Screen a proposed dividend against the surplus and net-profits test

Key facts

Human involvement

Yellow · Close supervision

How AI is used

List whether the draft relies on surplus or, if it says there is no surplus, on the net profits § 170(a)(2) names. Do not calculate surplus.

What the lawyer must review

You decide whether the dividend may be declared. Section 170(a) says the directors of every Delaware corporation, subject to any restrictions in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock either out of its surplus, as defined in and computed in accordance with §§ 154 and 244, or, in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If the capital of the corporation, computed in accordance with §§ 154 and 244, has been diminished by depreciation, losses, or otherwise to an amount less than the aggregate capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, the directors shall not declare and pay out of such net profits any dividends upon any shares of any class until that deficiency has been repaired. Section 173 says no corporation shall pay dividends except in accordance with this chapter, and that dividends may be paid in cash, in property, or in shares of the corporation's capital stock. Section 141(b) is that board: one or more directors, each a natural person. Section 172 says a director is fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports, or statements as the section describes, as to the assets, liabilities, and net profits or other facts pertinent to surplus or other funds from which dividends might properly be declared. The tool does not compute surplus or net profits and does not declare the dividend.

Written for / version

United States versionUS