Corporate Dividend and Distribution Requirements in West Virginia
At a glance
| Governing law, entity, distribution, and scope | West Virginia Business Corporation Act §§ 31D-1-101, -1-150(4), (6), -6-640; ordinary domestic for-profit corporation. Distribution covers direct/indirect money or property, debt, dividends, purchases/redemptions/acquisitions, and distributed debt; own shares excluded. No express liquidation exclusion in §§ 31D-1-150, -6-640 |
|---|---|
| Board, committee, shareholder, and charter authority | Board authorizes, subject to articles and § 31D-6-640(c). Committee cannot authorize distributions; reacquisitions may follow a board formula/method (§ 31D-8-825(e)). A qualifying unanimous shareholder agreement may govern proportional or disproportionate distributions but remains subject to § 31D-6-640 (§ 31D-7-732) |
| Cash, property, shares, debt, repurchase, and redemption forms | Direct or indirect money/other property, incurred debt, declared/paid dividends, purchases, redemptions, other share acquisitions, and distributed debt (§ 31D-1-150(6)); corporation's own shares excluded and share dividends follow § 31D-6-623 |
| Surplus, net-profit, equity, and capital-source test | No separate surplus, retained-earnings, net-profit, or stated-capital source test in § 31D-6-640; the two post-distribution tests and governing records control |
| Liquidity, balance-sheet, liability, and preference test | After distribution: able to pay debts as due, and total assets ≥ total liabilities plus amount needed for superior dissolution preferences unless articles permit otherwise (§ 31D-6-640(c)) |
| Financial statements, valuation, reserves, and reliance | Board may use financial statements based on reasonable accounting practices/principles, fair valuation, or another reasonable method (§ 31D-6-640(d)). General director reliance covers delegated performance and records, officers/employees, professionals, and committees (§ 31D-8-830(c)-(e)); no distribution-specific reserve formula |
| Record date, measurement date, payment delay, and revocation | Board-set distribution record date; default is authorization except a share purchase/redemption/acquisition (§ 31D-6-640(b)). Acquisition: earlier of transfer/debt or status end; other debt: distribution; other payment ≤120 days: authorization, later: payment. No express distribution-revocation rule |
| Class, series, equal treatment, stock distribution, and fractions | Same-class and same-series preferences/rights ordinarily identical; articles or authorized resolution sets class/series distribution terms (§§ 31D-6-601 to -602). Share dividends pro rata; cross-class issue needs articles, issued-class majority, or no outstanding issued-class shares (§ 31D-6-623). Fractions, value money, disposition, or scrip (§ 31D-6-604). Escrowed-share distributions may be credited/canceled (§ 31D-6-621(e)) |
| Distribution debt, priority, liquidation, insolvency, and boundaries | Compliant distribution debt ranks equally with general unsecured debt unless subordinated. Conditional debt is excluded from liabilities and each payment retested (§ 31D-6-640(f)-(g)); no express liquidation carveout. Liability, bankruptcy, covenant, tax, valuation, and advice issues outside scope |
Requirements one by one
Governing law, entity, distribution, and scope
W. Va. Code §§ 31D-1-101 and 31D-1-150 identify the West Virginia Business Corporation Act, define the covered corporation as a domestic for-profit corporation, and define distribution broadly. It reaches money, other property, incurred debt, declared and paid dividends, purchases, redemptions, other share acquisitions, and distributed debt, while excluding the corporation's own shares.
Neither § 31D-1-150 nor § 31D-6-640 states an express liquidation-distribution exclusion. This page nevertheless concerns only the topic's voluntary nonliquidating transaction.
Board, committee, shareholder, and article authority
W. Va. Code § 31D-6-640(a) assigns authorization to the board, subject to the articles and the statutory financial tests. W. Va. Code § 31D-8-825 expressly bars a committee from authorizing a distribution, while permitting a board-formula or method route for a share reacquisition.
A compliant agreement under § 31D-7-732 may govern authorization or making of distributions, including distributions not proportional to share ownership. It requires all current shareholders when made and remains expressly subject to § 31D-6-640, so it does not eliminate the financial limits.
Cash, property, shares, debt, repurchase, and redemption forms
The § 31D-1-150(6) definition reaches direct and indirect money or property, incurred indebtedness, declared and paid dividends, purchases, redemptions, and other share acquisitions. The corporation's own shares are excluded from the property branch and instead follow W. Va. Code § 31D-6-623.
No surplus or net-profit source test
W. Va. Code § 31D-6-640 states no separate lawful-source test based on surplus, retained earnings, stated capital, or current or preceding-year net profits. It instead uses the two post-distribution limits in subsection (c), subject also to the articles and any class or series terms. This page does not apply those tests to a corporation's accounts.
Liquidity, assets, liabilities, and preferences
Section 31D-6-640(c) bars a distribution if the corporation would be unable to pay debts as they become due in the usual course. It separately requires total assets to remain at least equal to total liabilities plus the amount needed on an immediate hypothetical dissolution to satisfy shareholder preferences superior to those receiving the distribution. The articles may permit omission of that preference add-on, but not the underlying liabilities.
W. Va. Code §§ 31D-6-601 to 31D-6-602 place class and series terms in the articles or an articles-authorized board determination. Those terms can define redemption forms, dividend calculations, and distribution priorities.
Statements, valuation, and reliance
Under § 31D-6-640(d), the board may use financial statements prepared on accounting practices and principles reasonable in the circumstances, a fair valuation, or another reasonable method. W. Va. Code § 31D-8-830 separately permits qualified reliance on delegated performance, corporate records, officers, employees, retained professionals, and another board committee when its stated conditions are met.
The distribution section adds no depletion-reserve formula or current-valuation disclosure. This page does not determine which method, value, or reliance is reasonable for a particular corporation.
Record date, measurement, delayed payment, and revocation
W. Va. Code § 31D-6-640(b), (e) allows a board-set distribution record date and uses authorization as the default when the board does not fix one, except for a share purchase, redemption, or other acquisition. A share acquisition is measured at the earlier of the transfer or debt-incurrence date and the date the holder ceases to be a shareholder for the acquired shares. Other distributed debt is measured when distributed.
An ordinary payment uses authorization when it occurs within 120 days and the payment date when it occurs later. Section 31D-6-640 states no general power to revoke an authorized distribution.
Share dividends, class terms, escrowed shares, and fractions
W. Va. Code §§ 31D-6-601 to 31D-6-602 ordinarily make rights identical within a class or series. W. Va. Code § 31D-6-623 makes a share dividend pro rata and without consideration unless the articles provide otherwise. A cross-class issuance requires articles authority, majority approval by the class or series being issued, or no outstanding shares of that issued class or series.
W. Va. Code § 31D-6-604 permits an actual fractional share, money equal to its value, a shareholder disposition arrangement, or registered or bearer scrip. A fractional share carries shareholder rights; scrip carries none unless its terms say otherwise. Under § 31D-6-621(e), distributions on escrowed shares may be credited against the purchase price and canceled if the promised service, benefit, or note payment does not arrive.
Distribution debt, conditional payments, and boundaries
W. Va. Code § 31D-6-640(f)-(g) puts compliant distribution indebtedness at parity with general unsecured debt unless an agreement subordinates it. Debt payable only if and to the extent a distribution could then be made is excluded from liabilities for the balance-sheet test. Each principal or interest payment on debt issued as a distribution is itself tested as a distribution when paid.
The section contains no express liquidation carveout. Liquidation, director or recipient liability, creditor recovery, fraudulent transfer, bankruptcy, covenants, fiduciary duties, tax, accounting, and transaction advice remain outside this survey.
What trips people up
A committee cannot declare the dividend. Section 31D-8-825's express bar controls despite the committee's otherwise broad delegated authority. Its formula route is limited to reacquisitions.
The distribution section has no liquidation exclusion. Many newer Model Act states add an express subsection sending liquidation distributions elsewhere; West Virginia's current § 31D-6-640 ends after the conditional-debt rule.
The 120-day line changes the measurement date. An ordinary payment within the line uses authorization; a later payment uses payment. The original test does not remain the statutory measurement indefinitely.
Common questions
Do West Virginia shareholders usually approve an ordinary dividend?
Section 31D-6-640 assigns authorization to the board. A compliant all-shareholder agreement may govern the decision, but remains subject to the financial limits and the corporation's articles and class terms.
Can a West Virginia corporation issue its own shares as a dividend?
Yes, through § 31D-6-623 rather than the ordinary property-distribution branch. Its pro rata default, cross-class alternatives, and record-date rule must be checked against the articles and outstanding share structure.
Does issuing a conditional note avoid future testing?
No. Qualifying conditional debt may be excluded from liabilities for the initial test, but every principal or interest payment on debt issued as a distribution is tested when actually made.
Statutes and sources
- W. Va. Code §§ 31D-1-101, 31D-1-150, 31D-6-601 to -604, 31D-6-621, 31D-6-623, 31D-6-640, 31D-7-732, 31D-8-825, and 31D-8-830 — governing act, definitions, class terms, fractions, escrowed shares, share dividends, authority, financial tests, valuation, timing, shareholder agreements, committee limits, reliance, and distribution debt. Current official West Virginia Code Chapter 31D, accessed September 4, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
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