When A Distribution Is Not Subject To Chapter 5

Chapter 5 of the California Corporations Code prohibits a distribution to shareholders unless specified conditions are met. The most common type of distribution subject to these limitations is a dividend, but the term "distribution to shareholders" is broadly defined to mean any transfer of cash or property by a corporation to its shareholders without consideration, except a dividend in the corporation's own shares.  The term also includes a corporation's purchase or redemption of its shares for cash or property.  Cal. Corp. Code § 166. Directors who approve the making of a distribution in violation of Chapter 5's restrictions may be jointly and severally liable to the corporation.  Cal. Corp. Code § 316(a)(1).

Despite the breadth of the definition of "distribution to shareholders" not every allotment of cash or property by a corporation is subject to Chapter 5's limitations.  Section 508 provides that Chapter 5 does not apply in connection with any proceeding for winding up and dissolution under either Chapter 18 (involuntary dissolution) or Chapter 19 (voluntary dissolution).  This does not mean that directors of a corporation in dissolution may make distributions to shareholders with impunity.  Section 316(a)(2) provides that they may be held jointly and severally liable for the distribution of assets to shareholders after institution of dissolution proceedings without paying or adequately providing for all known liabilities of the corporation (excluding any claims not filed by creditors within time limits fixed by the court in a notice given to creditors). 

The Tribal Origins Of Distributions

The three original tribes of Rome were the Titienses (Tities), Ramnenses (Ramnes), and Luceres.  These correspond to the ancient people of Italy known as the Sabines, Latins, and the Etruscans.  The English word "tribe" is derived from the Latin word tres, which in the dative and ablative form is tribus.  The English word "distribution" has its roots in these Latin words, being derived from tribuere, meaning to allot or assign, and dis, meaning away.