Corporate Dividend and Distribution Requirements in Utah
At a glance
| Governing law, entity, distribution, and scope | Utah Revised Business Corporation Act, Utah Code tit. 16, ch. 10a; ordinary domestic for-profit corporation. Distribution includes direct/indirect money or property except own shares, debt, dividends, purchases, redemptions, and other acquisitions; § 16-10a-640 has no express liquidation exclusion (§§ 16-10a-101, -102, -640) |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes subject to articles and § 16-10a-640(3). Committee may exercise board authority as specified, with no distribution-specific barred power. Qualifying all-shareholder agreement may restrict board or govern distributions, including nonproportionately, subject to § 640 (§§ 16-10a-640, -732, -825) |
| Cash, property, shares, debt, repurchase, and redemption forms | Direct/indirect money or other property except own shares, incurred debt, dividend declaration/payment, purchase, redemption, other acquisition, debt, or other form (§ 16-10a-102(13)); share dividends under § 16-10a-623; redemption may use money, debt, securities, or property (§ 16-10a-601(3)) |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, stated-capital, or other capital-source test in § 16-10a-640; Utah uses the dual post-distribution limits plus articles, class/series, and qualifying shareholder-agreement terms |
| Liquidity, balance-sheet, liability, and preference test | After distribution: corporation must be able to pay debts as due, and assets must be at least liabilities plus amount needed for superior dissolution preferences unless articles permit otherwise (§ 16-10a-640(3)) |
| Financial statements, valuation, reserves, and reliance | Board may use reasonable-in-circumstances accounting statements, including consolidated statements, fair valuation, or another reasonable method (§ 16-10a-640(4)); qualified reliance on reliable officers/employees, experts, or trusted committee absent contrary knowledge (§ 16-10a-840(2)-(3)); no reserve formula |
| Record date, measurement date, payment delay, and revocation | Bylaws or fallback board may set future record date; default, if needed, is authorization. Acquisition: earlier transfer/debt or shareholder-status end; other debt: distribution; other payments: authorization if within 120 days, payment if later (§ 16-10a-640(2), (5)) |
| Class, series, equal treatment, stock distribution, and fractions | Same-class and same-series preferences/rights identical (§§ 16-10a-601, -602). Share dividends pro rata; cross-class issue needs articles, issuing-class majority, or no outstanding shares; bylaws/board set record date (§ 16-10a-623). Fractions, value cash, disposition, or registered/bearer scrip (§ 16-10a-604); qualifying agreement may vary proportion |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Unsecured compliant distribution debt is at parity with general unsecured creditors unless subordinated; § 16-10a-640(6) grants parity only to unsecured distribution debt. Conditional debt may be excluded from liabilities and retested when paid (§ 16-10a-640(6)-(7)); no express liquidation exclusion; liability, bankruptcy, covenant, tax, valuation, and advice issues outside scope |
Requirements one by one
Governing law, entity, distribution, and scope
Utah Code §§ 16-10a-101 and 16-10a-102 apply the Utah Revised Business Corporation Act to an ordinary domestic for-profit corporation. A distribution includes a direct or indirect transfer of money or property other than the corporation's own shares, or incurred debt, to or for shareholders with respect to shares. Dividends, purchases, redemptions, other acquisitions, debt, and other forms are expressly listed.
Utah Code § 16-10a-640 contains no express liquidation exclusion. This page addresses voluntary nonliquidating distributions and does not apply liquidation rules.
Board, committee, shareholder, and charter authority
Utah Code § 16-10a-640(1) assigns authorization to the board, subject to articles restrictions and the financial tests. Utah Code § 16-10a-825 allows a committee of at least two directors to exercise board authority to the extent specified by the board, articles, or bylaws; unlike several Model Act versions, it states no distribution-specific prohibited power.
A qualifying agreement under Utah Code § 16-10a-732(1)-(2), (4) can eliminate or restrict the board, transfer corporate authority, or govern distributions whether or not proportional. All current shareholders must approve or sign the specified record, the § 16-10a-640 limits remain, and the agreement ends when the shares become nationally listed or regularly traded in the specified market.
Cash, property, shares, debt, repurchase, and redemption forms
Utah Code § 16-10a-102(13) reaches money, other property, incurred debt, dividend declarations and payments, purchases, redemptions, other acquisitions, debt distributions, and other forms. Section 16-10a-601(3) also permits articles to make a class or series redeemable for money, indebtedness, securities, or other property.
The corporation's own shares are excluded from the definition's property branch and follow the separate § 16-10a-623 share-dividend rules.
Surplus, net-profit, equity, and capital-source test
Utah Code § 16-10a-640 states no separate surplus, retained-earnings, net-profit, stated-capital, or other source test. Utah instead uses the two post-distribution limits in Subsection (3), together with articles, class or series, and any qualifying shareholder-agreement terms.
This reports the statutory test without applying it to a corporation's numbers.
Liquidity, balance-sheet, liability, and preference test
Utah Code § 16-10a-640(3) bars a distribution that would leave the corporation unable to pay debts as they become due in the usual course. It also bars a distribution that would leave assets below liabilities plus the amount needed for superior dissolution preferences.
The articles may permit departure from the preference add-on, but the exception does not extend to the debts-as-due or basic assets-versus-liabilities parts.
Financial statements, valuation, reserves, and reliance
Utah Code § 16-10a-640(4) permits financial statements prepared under accounting practices and principles reasonable in the circumstances, expressly including consolidated financial statements, or a fair valuation or another reasonable method. The distribution section supplies no reserve formula.
Under Utah Code § 16-10a-840(1)-(3), qualified reliance may extend to reliable and competent officers or employees, specified related-corporation personnel, experts within their competence, or a properly designated trusted committee. Knowledge making reliance unwarranted defeats that route.
Record date, measurement date, payment delay, and revocation
Utah Code § 16-10a-640(2) lets the bylaws, or the board absent an applicable bylaw, fix a future record date for a nonacquisition distribution. If a date is necessary and none is fixed, authorization is the default. The section states no forward maximum.
For a purchase, redemption, or other acquisition, Subsection (5) uses the earlier of property transfer or debt incurrence and the end of shareholder status. Other debt distributions are measured when distributed. Other payments use authorization when paid within 120 days and payment when later. The section states no general revocation power.
Class, series, equal treatment, stock distributions, and fractions
Utah Code § 16-10a-601 ordinarily makes preferences, limitations, and rights identical within a class. Utah Code § 16-10a-602(1)-(3) does the same within a series while permitting articles-authorized board determination before issuance. The articles may establish cumulative or noncumulative dividends, redemption terms, and distribution or dissolution preferences.
Under Utah Code § 16-10a-623, share dividends are pro rata and without consideration. A cross-class or cross-series dividend requires articles authorization, majority approval by the outstanding class or series to be issued, or no outstanding shares of that class or series. The bylaws or fallback board set its future record date. Utah Code § 16-10a-604 permits fractions, value cash, holder disposition, or registered or bearer scrip; fractions carry dividend rights, while scrip does so only if its terms provide.
Distribution debt, priority, liquidation, insolvency, and boundaries
Utah Code § 16-10a-640(6) places compliant distribution debt at parity with general unsecured creditors only if the distribution debt is unsecured, unless subordinated by agreement. Under Subsection (7), debt payable only when a distribution could then be made is excluded from liabilities; if issued as a distribution, each principal or interest payment is retested when actually paid.
The section has no express liquidation exclusion. Liability, recovery, fraudulent transfer, bankruptcy, covenants, fiduciary duties, tax, accounting, and valuation advice remain outside scope.
What trips people up
- The bylaws come first on record dates. The board fixes a future date only in the absence of an applicable bylaw.
- Committee authority is broad. Section 16-10a-825 has no Model Act-style restriction limiting distributions to a board-set formula or ceiling.
Common questions
Does Utah require surplus or current net profits?
No separate source test appears in Utah Code § 16-10a-640. The operative limits are the debts-as-due and assets-versus-liabilities-plus-preferences tests.
May the articles remove both financial tests?
No. The articles exception reaches the superior-preference add-on, not the debts-as-due requirement or the basic assets-versus-liabilities comparison.
May all shareholders agree to a nonproportionate distribution?
A qualifying § 16-10a-732 agreement may govern distributions whether or not in proportion to ownership, but it remains subject to § 16-10a-640 and ends when the shares become nationally listed or regularly traded in the specified market.
Statutes and sources
- Utah Code §§ 16-10a-101 and 16-10a-102(11), (13) — Act, corporation, and distribution definitions. Official Utah Legislature Chapter 10a text (accessed 2026-09-04).
- Utah Code §§ 16-10a-601, 16-10a-602, 16-10a-604, and 16-10a-623 — class and series terms, preferences, redemption forms, fractions, and share dividends. Official Utah Legislature Chapter 10a text (accessed 2026-09-04).
- Utah Code § 16-10a-640 — authority, solvency, valuation, timing, debt, and lack of an express liquidation exclusion. Official text (accessed 2026-09-04).
- Utah Code § 16-10a-732(1)-(2), (4) — qualifying shareholder-agreement authority, approval, distributions, and public-status cutoff. Official text (accessed 2026-09-04).
- Utah Code §§ 16-10a-825 and 16-10a-840 — committee authority and qualified reliance. Official Utah Legislature Chapter 10a text (accessed 2026-09-04).
Source links
Every statute quoted above, linked, with the date we checked it.
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