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Infolawyer, Attorney
Category: Business Law
Satisfied Customers: 1765
Experience:  Experienced lawyer
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Is there any security laws or century code provision that

Customer Question

Is there any security laws or century code provision that would restrict a closely held corporation from issuing a dividend to it common stock holders where the C Corp has to date not realized net retained earnings? Acquisition and amortization expenses have caused a net loss to date but cash balances are more than adequate to pay dividend as determined by the board. Domiciled in North Dakota.
Submitted: 1 year ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 1 year ago.

Hello, my name is ***** ***** I will try to help you. Please remember I just report or interpret the law, so the outcome may not be what you hoped for. I need to know the answers to some questions. If this is a C corp in addition to the par value of its stock, does the corporation have paid in surplus after deducting cumulative losses? If the fair market value of the assets were considered would that increase the capital of the company sufficient to have the net worth exceed the par value of the stock?

Expert:  Richard - Bizlaw replied 1 year ago.

I will be going off line soon and will not be back before late afternoon tomorrow. I did what you to know what I found even before you answered my questions. Under ND an insolvent corporation cannot pay dividends. The case that establishes this is ULNESS v. DUNNELL, 61 N.D. 95, 237 N.W. 208, 1931 N.D. LEXIS 248 (N.D. 1931). The concept this case adopts for the payment of dividends is that dividends should be from profits earned during the year in question. What the ND court's have not decided is whether a solvent corporation can pay dividends that comes from its capital stock. Normally capital stock has two components par value or stated capital and paid in capital surplus. In some states dividends can be paid from paid in capital surplus but not stated or par value capital. You paid in capital can increase where the value of your assets is greater than historical values reflected on your balance sheet. ND has not decided the question of whether a solvent corporation can pay dividends from its capital. The reality it may depend on who much your capital surplus is. That is why I needed the questions answered.

I will check back later once I get the answers to the questions.