Corporate Dividend and Distribution Requirements in Montana

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

Mont. Code Ann. § 35-14-140 defines the covered domestic business corporation as a Montana corporation for profit and defines a distribution broadly: a direct or indirect transfer of cash or other property, other than the corporation's own shares, or debt incurred for shareholders with respect to their shares. The definition expressly lists a dividend, purchase, redemption, other share acquisition, distribution of debt, liquidation distribution, and another form.

Board, committee, shareholder, and charter authority

Under Mont. Code Ann. § 35-14-640, the board may authorize a distribution, subject to restrictions in the articles and the two financial limits in subsection (3). Mont. Code Ann. § 35-14-825 allows a board committee to authorize or approve a distribution only according to a board-prescribed formula or method or within board-prescribed limits; its creation and authority also remain subject to the chapter, articles, and bylaws.

Mont. Code Ann. § 35-14-732 supplies a separate private-ordering route. A qualifying agreement approved or signed by all current shareholders may govern the authorization or making of distributions, including distributions that are not proportional to share ownership, but the statute expressly keeps those arrangements subject to § 35-14-640.

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

The § 35-14-140 definition reaches direct and indirect cash or other-property transfers, incurred debt, dividends, purchases, redemptions, other share acquisitions, and other forms. It excludes the corporation's own shares from the property-transfer definition. Those issuances instead use the share- dividend rules in Mont. Code Ann. § 35-14-623.

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

Mont. Code Ann. § 35-14-640 contains no independent surplus, retained-earnings, current-net-profit, or stated-capital source test. Its operative financial limits are the two post-distribution tests in subsection (3), together with the articles and any applicable class or series terms.

Liquidity, balance-sheet, liability, and preference test

Both § 35-14-640(3) tests apply after giving the distribution effect. First, the corporation must remain able to pay its debts as they become due in the usual course of business. Second, total assets may not fall below total liabilities plus the amount that would be needed on a hypothetical dissolution to satisfy shareholders with dissolution preferences superior to those of the recipients, unless the articles permit otherwise.

Financial statements, valuation, reserves, and reliance

The board may base its determination on financial statements prepared using accounting practices and principles reasonable in the circumstances, fair valuation, or another reasonable-in-the-circumstances method. Section 35-14-640 states no separate reserve formula. Under the general reliance rule in Mont. Code Ann. § 35-14-830, a director without knowledge making reliance unwarranted may rely, subject to the provision's stated standards, on specified officers or employees, retained professionals, or a board committee the director reasonably believes merits confidence.

Record date, measurement date, payment delay, and revocation

The board may fix a nonretroactive distribution record date. Except for a purchase, redemption, or other share acquisition, the authorization date is the default when the board fixes none. Section 35-14-640 measures a share acquisition at the earlier of the cash/property transfer or debt incurrence and the end of the seller's shareholder status; other distributed debt is tested when distributed. An ordinary distribution paid within 120 days is tested at authorization, while one paid more than 120 days later is tested at payment. The section states no general distribution-revocation rule.

Class, series, equal treatment, stock distribution, and fractions

Mont. Code Ann. § 35-14-601 ordinarily gives shares of a class or series identical terms, including preferences, rights, and limitations, while allowing holder-level variation expressly written into the articles. The articles may provide for cumulative, noncumulative, or partly cumulative dividends and may create distribution or dissolution preferences.

Mont. Code Ann. § 35-14-623 makes a share dividend pro rata by default. Issuing one class or series on another class or series requires authorization in the articles, approval by a majority of votes entitled to be cast by the class or series being issued, or no outstanding shares of the class or series being issued. Mont. Code Ann. § 35-14-604 permits fractional shares, value cash, shareholder disposition arrangements, or scrip.

Distribution debt, priority, liquidation, insolvency, and boundaries

Mont. Code Ann. § 35-14-640 puts compliant distribution debt at parity with general unsecured debt unless an agreement subordinates it. Distribution debt is left out of the balance-sheet liabilities only when its terms condition principal and interest payments on the corporation then being able to make a distribution; each payment on debt issued as a distribution is itself retested on its actual payment date. The section does not apply to Part 14 liquidation distributions.

What trips people up

The definition and the operative test use different liquidation boundaries. Section 35-14-140 includes a liquidation distribution in the broad definition of “distribution,” but § 35-14-640(8) expressly sends distributions in liquidation under Part 14 outside the ordinary distribution section.

Not every shareholder debt disappears from the balance-sheet test. The liability exclusion in § 35-14-640(7) depends on terms conditioning payment on the corporation's ability to make a distribution at that later time. Debt without those terms does not receive that specific exclusion.

Common questions

Does a fractional-share holder receive dividends? Yes. Mont. Code Ann. § 35-14-604 gives a fractional-share holder shareholder rights, including the right to receive dividends. A scrip holder does not receive those rights unless the scrip provides for them.

Can all shareholders agree to a disproportionate distribution and avoid the solvency limits? They may use the unanimous-agreement route in Mont. Code Ann. § 35-14-732 to govern disproportionate distributions, but that provision makes the arrangement expressly subject to § 35-14-640.

What if an ordinary distribution is paid exactly 120 days after authorization? Section 35-14-640(5)(c) uses the authorization-date test when payment occurs “within 120 days.” Its payment-date branch applies only when payment occurs more than 120 days after authorization.

Statutes and sources

• Mont. Code Ann. § 35-14-140(5), (7) — defines the covered domestic for-profit corporation and says a distribution “may be in the form of” a dividend, share acquisition, distributed debt, liquidation distribution, or another form. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0010/section_0400/0350-0140-0010-0400.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-601 — sets class and series terms, distribution calculations, preferences, and the permitted article-based variations among holders. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0060/section_0010/0350-0140-0060-0010.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-604 — permits fractions, cash in lieu, disposition arrangements, and scrip, and distinguishes a fractional holder's rights from a scrip holder's rights. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0060/section_0040/0350-0140-0060-0040.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-623 — supplies the pro rata default, cross-class conditions, and record-date rule for share dividends. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0060/section_0230/0350-0140-0060-0230.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-640 — provides board authorization, record and measurement dates, the dual post-distribution tests, permitted valuation bases, debt treatment, and the liquidation exclusion. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0060/section_0400/0350-0140-0060-0400.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-732(1)-(2) — permits qualifying unanimous shareholder agreements to govern distributions, including disproportionate ones, subject to § 35-14-640. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0070/section_0320/0350-0140-0070-0320.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-825(1), (4) — permits board committees but limits distribution and reacquisition authority to board-prescribed formulas, methods, or limits. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0080/section_0250/0350-0140-0080-0250.html (accessed 2026-09-04).
• Mont. Code Ann. § 35-14-830(4)-(6) — states the conditions and sources for director reliance on delegated performance and information, including financial statements. Source: https://mca.legmt.gov/bills/mca/title_0350/chapter_0140/part_0080/section_0300/0350-0140-0080-0300.html (accessed 2026-09-04).