Originally from:
Advising Minnesota Corporations and Other Business Organizations - 2nd Edition - Hardcover
Advising Minnesota Corporations and Other Business Organizations - 2nd Edition - Electronic
Preview Page
CHAPTER 40
NONCASH DIVIDENDS AND
DISTRIBUTIONS
Section
§ 40.01 Noncash Dividends and Distributions
§ 40.02 Federal Income Tax Treatment of Stock Dividends
§ 40.01 Noncash Dividends and Distributions
There are two types of noncash dividends: (1) property dividends and
(2) share (or stock) dividends. Noncash dividends may be in the form of
property as long as not prohibited by statute or corporate charter.1 As
noted above, property and cash dividends are generally subject to the
same statutory provisions and are treated as synonymous.2 Share
dividends are portions of additional shares for the shares already owned
by the shareholder.3 Corporations choose to distribute stock dividends
when the board decides to reinvest its earnings into itself rather than pay
out the corporate earnings in the form of cash or property dividends.4 A
shareholder’s wealth is not changed by a stock dividend, because the
corporation has not transferred any corporate asset to him or her, and his
or her proportionate interest has not changed because of the stock
dividend.5 States that use the earned surplus test require that the stock
dividend be paid out of any surplus.6 As already discussed in Section
39.02, Minnesota has adopted a form of the Model Act test7 and no
longer uses a surplus-oriented test. A corporation may only authorize a
dividend if the corporation will be able to pay its debts in the ordinary
course of business after making the distribution.8 Stock dividends are
not subject to the same restrictions under Minnesota law as are cash and
property dividends. Publicly traded corporations are subject to additional
regulation in the area of accounting methods both by the accounting
profession and the New York Stock Exchange.
Roger J. Magnuson is a Partner at Dorsey and Whitney, LLP, where he serves as Head of the National Strategic Litigation Group and has practiced since 1973. He has been recognized as one of the top trial lawyers in the United States by major national and international publications, including Chambers International Guide to American Lawyers, which profiles the top 500 trial lawyers in the United States, Best Lawyers in America, Who's Who in American Law, and Who's Who in America. Mr. Magnuson was also recognized by a Journal of Law and Politics' survey for Judge's Choice "Wins Most Cases."
Some high profile cases that he has litigated include representation of the Florida Senate in the Bush v. Gore election controversy in 2000; and representation of the Plaintiffs in the widely publicized and studied Mall of America case. For several years he has represented, among other persons and entities, the Minnesota Twins and Major League Baseball principals and players in litigation; and has litigated national and local cases in federal and state court venues. He has appealed before the Supreme Court in a number of cases; as well as the Minnesota Supreme Court. He has authored several articles and 7 books.
Richard A. Saliterman is a Principal in Saliternan & Siefferman P.C., a full-service firm in Minneapolis established in 1976. Mr. Saliterman is a leading expert on corporate business matters, and is the author of several publications on business start-ups, franchises, and trademarks. Mr. Saliterman is the former National Judge Advocate for the U.S. Navy League, based in Washington D.C.
Contributing Editor:
Amanda Chang
Contributing Authors:
Alecia Anderson
Seth Back
John Baker
Shannon Berg
Constatin Burachek
Benjamin Carpenter
Ryan Check
Carl Christensen
Peter Fear
Michael Frasier
Aaron Hall
Catherine Hanson
Paul Harman
Amy Ithlan
Michael Kern
Chris Kuhlman