Corporate Dividend and Distribution Requirements in New York
At a glance
| Governing law, entity, distribution, and scope | N.Y. Bus. Corp. Law §§ 102, 509-514, 604, 620, 701, 712, 717, 1005; ordinary domestic for-profit corporation; covers cash/property and share distributions plus own-share purchases/redemptions, with post-dissolution distributions governed separately |
|---|---|
| Board, committee, shareholder, and charter authority | Board-directed under §§ 510 and 701; a § 712 committee may exercise delegated board authority unless the matter is reserved. The certificate may restrict distributions and, under § 620's unanimous-authorization/notice conditions, transfer board management authority to shareholders |
| Cash, property, shares, debt, repurchase, and redemption forms | Cash, corporate bonds, property including another corporation's shares/bonds (§ 510); authorized-but-unissued or treasury-share distributions (§ 511); fractions/scrip (§ 509); own-share purchase/redemption/conversion/exchange for cash, property, debt, or securities (§§ 512-513) |
| Surplus, net-profit, equity, and capital-source test | Surplus route: remaining net assets ≥ stated capital. If no surplus: current- or preceding-fiscal-year net profits, but any stated-capital deficiency for outstanding liquidation-preference classes must first be repaired. Special wasting/specific-asset route in § 510(b) |
| Liquidity, balance-sheet, liability, and preference test | Separate due-debt test: corporation cannot be insolvent when the distribution or own-share transaction occurs or be made insolvent by it (§§ 102(a)(8), 510(a), 513(a)). Surplus uses net assets minus stated capital; wasting-asset route preserves involuntary-liquidation preferences |
| Financial statements, valuation, reserves, and reliance | No special valuation method appears in §§ 510-514. Under § 717(a), a director acting in good faith and with due care may rely on specified financial statements/data, reliable officers or employees, experts, or a trusted board committee; § 510(b) recognizes depletion/amortization or sale recovery for wasting assets |
| Record date, measurement date, payment delay, and revocation | Bylaws may fix, or otherwise board may fix, a dividend record date ≤60 days before action; default is close of business on the board-resolution date (§ 604). § 510 tests declaration, payment, or distribution; § 514 tests a share purchase at purchase. No 120-day carryover or express general revocation rule |
| Class, series, equal treatment, stock distribution, and fractions | Certificate states class/series rights, preferences, and limits (§ 402). § 511 share distributions are pro rata, subject to cross-class, preemptive-right, capital-transfer, and notice rules; § 509 permits fractions, fair-value cash, scrip, or a reasonable sale/purchase opportunity |
| Distribution debt, priority, liquidation, insolvency, and boundaries | § 510 permits corporate bonds as a distribution and § 102 defines bonds as secured or unsecured, but Article 5 states no special parity rule. Own-share consideration may include debt/securities (§§ 512-513). After dissolution, liabilities must be paid or adequately provided for before remaining assets (§ 1005) |
Requirements one by one
Governing law and transaction forms
The Business Corporation Law applies here to a domestic for-profit corporation under § 102(a)(4). Section 510(a) expressly reaches distributions in cash, the corporation's own bonds, and property that can include shares or bonds of another corporation. Sections 512(a), (c) and 513(a) separately cover redemptions, purchases, conversions, and exchanges using cash, other property, indebtedness, or other securities.
Board, committee, shareholder, and certificate authority
Section § 701 puts ordinary corporate management under board direction, and § 510(a) makes the certificate's distribution restrictions controlling. A committee can receive the board's authority under § 712(a)-(c) because distributions are not among that section's five reserved matters, but its authority must come through the certificate, bylaws, and board resolution described there and remains at the board's pleasure.
For a private corporation, § 620(b)-(c) supplies a less common alternative: a certificate provision may transfer management authority to shareholders if all incorporators or all record holders authorize it and later recipients have knowledge, notice, or written consent. The provision ceases to qualify if the shares become exchange-listed or regularly quoted in the specified market.
Surplus, net profits, capital, and insolvency
Section § 510(b) provides two ordinary sources. A surplus distribution must leave net assets at least equal to stated capital. If there is no surplus, the corporation may use net profits from the declaration year or the preceding fiscal year, but it must first repair any stated-capital deficiency represented by outstanding classes having an asset-distribution preference.
That source test does not replace liquidity. Sections §§ 102(a)(8), 510(a) define insolvency as inability to pay debts when due in the usual course and bar a declaration, payment, or distribution when the corporation is already in that condition or would be put there by the transaction. Section 513(a) applies the same due-debt boundary to own-share purchases, redemptions, conversions, and exchanges and also requires surplus for a purchase or redemption.
Wasting assets and reliance materials
The final sentence of § 510(b) is a narrow edge case for a corporation exploiting natural resources, patents, or other wasting assets, or formed mainly to liquidate specific assets. Recovery through depletion reserves, amortization, or sale may support a distribution above surplus, but remaining net assets still must cover the applicable involuntary-liquidation preferences.
The distribution sections do not prescribe one valuation method. Section § 717(a) instead permits a director who satisfies its good-faith and care conditions to rely on financial statements or other data from reliable and competent officers or employees, appropriately qualified experts, or a board committee the director believes merits confidence.
Record date and transaction timing
Under § 604(a)-(b), the bylaws may fix a dividend record date; otherwise the board may set one no more than 60 days before the action. If neither does, a board resolution adopted on September 1 makes close of business September 1 the record date for that dividend.
New York does not supply the Model Act's 120-day authorization safe harbor in these sections. Section 510 applies its conditions to declaration, payment, and distribution, while § 514(a)-(b) makes an own-share purchase agreement enforceable only to the extent § 513 permits the purchase when it occurs or when performance is sought.
Share distributions, class terms, and fractions
For authorized but unissued shares, § 511(a) starts with a pro rata rule and then requires the applicable stated-capital transfer. Cross-class distributions remain subject to the certificate, the special rule for older corporations, and any preemptive rights. Paragraphs (f)-(g) add a written notice or later financial-statement disclosure when a share distribution or change affects stated capital or surplus.
Sections §§ 402(a)(5)-(6) and 509 make the certificate the home for class and series preferences and provide four ways to handle a fraction: issue it with proportional rights, pay its fair value in cash, issue conditional scrip, or give a reasonable opportunity to sell or aggregate fractional interests.
Distribution debt and post-dissolution boundary
Because § 102(a)(2) defines bonds to include secured and unsecured bonds, § 510(a)'s bond-distribution form does not itself determine priority. Article 5 contains no Model Act-style rule placing compliant distribution debt at parity with general unsecured debt; the instrument and other applicable law therefore remain outside this statutory comparison.
Post-dissolution distributions follow a different sequence. Section § 1005(a)(3) permits remaining assets to reach shareholders only after the corporation has paid or adequately provided for its liabilities, and then requires distribution according to shareholders' respective rights.
What trips people up
The net-profits route is not a free substitute whenever surplus is low. The preferred-capital repair condition in § 510(b) can block it, and a payment that would make the corporation unable to pay debts as due fails the separate insolvency rule. Share distributions add their own capital-transfer and written disclosure mechanics under § 511; treating them as ordinary cash dividends misses those steps.
For redeemable, convertible, or exchangeable shares purchased during the corporation's option period, § 513(a)-(b) also limits the purchase price to the certificate's applicable price. The stated amount for a class with a cumulative dividend preference may include accrued dividends through the next dividend date.
Common questions
Can the corporation redeem shares with property or debt rather than cash?
Potentially. Section 512(c) allows certificate terms calling for cash, other property, indebtedness, or other securities, but §§ 512(a) and 513(a) keep the surplus, solvency, and certificate conditions in place.
Does a dividend record date have to be chosen in the board resolution?
No. Section 604 allows the bylaws to fix it. If neither the bylaws nor the board does so, the default for a dividend is close of business on the date the board adopts the related resolution.
May a fractional shareholder receive the fraction itself?
Yes. Section 509(a) allows a certificated or uncertificated fractional share with proportional voting, dividend, and liquidating-distribution rights; cash, scrip, and sale-or-aggregation arrangements are alternatives.
Statutes and sources
- N.Y. Bus. Corp. Law § 102(a)(2), (4), (8)-(9), (12)-(13) — definitions of bonds, domestic corporation, insolvency, net assets, stated capital, and surplus. Official text (accessed September 3, 2026).
- N.Y. Bus. Corp. Law § 402(a)(5)-(6), (c) — certificate provisions and class or series rights. Official text (accessed September 3, 2026).
- N.Y. Bus. Corp. Law §§ 509-514 — fractions, cash/property dividends, share distributions, redemptions, own-share transactions, and purchase agreements. Article 5 index (accessed September 3, 2026).
- N.Y. Bus. Corp. Law §§ 604, 620, 701, 712, 717 — record date, transferred management, board direction, committee authority, and reliance. § 604 (accessed September 3, 2026).
- N.Y. Bus. Corp. Law § 1005(a)(3) — distribution after dissolution. Official text (accessed September 3, 2026).
Source links
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