Corporate Dividend and Distribution Requirements in Washington

At a glance

Requirements one by one

Governing law, entity, distribution, and scope

RCW § 23B.01.400(6), (8) defines a domestic corporation as a for-profit corporation incorporated under or subject to Title 23B. A distribution includes a direct or indirect transfer of money or other property, other than the corporation's own shares, or debt incurred for shareholders with respect to their shares. The definition names dividends, purchases, redemptions, other acquisitions, debt distributions, liquidation, and dissolution.

This page applies the topic's narrower voluntary-nonliquidating scope. RCW § 23B.06.400(1)-(8) also reaches one dissolution-adjacent event: a dissolved corporation's transfer to a qualifying trust or successor becomes a tested distribution only when and to the extent the successor distributes assets to shareholders.

Board, committee, shareholder, and governing-record authority

The board may approve a distribution under RCW 23B.06.400, subject to the articles and the financial limits. RCW § 23B.08.250(4)(a) confines a board committee to a formula or method, or limits, prescribed by the board; it does not permit an unbounded delegation of distribution authority.

RCW § 23B.07.320(1)-(2), (4) separately permits a compliant all-shareholder written agreement to eliminate or restrict the board and govern approval, making, and proportionality of distributions. The agreement remains subject to RCW 23B.06.400 and ceases to operate when the shares become listed or regularly traded in the manner the statute describes.

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

RCW 23B.01.400 covers money, other property, shareholder indebtedness, dividends, purchases, redemptions, and other acquisitions. The definition excludes the corporation's own shares from the property-transfer branch because RCW 23B.06.230 separately governs share dividends. Under RCW § 23B.06.310(1), reacquired shares generally become authorized but unissued.

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

Washington does not add a surplus, retained-earnings, net-profit, or stated-capital source test to RCW 23B.06.400. Instead, it uses the two post-distribution limits in subsection (3), together with restrictions in the articles and the class or series terms described by RCW 23B.06.010-.020. This states the statutory architecture without deciding what a corporation may pay.

Liquidity, balance-sheet, liability, and preference test

After giving effect to a distribution, RCW 23B.06.400(3) requires the corporation to remain able to pay liabilities as they become due in the usual course. Total assets also cannot fall below total liabilities plus the amount needed to satisfy superior dissolution preferences, unless the articles permit otherwise. Both limits apply.

Financial statements, valuation, reserves, and reliance

RCW 23B.06.400(4) lets the board use financial statements based on accounting practices and principles reasonable in the circumstances, a fair valuation, or another reasonable method. RCW § 23B.08.300(2)-(3) permits qualified reliance on corporate officers or employees, professional experts, or a trusted committee unless the director has knowledge making reliance unwarranted. The distribution section states no special reserve formula.

Record date, measurement date, payment delay, and revocation

The board may fix the record date under RCW 23B.06.400, but the date cannot precede approval of the fixing resolution. If it does not fix one, the default for a nonacquisition distribution is authorization. RCW § 23B.06.230(1)-(3) uses the same default for a share dividend.

Measurement follows form. A purchase, redemption, or other own-share acquisition uses the earlier of the money/property transfer or debt-incurrence date and the date shareholder status ends. Ordinary debt uses the distribution date. Other payments use approval if completed within 120 days and the payment date if later. Conditional-pay debt is tested each time principal or interest is actually paid. The surveyed section states no general revocation rule.

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

RCW § 23B.06.010(1), (3) generally gives shares in one class identical preferences, limits, voting powers, and relative rights, while the articles set distribution and dissolution preferences. Series within a class have the further uniformity and variation rules in RCW 23B.06.020.

A share dividend is pro rata by default under RCW 23B.06.230. Issuing one class or series as a dividend on another requires authorization in the articles, approval by a majority of votes entitled to be cast by the class or series being issued, or no outstanding shares of that class or series. RCW § 23B.06.040(1), (3)-(4) permits fractions, value cash, a disposition arrangement, or conditional scrip; the fractional share carries shareholder rights while scrip does not unless its terms provide otherwise.

Distribution debt, priority, liquidation, insolvency, and boundaries

RCW 23B.06.400 gives compliant distribution debt parity with general unsecured debt unless an agreement provides otherwise. Conditional-pay debt is excluded from liabilities for the financial tests, but every payment of principal or interest becomes a distribution tested when actually paid. The section says its rules supersede other Washington statutes on distribution legality when it and related Title 23B sections apply; it states no special rule making distribution debt secured.

This page reports the statutory tests without applying them. It does not decide solvency or a lawful amount and excludes unlawful-distribution liability, creditor recovery, fiduciary disputes, fraudulent transfers, bankruptcy, debt covenants, tax, accounting, valuation, securities, and transaction advice.

What trips people up

A record date and a financial-test date serve different purposes. The record date identifies entitled shareholders. RCW 23B.06.400 instead selects the test date from the transaction form and timing; an ordinary payment after 120 days cannot simply reuse the approval-date determination.

Conditional distribution debt is not a permanent exception. Its terms can keep it out of liabilities, but each principal and interest payment is a fresh distribution measured when made.

Common questions

Does Washington require a dividend to come from surplus or net profits?

No separate source test appears in RCW 23B.06.400. The statute instead applies the ability-to-pay and assets-versus-liabilities-plus-preferences tests, subject to the articles and class terms.

Can shareholders agree to non-pro-rata distributions?

RCW 23B.07.320 permits a compliant agreement executed by all current shareholders to govern distributions regardless of ownership proportions, but it expressly preserves RCW 23B.06.400's financial limits.

Can the corporation issue another class as a share dividend?

Only through one of RCW 23B.06.230's routes: articles authorization, majority approval by the class or series being issued, or no outstanding shares of that class or series.

Does approval always control the financial test?

No. Acquisition, debt, conditional-payment, and more-than-120-day rules can all move the measurement date away from approval.

Statutes and sources

• Washington Business Corporation Act, RCW §§ 23B.06.010 through 23B.06.410 — complete current shares-and-distributions chapter, accessed September 3, 2026: https://app.leg.wa.gov/RCW/default.aspx?cite=23B.06&full=true
• RCW § 23B.01.400 — current corporation and distribution definitions, accessed September 3, 2026: https://app.leg.wa.gov/RCW/default.aspx?cite=23B.01&full=true
• RCW § 23B.07.320 — current unanimous-shareholder-agreement rule, accessed September 3, 2026: https://app.leg.wa.gov/RCW/default.aspx?cite=23B.07.320
• RCW § 23B.08.250 — current board-committee rule, accessed September 3, 2026: https://app.leg.wa.gov/RCW/default.aspx?cite=23B.08.250
• RCW § 23B.08.300 — current director-reliance rule, accessed September 3, 2026: https://app.leg.wa.gov/RCW/default.aspx?cite=23B.08.300