a share dividend pro rata by default. A cross-class dividend needs articles authorization, approval by a majority of the outstanding class or series being issued, or no outstanding shares of that class or series. A further approval rule protects a third class or series with prior, superior, or substantially equal distribution rights.
Mass. Gen. Laws ch. 156D, § 6.04(a), (c)-(d) permits fractions, money or property 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
Section 6.40(f)-(g) gives compliant distribution debt parity with general unsecured debt except to the extent subordinated by agreement. Conditional-pay debt can be excluded from liabilities for the going-concern tests, but every principal or interest payment becomes a distribution measured when made. Section 6.40(h)'s adequate-provision rule governs liquidation distributions.
This page reports those rules without applying them. It does not decide solvency, foreseeability, adequate provision, valuation, or a lawful amount and excludes liability, creditor recovery, fiduciary disputes, fraudulent transfers, bankruptcy, covenants, tax, accounting, securities, and transaction advice.
What trips people up
Massachusetts does not use only the short phrase "debts as they become due." Its going-concern test expressly reaches existing and reasonably foreseeable debts, liabilities, and obligations whether liquidated, matured, asserted, or contingent. A distribution analysis that ignores those words is incomplete.
The record date also does not settle the financial-test date. An ordinary payment more than 120 days after authorization uses the payment date, while acquisition and debt forms have their own timing rules.
Common questions
Does Massachusetts use a surplus or net-profit test?
No separate source test appears in § 6.40. The chapter instead uses its going-concern solvency and liquidation-provision rules, subject to the articles and share terms.
Can shareholders agree to non-pro-rata distributions?
Section 7.32 allows a compliant all-shareholder agreement to govern distributions regardless of ownership proportions, but it expressly preserves § 6.40's financial limits.
Can one class receive another class as a share dividend?
Only through § 6.23's authorization or approval routes, with an additional protection when a third class or series has prior, superior, or substantially equal distribution rights.
Is H.3323 current law?
No. As checked September 9, 2026, it remains before the House Committee on Bills in the Third Reading. Its proposed changes are not applied to the current-law answer.
Statutes and sources
- Mass. Gen. Laws ch. 156D, § 1.40 — current corporation and distribution definitions, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section1.40
- Mass. Gen. Laws ch. 156D, § 6.01 — current class, series, and preference rules, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section6.01
- Mass. Gen. Laws ch. 156D, § 6.04 — current fractional-share and scrip rules, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section6.04
- Mass. Gen. Laws ch. 156D, § 6.23 — current share-dividend and record-date rules, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section6.23
- Mass. Gen. Laws ch. 156D, § 6.40 — current distribution, timing, debt, and liquidation rules, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section6.40
- Mass. Gen. Laws ch. 156D, § 7.32 — current shareholder-agreement rule, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section7.32
- Mass. Gen. Laws ch. 156D, § 8.25 — current committee-authority rule, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section8.25
- Mass. Gen. Laws ch. 156D, § 8.30 — current director-reliance rule, accessed September 3, 2026: https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter156D/Section8.30
- Massachusetts H.3323 (194th General Court) — current bill text and official status, checked September 9, 2026: https://malegislature.gov/Bills/194/H3323
Source links
Every statute quoted above, linked, with the date we checked it.
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