Also known as: distributions in liquidation · liquidating distribution · liquidating distributions · distribution upon liquidation
Written by attorneys · grounded in primary & secondary sources — see below
A transfer of a dissolved corporation's remaining assets to its shareholders after the corporation has paid or made provision for its liabilities. The board may fix a record date to identify the shareholders entitled to receive the distribution.
Dakota Industries dissolved and paid its known trade creditors in full. The board then authorized a cash distribution of the remaining assets to its shareholders. Because the directors had discharged all identified claims before making the transfer, the distribution qualified as a proper liquidation distribution under the statute.
After Dawson Steel dissolved, its sole shareholder received a cash payment representing the value of his shares upon surrender. In a subsequent divorce proceeding the court classified the payment as a return of capital rather than a dividend from current earnings.
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A distribution in liquidation may be made only by a dissolved corporation. The board may fix a record date to determine which shareholders are entitled to receive it, and that date may not be retroactive.
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Directors must discharge or make reasonable provision for the payment of claims. Only after satisfying that requirement may they distribute remaining assets to shareholders.
Supporting sources
A distribution in liquidation returns the value of a shareholder's stock upon surrender of the ownership interest in a corporation that no longer exists. A cash dividend is a recurrent return paid from current earnings or accumulated surplus of an ongoing corporation.
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…proxy statement also provided that, if the sale of Federal and the liquidation plan were approved, UV would effect an initial liquidating distribution of $18 per share to its common stockholders. On March 26, 1979, UV’s shareholders approved the sale of Federal and the liquidation plan. The following day, UV filed its Statement of Intent…