(1) A board
of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the
articles of incorporation and the limitation in subsection (2) of
this section.
(2) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its liabilities
as they become due in the usual course of business; or
(b) The corporation's total assets would be less than the
sum of its total liabilities plus, unless the articles of
incorporation permit otherwise, the amount that would be needed,
if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those
receiving the distribution.
(3) For purposes of determinations under subsection (2) of
this section:
(a) The board of directors may base a determination that a
distribution is not prohibited under subsection (2) of this
section either on financial statements prepared on the basis of
accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is
reasonable in the circumstances; and
(b) Indebtedness of a corporation, including indebtedness
issued as a distribution, is not considered a liability if its
terms provide that payment of principal and interest are made
only if and to the extent that payment of a distribution to
shareholders could then be made under this section.
(4) The effect of a distribution under subsection (2) of
this section is measured:
(a) In the case of a distribution of indebtedness, the terms
of which provide that payment of principal and interest are made
only if and to the extent that payment of a distribution to
shareholders could then be made under this section, each payment
of principal or interest is treated as a distribution, the effect
of which is measured on the date the payment is actually made; or
(b) In the case of any other distribution:
(i) If the distribution is by purchase, redemption, or other
acquisition of the corporation's shares, the effect of the
distribution is measured as of the earlier of the date any money
or other property is transferred or debt incurred by the
corporation, or the date the shareholder ceases to be a
shareholder with respect to the acquired shares;
(ii) If the distribution is of indebtedness other than that
described in subsection (4) (a) and (b)(i) of this section, the
effect of the distribution is measured as of the date the
indebtedness is distributed; and
(iii) In all other cases, the effect of the distribution is
measured as of the date the distribution is authorized if payment
occurs within one hundred twenty days after the date of
authorization, or the date the payment is made if it occurs more
than one hundred twenty days after the date of authorization.
(5) A corporation's indebtedness to a shareholder incurred
by reason of a distribution made in accordance with this section
is at parity with the corporation's indebtedness to its general,
unsecured creditors except to the extent provided otherwise by
agreement.
(6) In circumstances to which this section and related
sections of this title are applicable, such provisions supersede
the applicability of any other statutes of this state with
respect to the legality of distributions.
(7) A transfer of the assets of a dissolved corporation to a
trust or other successor entity of the type described in RCW 23B.14.030(4) constitutes a distribution subject to subsection
(2) of this section only when and to the extent that the trust or
successor entity distributes assets to shareholders.
[2006 c 52 § 2; 1990 c 178 § 10; 1989 c 165 § 59.]
NOTES:
Effective date -- 1990 c 178: See note following RCW 23B.01.220.