A. Subject to any restrictions in the articles of incorporation, the board of directors may authorize and the corporation may make distributions, except that no distribution may be made if, after giving effect thereto, either:

(1) the corporation would be unable to pay its debts as they become due in the usual course of its business; or

(2) the corporation's total assets would be less than the sum of its total liabilities and (unless the articles of incorporation otherwise permit) the maximum amount that then would be payable, in any liquidation, in respect of all outstanding shares having preferential rights in liquidation.

B. Determinations under Paragraph (2) of Subsection A of this section may be based upon:

(1) financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or

(2) a fair valuation or other method that is reasonable in the circumstances.

C. In the case of a purchase, redemption or other acquisition of a corporation's shares, the effect of a distribution shall be measured as of the date money or other property is transferred or debt is incurred by the corporation, or as of the date the shareholder ceases to be a shareholder of the corporation with respect to such shares, whichever is earlier. In all other cases, the effect of a distribution shall be measured as of the date of its authorization, or as of the date of payment if payment occurs more than one hundred twenty days following the date of authorization.

D. Indebtedness of a corporation incurred or issued to a shareholder in a distribution in accordance with this section shall be on a parity with the indebtedness of the corporation to its general unsecured creditors except to the extent subordinated by agreement.

E. In circumstances to which this section and related sections of the Business Corporation Act are applicable, such provisions supersede the applicability of any other statutes of this state with respect to the legality of distributions.

History: 1978 Comp., § 53-11-44, enacted by Laws 1983, ch. 304, § 39.

Repeals and reenactments. — Laws 1983, ch. 304, § 39, repealed former 53-11-44 NMSA 1978, relating to dividends, and enacted the above section.

Change in accounting method. — Where accounting procedures uniformly followed by corporation were those in effect at the time of the purchase and sale of stock for several years prior thereto, and where such accounting methods were acceptable to the taxing authorities, and where there was no suggestion that there was any fraud or absence of good faith on the part of the corporation in their accounting practice followed, a different method of accounting from that in use over the years should not have been applied in determining the availability of surplus, for to do so would be to open the door to exactly what was intended to be prevented by 51-3-17, 1953 Comp. (now repealed). Through adoption of different accounting methods from those used over the years, it would be just as easy to create a profit or surplus as by a revaluation of assets, and neither is to be condoned. Woodson v. Lee, 1963-NMSC-187, 73 N.M. 425, 389 P.2d 196 (decided under former law).

Agreement to distribute regardless of surplus or net profit. — Any agreement to distribute funds or assets of a corporation to stockholders regardless of surplus or net profit would be in violation of 51-3-17, 1953 Comp. (now repealed), and accordingly void. Woodson v. Lee, 1963-NMSC-187, 73 N.M. 425, 389 P.2d 196 (decided under former law).

Agreement to distribute only when "income shall be for distribution". — Under an agreement whereby owners of reserved right to oil and gas income from the corporate lands agreed to eliminate the reservation and participate in oil and gas income which corporation received for distribution to stockholders, and where contract stipulated that owners would receive a distribution only when "income shall be for distribution to the stockholders," such a situation could occur only when surplus or net profits were present, and therefore agreement did not violate 51-3-17, 1953 Comp. (now repealed). Woodson v. Lee, 1963-NMSC-187, 73 N.M. 425, 389 P.2d 196 (decided under former law).

Law reviews. — For article, "1983 Amendments to the New Mexico Business Corporation Act and Related Statutes," see 14 N.M.L. Rev. 371 (1984).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 18B Am. Jur. 2d Corporations §§ 1168 to 1203.

Dividends on preferred stock, 6 A.L.R. 802, 67 A.L.R. 765, 98 A.L.R. 1526, 133 A.L.R. 653.

Guaranteeing future price of, or dividends on, corporate stock as contrary to public policy, 24 A.L.R. 986.

Right or duty of corporation to pay dividends and liability for wrongful payment, 55 A.L.R. 8, 76 A.L.R. 885, 109 A.L.R. 1381.

Right as between seller and purchaser of stock to dividends declared thereon, 60 A.L.R. 703.

Right of pledgee of stock in respect of dividends, 67 A.L.R. 485, 103 A.L.R. 849.

Failure of purchaser of stock from existing corporation, or of subscriber thereto, to pay for same as affecting his right to dividends, 122 A.L.R. 1048.

Right as between life beneficiaries and remaindermen in corporate dividends or distributions during the life interest, 130 A.L.R. 492, 44 A.L.R.2d 1277.

Right of bankrupt's creditors in unclaimed dividends, 4 A.L.R.2d 1435.

Validity of cancellation of accrued dividends on preferred corporate stock, 8 A.L.R.2d 893.

Overpayments of dividends on preferred stock as deductible in payment of dividends for later years, 10 A.L.R.2d 241.

Parties defendant to stockholder's suit to compel declaration of dividend, 15 A.L.R.2d 1124.

Remedy for refusal of corporation or its agent to register or effectuate transfer of stock, 22 A.L.R.2d 12.

Preferred stockholders' rights, upon liquidation or dissolution, to dividends, 25 A.L.R.2d 788.

Rights of preferred stockholders as to passed or accumulated dividends in going concern, 27 A.L.R.2d 1073.

Corporation's right to interplead claimants to dividends, 46 A.L.R.2d 980.

Change in stock or corporate structure, or split or substitution of stock of corporation, as affecting bequest of stock, 46 A.L.R.3d 7.

18 C.J.S. Corporations §§ 293 to 304.