Corporate Dividend and Distribution Requirements in Rhode Island

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

R.I. Gen. Laws § 7-1.2-106(3) defines the ordinary domestic corporation as a for-profit corporation subject to the Rhode Island Business Corporation Act and excludes a foreign corporation. The Act does not supply a single broad “distribution” definition. Instead, § 7-1.2-614 divides the operative rule into “distributions of other than shares” and “distributions of shares.” Its other-than-share provisions expressly reach a purchase, redemption, other acquisition of the corporation's shares, and distributed indebtedness.

Section 7-1.2-614 contains no express liquidation-distribution exclusion. This survey therefore applies its rules only to the voluntary nonliquidating transactions within the topic's scope rather than treating the section as a liquidation guide.

Board, committee, shareholder, and charter authority

R.I. Gen. Laws § 7-1.2-614(a)(1) lets the board authorize and the corporation make an other-than-share distribution, subject to the articles and the financial limits. R.I. Gen. Laws § 7-1.2-601(a) likewise makes a board resolution the statutory route for redeeming, purchasing, taking, receiving, or otherwise acquiring the corporation's own shares, unless the articles provide otherwise.

Under § 7-1.2-808, a majority of the full board may designate a director committee. To the extent supplied by that resolution, the articles, or the bylaws, the committee may exercise all board authority except the specifically listed extraordinary actions. A distribution is not on that exclusion list.

Shareholders have two narrow roles in § 7-1.2-614. A majority of a superior preference class, voting by class, may waive the dissolution-preference add-on; and a majority of the class or series to be issued may approve a cross-class share distribution. Neither clause states a general shareholder vote for an ordinary distribution.

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

R.I. Gen. Laws § 7-1.2-614(a)(5) expressly contemplates money or other property, corporate debt, distributed indebtedness, purchases, redemptions, and other share acquisitions. Section 7-1.2-601(a) separately authorizes the corporation to acquire, hold, pledge, transfer, or dispose of its own shares. Redeemed shares and purchased redeemable shares are canceled under the additional filing mechanics in that section.

For preferred or special shares, § 7-1.2-602(c) permits article-authorized redemption for cash, property, promissory notes or rights, including another corporation's securities, but requires at least one outstanding share or group of shares carrying unlimited voting rights immediately afterward. Section 7-1.2-614(b) treats an own-share issuance as a separate share distribution.

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

Rhode Island's operative distribution section states no surplus, net-profit, retained-earnings, or stated-capital source test. R.I. Gen. Laws § 7-1.2-602(f) instead preserves the stated preferred or special-share dividend terms. Only after those dividends have been paid or declared and set apart for payment may a remaining class receive a dividend from remaining assets available for dividends. The financial prohibition itself is the dual test in § 7-1.2-614(a)(3).

Liquidity, balance-sheet, liability, and preference test

R.I. Gen. Laws § 7-1.2-106(10) defines insolvent as “the inability of a corporation to pay its debts as they become due in the usual course of its business.” Under § 7-1.2-614(a)(3), an other-than-share distribution may not leave the corporation insolvent or leave total assets below total liabilities plus the amount needed for superior dissolution preferences.

The preference add-on has two distinct statutory escape routes: the articles may permit otherwise, or a majority of the shareholders entitled to the superior preference may waive it while voting by class. Neither route removes the insolvency test.

Financial statements, valuation, reserves, and reliance

R.I. Gen. Laws § 7-1.2-614(a)(4) permits the board to use financial statements prepared on reasonable-in-the-circumstances accounting practices and principles, “or on a fair valuation or other method that is reasonable in the circumstances.” The section states no special reserve formula and no separate officer, employee, committee, or expert reliance rule. It does not decide which method is reasonable for a particular corporation.

Record date, measurement date, payment delay, and revocation

R.I. Gen. Laws § 7-1.2-703(a) permits the bylaws—or, absent an applicable bylaw, the board—to fix an advance dividend record date no more than 60 days before the relevant action. If the books are not closed and no date is fixed, the board resolution declaring the dividend supplies the record date. Section 7-1.2-614(a)(2) likewise defaults a non-acquisition distribution to the authorization date, and § 7-1.2-614(b)(3) does the same for a share distribution.

The financial-test measurement date changes with the transaction. An own-share acquisition uses the earlier of the money/property transfer or debt-incurrence date and the date the holder ceases to be a shareholder for those shares. Other distributed debt uses its distribution date. Any remaining distribution uses authorization if paid within 120 days and payment if paid more than 120 days later. Section 7-1.2-614 states no general revocation rule.

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

R.I. Gen. Laws § 7-1.2-602(b)-(d) and § 7-1.2-602(f)-(g) place class and series dividend and liquidation preferences in the articles or, when the articles expressly delegate the power, an authorized board resolution. Preferred dividends may be cumulative, noncumulative, or partially cumulative under those terms.

Under § 7-1.2-614(b), share distributions are pro rata by default. Issuing one class or series with respect to another requires articles authorization, majority approval by the class or series being issued, or no outstanding shares of the issued class or series.

R.I. Gen. Laws § 7-1.2-610 lets the corporation issue a fraction, arrange its disposition, pay its fair value in cash, or issue registered or bearer scrip. A fractional-share certificate ordinarily carries voting, dividend, and liquidation rights; scrip does not carry those rights unless it says otherwise.

Distribution debt, priority, liquidation, insolvency, and boundaries

R.I. Gen. Laws § 7-1.2-614(a)(6) places compliant shareholder distribution debt at parity with general unsecured debt unless an agreement subordinates it. Section 7-1.2-614(a)(7) excludes debt from the financial-test liabilities only when its terms condition principal and interest on whether a shareholder distribution could then be made. Each principal or interest payment on debt issued as a distribution is itself retested when actually paid.

Section 7-1.2-614 states no express secured-priority route or liquidation exclusion. Applying liquidation procedure, valuing assets, selecting accounting methods, evaluating insolvency, or deciding creditor rights remains outside this survey.

What trips people up

• The preference waiver is not general distribution approval. A superior class's majority vote under § 7-1.2-614(a)(3)(ii) waives the preference amount in the balance-sheet comparison; it does not replace board authorization or waive the insolvency test.
• The 120-day rule changes the measurement date. A payment within that window is measured at authorization, while a later payment is measured when made. The statute does not merely impose a payment deadline.
• Repurchases use an earlier-of rule. The controlling moment can arrive when consideration is transferred or debt incurred even if the shareholder remains a holder until later.

Common questions

Does a scrip holder automatically receive dividends?

No. R.I. Gen. Laws § 7-1.2-610 distinguishes scrip from a fractional-share certificate. The fractional-share certificate ordinarily carries dividend and other shareholder rights, but scrip carries none unless the scrip provides for them.

May the articles preserve a superior preference without requiring the add-on in the asset test?

Yes. R.I. Gen. Laws § 7-1.2-614(a)(3)(ii) separately says the articles may permit the asset comparison to omit the superior-preference amount. That does not erase the underlying class terms or the insolvency test.

Does the statute select book value over fair value?

No. R.I. Gen. Laws § 7-1.2-614(a)(4) permits reasonable financial statements, fair valuation, or another reasonable method. The statute does not decide which method or result is reasonable for a specific distribution.

Statutes and sources

• R.I. Gen. Laws § 7-1.2-106(3), (10), (12)-(13) — domestic for-profit corporation, insolvency, shareholder, and share definitions. Official text, accessed September 4, 2026.
• R.I. Gen. Laws §§ 7-1.2-601, 7-1.2-602, 7-1.2-610, and 7-1.2-614 — own-share transactions, class and series rights, fractions, authorization, financial tests, valuation, timing, share distributions, and distribution debt. 601, 602, 610, and 614, accessed September 4, 2026.
• R.I. Gen. Laws §§ 7-1.2-703(a) and 7-1.2-808 — dividend record date and board-committee delegation. Record date and committee, accessed September 4, 2026.