Also known as:pro-rata distribution · prorata distribution · pro rata distributions · pro rata · proportionate distribution
Written by attorneys · grounded in primary & secondary sources — see below
A method of allocating assets or shares proportionally among entitled parties according to their respective interests or ownership percentages. The allocation ensures each recipient receives a share measured by the ratio of that recipient's interest to the total interests. This approach applies when a corporation distributes assets to shareholders of one or more classes or when shares are issued as a dividend without consideration.
Sources & Authorities
How it applies
Common Examples
2
Asset Distribution in Corporate Dissolution
Patriot Insurance decides to dissolve and distribute its remaining cash reserves to its common shareholders. The board calculates each shareholder's ownership percentage and issues payments in exact proportion to those percentages. Patricia Patel, who owns twenty percent of the shares, receives twenty percent of the total distribution amount. The remaining shareholders receive their corresponding portions without any deviation from the ownership ratios.
Share Dividend to Existing Holders
Pulse Media's board authorizes a ten-percent stock dividend on its common shares. The corporation issues new shares without consideration to each existing shareholder in direct proportion to the number of shares already held. Pearl Porter, who owns one thousand shares, receives one hundred additional shares. All other common shareholders receive new shares calculated by the same ownership ratio.
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Practice Questions5
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Federal Rules
Uniform Acts
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Common questions
Frequently Asked
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Does a pro rata distribution require equal dollar amounts to each shareholder?+
No. The distribution allocates assets or shares according to each shareholder's ownership percentage rather than equal dollar amounts. A shareholder owning twenty percent receives twenty percent of the total distribution regardless of the number of other shareholders.
Supporting sources
Can articles of incorporation override a pro rata share dividend?+
Yes. The rule permitting pro rata issuance of shares as a dividend applies only unless the articles of incorporation provide otherwise. If the articles contain a contrary provision, the corporation must follow that restriction instead of issuing shares proportionally.
Supporting sources
Does a pro rata distribution apply only to common shareholders?+
No. The rule allows distribution to the holders of one or more classes or series of shares. A corporation may distribute assets or issue shares proportionally to preferred shareholders or to multiple classes when authorized.
Supporting sources
Trusts and Estates Decedents EstatesWills · Construction problemsUBEIntermediate