State Statutory Restrictions on Financial Distributions by Corporations to Shareholders

After a long period of dormancy, interest appears to have quickened in the possible reform of the statutory provisions enacted by most states to regulate payments by corporations to their shareholders. The California legislature recently adopted a relatively unique series of restrictions on dividends and repurchases of shares as part of an overall revision of that state's Corporations Code. And the Committee on Corporate Laws of the American Bar Association section on Corporation, Banking and Business Law recently revised almost all of the financial provisions in the Model Business Corporation Act. In view of these developments, it is fair to assume that a significant number of legislatures will soon consider whether to enact the revised Model Act provisions, to retain the old Model Act provisions, to enact the new California provisions, or possibly to enact an entirely new series of provisions.

Unfortunately, relatively little of the otherwise ample recent literature on corporate financial provisions has focused on the basic policy questions that must be resolved before an informed choice can be made between alternative means of regulating corporate financial distributions. This article attempts to fill that void.