Corporate Dividend and Distribution Requirements in Michigan

At a glance

Requirements one by one

Governing law, forms, and authority

Section § 450.1106(1), (4) limits this page to a domestic corporation under the Business Corporation Act and defines distribution to include money, property, incurred indebtedness, dividends, purchases, redemptions, other share acquisitions, and other shareholder payments. It excludes the corporation's own shares as the transferred property.

The board authorizes under § 450.1345(1)-(4), subject to the articles and the two financial limits. Under § 450.1528(1)-(3), a committee needs an express grant of distribution or dividend authority in the board resolution, articles, or bylaws; ordinary general committee authority is not enough.

A shareholder agreement may alter authorization

Section § 450.1488(1)-(4) permits a compliant unanimous shareholder agreement to govern authorization or making of distributions, including disproportionate payments. The agreement may use an all-holder-approved articles or bylaw provision or an all-holder-signed writing made known to the corporation, and it ends if the shares become exchange-listed or regularly market-traded. It remains subject to §§ 450.1345 and 450.1855a.

No surplus or net-profit source test

Michigan does not make surplus, stated capital, retained earnings, or current net profits a separate lawful source in § 450.1345. Subsection (3) instead asks the following two post-distribution questions.

Liquidity, assets, liabilities, and preferences

The corporation must remain able to pay debts as they become due in the usual course. Total assets must also remain at least equal to total liabilities plus the amount required on a hypothetical dissolution for superior shareholder preferences. The articles may permit omission of the preference add-on, but not the liabilities or due-debt tests.

Valuation and reliance

Section 450.1345(4) allows reasonable-under-the-circumstances accounting statements, fair valuation, or another reasonable method. Section § 450.1541a(1)-(3) permits a director or officer acting under its good-faith and care standard to rely on reliable and competent corporate personnel, qualified experts, or a committee believed worthy of confidence, unless the director or officer has knowledge making reliance unwarranted.

Record date and measurement timing

Under § 450.1412(3), the bylaws may fix a distribution or share-dividend record date; otherwise the board may set a nonretroactive date no more than 60 days before payment. The default is close of business on the board-resolution date.

Section § 450.1345(5)-(7) measures an own-share acquisition at the earlier of transfer or debt incurrence and the end of shareholder status. For other distributed debt, authorization controls when distribution occurs within 120 days and distribution date after that. Other payments use the same 120-day authorization-versus-payment rule.

Future-payment obligations for acquired shares

Michigan adds a special split for an obligation issued to acquire shares when the whole obligation could not pass the tests at issuance. Section 450.1345(7) treats the currently distributable portion as ordinary parity debt. Before the excess portion's due date, principal and interest may be paid only to the extent a distribution could then be made; on or after the due date, the payable amount becomes distributed parity debt only to that same extent.

Class terms, share dividends, and fractions

Section § 450.1301 places class distribution, dividend, liquidation, and other rights in the articles and makes each share equal to the other shares of its class subject to authorized series terms.

Section § 450.1341a makes a share dividend pro rata and without consideration by default. A cross-class issue needs article authority, majority approval by the class or series being issued, or no outstanding shares of that class or series. Section § 450.1338 separately permits fractional certificates, fair-value cash, conditional scrip, and a reasonable sale-or-aggregation opportunity.

Distribution debt and dissolution

Section 450.1345(6) puts compliant distribution debt at parity with general unsecured debt unless the parties agree otherwise. Section § 450.1392 sends dissolution distributions outside Chapter 3, and § 450.1855a requires the corporation to pay or provide for debts, obligations, and liabilities before distributing remaining assets by shareholder rights and interests.

What trips people up

Distributed indebtedness does not always use the ordinary authorization date. Michigan uses authorization only when the debt is distributed within 120 days; after that, distribution date controls. A share-acquisition obligation that cannot pass in full at issuance uses the separate future-payment split in § 450.1345(7).

A committee also needs an express distribution grant under § 450.1528(2). General delegated management power alone does not authorize it to declare a dividend or distribution.

Common questions

May shareholders authorize disproportionate distributions?

Potentially, through a § 450.1488 agreement satisfying its unanimous formation and private-company conditions. The payment still must satisfy §§ 450.1345 and 450.1855a.

Does Michigan require surplus before paying a dividend?

Section 450.1345 states no separate surplus or net-profit source. It applies the due-debt and assets/liabilities/preference tests after giving the distribution effect.

May a committee declare a dividend?

Only if the board resolution, articles, or bylaws expressly provide that power or authority under § 450.1528(2).

Statutes and sources

• Mich. Comp. Laws §§ 450.1106, 450.1301, 450.1338, 450.1341a, and 450.1345 — definitions, class and fraction rules, share dividends, core tests, valuation, timing, and distribution debt. Official Act 284 compilation (accessed September 3, 2026).
• Mich. Comp. Laws §§ 450.1392, 450.1412, 450.1488, 450.1528, and 450.1541a — liquidation boundary, record date, shareholder agreements, committee authority, and reliance. Same official compilation (accessed September 3, 2026).
• Mich. Comp. Laws § 450.1855a — liability provision and remaining-asset distribution in dissolution. Same official compilation (accessed September 3, 2026).