Corporate Dividend and Distribution Requirements in New Jersey

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

N.J.S.A. § 14A:1-2.1 defines a domestic corporation for this Act as a for-profit corporation organized under it. Section 14A:7-14.1 then defines a distribution broadly: a direct or indirect transfer of money or other property, other than the corporation's own shares, or the incurrence of shareholder debt with respect to shares. Dividends, purchases, redemptions, and other own-share acquisitions are named examples. The definition itself does not exclude a liquidation distribution; this page nevertheless applies the topic's narrower voluntary-nonliquidating scope and does not cover Chapter 12 dissolution.

Board, committee, shareholder, and governing-record authority

N.J.S.A. § 14A:7-15 requires a board resolution and makes dividend authority subject to certificate restrictions. "Resolution" includes committee action under § 14A:1-2.1. A committee may exercise the board authority delegated to it under § 14A:6-9 when the certificate or bylaws authorize committees and the board properly appoints and empowers the committee; dividends are not among the section's four withheld powers. Committee action must be reported on the statutory next-meeting schedule.

Shareholder approval is transaction-specific rather than a general dividend vote. Under § 14A:7-15.1, it becomes necessary when a share-dividend, division, or combination requires an amendment that adversely affects class or series rights or preferences, or produces the specified increase in the percentage of authorized shares left unissued.

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

Sections 14A:7-14.1 and 14A:7-15 work together. The first reaches direct and indirect money or property transfers, shareholder indebtedness, dividends, purchases, redemptions, and other acquisitions. The second expressly permits a dividend in cash, the corporation's own shares or bonds, or other property, including another corporation's shares or bonds. Own-share acquisitions remain subject to the additional limits in § 14A:7-16.

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

New Jersey does not use a default surplus or current-net-profit source test. Instead, § 14A:7-8.1 says shares default to no par value and no stated capital need be maintained. A certificate can specify par value, require stated capital, or impose another capitalization requirement, and it can add distribution restrictions beyond § 14A:7-14.1. The corporation's actual certificate therefore matters even though the statutory default has no independent capital-source ceiling.

Liquidity, balance-sheet, liability, and preference test

N.J.S.A. § 14A:7-14.1 prohibits a distribution if, after giving it effect, the corporation would be unable to pay debts as they become due in the usual course or total assets would be less than total liabilities. Unlike the common Model Act formulation, New Jersey's balance-sheet clause does not add the amount needed for superior liquidation preferences.

The preference issue is handled separately for particular forms. Section 14A:7-15 permits a preferred-share dividend despite net assets being below prior and newly created preferences unless the certificate says otherwise. Section 14A:7-16 similarly allows an own-share acquisition despite net assets being below outstanding liquidation preferences unless the certificate provides otherwise.

Financial statements, valuation, reserves, and reliance

For the total-assets-versus-total-liabilities determination, § 14A:7-14.1 allows GAAP financial statements, statements based on other accounting practices and principles reasonable in the circumstances, or a fair valuation or another reasonable method. The section supplies no special reserve formula and does not name a separate officer, employee, committee, or expert reliance safe harbor. This page therefore reports the authorized methods without selecting one or valuing any item.

Record date, measurement date, payment delay, and revocation

Under § 14A:5-7, the bylaws may provide for fixing the dividend record date; in their absence, the board may fix it. It may be no more than 60 days before the related action or event. If nobody fixes one, the default for a dividend is the close of business on the board-resolution date.

Section 14A:7-14.1 uses a different timing rule for the solvency tests. For an own-share purchase, redemption, or other acquisition, measure at the earlier of the property-transfer or debt-incurrence date and the date shareholder status ends for the acquired shares. For every other distribution, authorization is the test date if payment occurs within 120 days; a later payment is tested when paid. The surveyed sections state no general distribution-revocation rule.

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

N.J.S.A. § 14A:7-15.1 generally permits the board alone to effect a share dividend, division, or combination unless the certificate provides otherwise. A division that adversely affects another class must proceed by amendment, and an amendment needs shareholder approval when it adversely affects outstanding class or series rights or preferences or creates the section's prohibited increase in the unissued-share percentage.

For fractional interests, § 14A:7-13 permits fractional shares, board-directed cash equal to the fraction's value, or registered or bearer scrip. A fractional share carries voting, dividend, and liquidation-distribution rights; scrip does not unless its terms say so.

Distribution debt, priority, liquidation, insolvency, and boundaries

Debt incurred through a distribution that complies with § 14A:7-14.1 is not subordinated to general unsecured debt unless an agreement subordinates it. Under § 14A:7-16, an agreement to acquire shares may secure the payment obligation with the acquired shares, which are not treated as reacquired and cancelled until the obligation is paid or discharged. If an acquisition would otherwise be prohibited, the purchase price may instead be deferred until its payment would not be a prohibited distribution.

Those rules do not decide whether a particular corporation passes either financial test. This page also excludes dissolution distributions, director or shareholder liability, creditor recovery, fraudulent-transfer and bankruptcy questions, fiduciary disputes, tax, accounting, and transaction advice.

What trips people up

The record date and financial-test date answer different questions. A dividend record date can identify who receives payment, while § 14A:7-14.1 may measure the corporation's financial condition on authorization, payment, or an earlier share-acquisition event. A payment made more than 120 days after authorization cannot simply reuse the authorization-date test.

Preference language also appears outside the core balance-sheet test. Reading only § 14A:7-14.1 misses the certificate-sensitive preferred-share-dividend and own-share-acquisition rules in §§ 14A:7-15 and 14A:7-16.

Common questions

Does New Jersey require dividends to come from surplus or net profits?

Not as a statutory default. Section 14A:7-8.1 replaces that architecture with no required stated capital unless the certificate imposes one, while § 14A:7-14.1 supplies the two post-distribution financial limits.

Can the corporation issue its own shares as a dividend?

Yes. Section 14A:7-15 lists the corporation's own shares as an authorized dividend form, and § 14A:7-15.1 supplies the separate share-dividend procedure. The definition in § 14A:7-14.1 excludes the corporation's own shares from its property-transfer branch.

Can an own-share purchase agreement defer the purchase price?

Yes, within § 14A:7-16. The corporation may defer otherwise prohibited purchase price until payment would no longer constitute a prohibited distribution; the statute does not authorize paying it while the prohibition remains.

Does the 120-day rule fix the dividend record date?

No. Section 14A:5-7 governs the record date. The 120-day line in § 14A:7-14.1 decides whether authorization or later payment is the financial-test date.

Statutes and sources

• N.J.S.A. §§ 14A:1-2.1, 14A:5-7, 14A:7-15.1, and 14A:7-16 — current text in New Jersey State Library official legislative history for P.L.1995, c.279, accessed September 3, 2026: https://repo.njstatelib.org/server/api/core/bitstreams/1f0f8cad-db0d-41d8-8c2a-3f864ee5e22e/content
• N.J.S.A. §§ 14A:7-8.1, 14A:7-14.1, and 14A:7-15 — current text in New Jersey State Library official legislative history for P.L.1988, c.94, accessed September 3, 2026: https://repo.njstatelib.org/server/api/core/bitstreams/ed246712-1596-45d5-b520-8fcf15a5fda2/content
• N.J.S.A. §§ 14A:6-9 and 14A:7-13 — current text in New Jersey State Library official legislative history for P.L.1973, c.366, accessed September 3, 2026: https://repo.njstatelib.org/server/api/core/bitstreams/66a9d266-2a82-4da4-baa1-963687c12c39/content