Corporate Dividend and Distribution Requirements in North Dakota

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

N.D.C.C. § 10-19.1-01(16), (19) applies this survey to an ordinary North Dakota for-profit corporation and defines “distribution” broadly. The definition includes a direct or indirect money or other-property transfer, with or without consideration, and incurred or issued debt to shareholders with respect to their shares. It lists dividends, interim and liquidation distributions, purchases, redemptions, other share acquisitions, and other forms, while excluding the corporation's own shares.

Board, committee, shareholder, and charter authority

Under N.D.C.C. § 10-19.1-92(1), the board authorizes and causes the corporation to make a distribution after making the required determination. The articles, bylaws, or an agreement may prohibit, limit, or restrict authority and may set recipient rights and priorities.

N.D.C.C. § 10-19.1-48(1)-(2) permits a board resolution approved by a majority of all directors then in office to create a committee with only the authority stated in the resolution. An ordinary committee may include nondirectors but remains under board direction and control. N.D.C.C. § 10-19.1-48(5)-(6) makes committee members directors for specified standards and says delegation alone does not satisfy a director's conduct standard. A shareholder control agreement signed by all shareholders and subscribers when it first becomes effective may separately govern declaration and payment under § 10-19.1-83(2).

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

The § 10-19.1-01(19) definition reaches direct and indirect money or other- property transfers, incurred or issued debt, dividends, interim distributions, purchases, redemptions, other acquisitions, and another form. The corporation's own shares are excluded from the definition and use the separate §§ 10-19.1-61.1 and 10-19.1-63 share-dividend system.

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

Section 10-19.1-92 states no separate surplus, retained-earnings, net-profit, stated-capital, or other source-of-funds test. Its operative financial limits are the post-distribution ordinary-course debt-payment determination and the class or series payment-preference and remaining-net-assets rules.

Liquidity, balance-sheet, liability, and preference test

The board must determine that the corporation can pay its debts in the ordinary course after the distribution. The corporation may pay only if that remains true, and the board must not know before payment that its determination was or has become wrong. North Dakota states no universal test requiring total assets to exceed total liabilities.

For a distribution to a class or series, § 10-19.1-92(5)-(7) adds two preference rules. All amounts payable to shares with a preference for that kind of distribution must be paid. The payment also cannot reduce remaining net assets below the aggregate amount of liquidation preferences unless recipients are paid in their priority order or those skipped give the corporation notice that they agree to waive the distribution right. Insufficient money or property is distributed pro rata according to the priority order among classes and series.

Financial statements, valuation, reserves, and reliance

Sections 10-19.1-92(2) and (6) presume the liquidity and preference determinations proper when they comply with the § 10-19.1-50 conduct standard and use financial information prepared under accounting methods, fair valuation, or another method reasonable in the circumstances. Section 10-19.1-92 states no separate distribution-reserve formula.

Under N.D.C.C. § 10-19.1-50(1)-(3), a director may rely on qualifying information, opinions, reports, statements, financial statements, or other financial data from an officer or employee reasonably believed reliable and competent; a professional within reasonably believed competence; or a duly established committee reasonably believed worthy of confidence. Reliance is unavailable when the director has knowledge that makes it unwarranted.

Record date, measurement date, payment delay, and revocation

Chapter 10-19.1 states no general dividend record-date rule in its share- dividend or distribution provisions. Section 10-19.1-92(3) measures a purchase, redemption, or other share acquisition at the earliest of the money or property transfer, debt incurrence, or end of the seller's shareholder status. Every other distribution is measured at authorization if paid within 120 days and at payment if paid later. The provisions state no general revocation rule.

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

N.D.C.C. § 10-19.1-61(2)-(3) defaults to one common voting class and series with equal rights and preferences, but the articles or an authorized board resolution may create or fix alternatives. N.D.C.C. § 10-19.1-61(5) permits cumulative, partly cumulative, or noncumulative distributions and distribution preferences.

Under § 10-19.1-61.1(1)-(4), the board ordinarily may act alone to effect a share dividend, subject to article restrictions and the amendment rules protecting existing rights and the pre- and post-transaction percentage of authorized but unissued shares. N.D.C.C. § 10-19.1-63(2) permits own shares to be issued pro rata without new consideration. Issuing an already-outstanding class or series to a different class or series requires express article authority or approval by a majority of the voting power of the class or series being issued.

Section 10-19.1-68 permits fractions, disposition arrangements, fair-value cash, or registered or bearer scrip or warrants. Cash cannot cancel more than 20% of the outstanding class or series. Fractional shares receive voting and distribution rights; scrip or warrants do so only when expressly provided.

Distribution debt, priority, liquidation, insolvency, and boundaries

Under § 10-19.1-92(4), compliant distribution debt to a shareholder who ceases to be a shareholder through the transaction is at parity with general unsecured debt except to the extent it is subordinated, otherwise agreed, secured by a pledge of assets of the corporation or a related organization, or subject to another corporation-holder agreement. The section states no conditional-debt exclusion from liabilities and no payment-by-payment retest for such debt.

Section 10-19.1-92(3)(c) expressly says chapter 13-02.1 does not apply to distributions by a corporation governed by chapter 10-19.1. This survey does not apply liquidation law or resolve other insolvency, creditor, fiduciary, accounting, tax, or valuation questions.

What trips people up

North Dakota does not use the full Model Act pair. Section 10-19.1-92 uses the ordinary-course debt-payment determination and a class-specific preference overlay, not a universal comparison of total assets against total liabilities plus superior preferences.

The board's knowledge remains relevant until the distribution is made. A proper initial determination is not enough when the board knows before payment that it was or has become erroneous.

Debt parity is narrower and more adjustable than a standard one-line rule. Section 10-19.1-92(4) addresses debt to a holder who exits through the transaction and expressly preserves subordination, security, and other agreements.

Common questions

Must a North Dakota dividend come from surplus or net profits?

Section 10-19.1-92 states no separate surplus or net-profit source test. The board must instead apply the ordinary-course debt-payment and applicable class or series preference rules.

Can a committee authorize a distribution?

A committee may exercise board authority only to the extent the board's § 10-19.1-48 resolution delegates it, and an ordinary committee remains under board direction and control. Delegation alone does not satisfy a director's conduct standard.

Does every share dividend require shareholder approval?

No. Section 10-19.1-61.1 permits board-only action within its stated limits. Shareholder approval and articles of amendment become relevant when the specified adverse-right or authorized-but-unissued percentage conditions apply.

May the corporation pay cash instead of fractional shares?

Yes, but § 10-19.1-68 prohibits using cash for fractions when doing so would cancel more than 20% of the outstanding shares of a class or series. The board's fair-value determination is conclusive absent fraud.

Statutes and sources

• N.D.C.C. § 10-19.1-01(16), (19) — covered corporation and distribution definition. Official North Dakota Century Code chapter PDF, accessed September 4, 2026.
• N.D.C.C. §§ 10-19.1-48, -50 — committee authority and director conduct and reliance. Official North Dakota Century Code chapter PDF, accessed September 4, 2026.
• N.D.C.C. §§ 10-19.1-61 to -61.1, -63, -68 — class and series rights, share dividends, cross-class issuances, and fractional interests. Official North Dakota Century Code chapter PDF, accessed September 4, 2026.
• N.D.C.C. § 10-19.1-83(2) — shareholder control agreement covering declaration and payment. Official North Dakota Century Code chapter PDF, accessed September 4, 2026.
• N.D.C.C. § 10-19.1-92 — authorization, liquidity determination, financial basis, measurement, chapter 13-02.1 exclusion, debt priority, class and series preferences, and pro rata shortfall rule. Official North Dakota Century Code chapter PDF, accessed September 4, 2026.