Also known as: share dividends · stock dividend
Written by attorneys · grounded in primary & secondary sources — see below
A distribution of additional shares of a corporation's stock to its existing shareholders on a pro rata basis and without consideration. The board of directors may fix the record date for determining which shareholders receive the distribution.
Silverline Industries has only one class of common stock outstanding. Its board declares a ten percent share dividend but lacks sufficient authorized shares to issue the new stock. The board adopts an amendment to the articles increasing the authorized shares by exactly the amount needed for the dividend and files the amendment without a shareholder vote. The amendment permits the corporation to distribute the additional shares to all existing holders.
Southland Foods announces a share dividend of one new common share for every ten shares already held by its common shareholders. The corporation issues the new shares directly to Sean Steele and all other holders without requiring any payment or additional consideration. The distribution maintains the same ownership percentages among all common shareholders.
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Spectrum Financial's board considers declaring a share dividend to conserve cash while still rewarding shareholders. Sebastian Santos, a minority holder, argues that the corporation should instead retain earnings for expansion. The board proceeds with the pro rata share dividend after determining that the issuance satisfies solvency requirements and treats all common shareholders equally.
A board may amend the articles without shareholder approval when the corporation has only one class of shares outstanding and the increase in authorized shares is limited to the amount necessary to issue the share dividend. This authority appears in the Model Business Corporation Act and applies only to that narrow purpose.
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Shareholders need not pay consideration for shares received in a share dividend. The Model Business Corporation Act expressly authorizes issuance of shares pro rata and without consideration to existing shareholders of the same class.
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A board cannot exclude shareholders within the same class from a share dividend. The governing statute requires pro rata distribution to all holders of the relevant class or series, and selective exclusion violates that equal-treatment mandate.
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The board may fix a record date for determining shareholders entitled to a share dividend, but the date may not be retroactive. If the board sets no record date, the date of board authorization serves as the record date.
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…of the fact that it had been^ upon an occasion, agreeable to the plaintiffs to increase the capital stock to $100,000,000 by a stock dividend of $98,000,-000. These things go only to answer other contentions now made by plaintiffs and do not and cannot operate to estop them to demand proper dividends upon the stock they own. It…