Required Dividends Sample Clauses

Required Dividends. The most straight-forward way of protecting a minority shareholder’s economic stake in a closely- held corporation is to require the payment of dividends. In most small corporations, dividends are never paid because all profits are distributed to the owners in the form of employment compensation. This is why the loss of employment is the usual mechanism for shareholder oppression. However, the shareholders might agree in a shareholder agreement to distribute profits by means of dividends. In a Sub-S corporation, such a policy would have no negative tax consequences; although in a C corporation, dividends are subject to double taxation. Great care must be taken in structuring a dividend agreement. By statute corporations are prohibited from paying out dividends in excess of profits or that would make the corporation insolvent.108 Directors who vote for illegal distributions are personally liable to the corporation.109 As a practical matter, corporations frequently need excess capital for many legitimate business 103 See §§ 21.359(b) (election of directors), 21.363(b) (shareholder voting on ordinary matters), 21.365 (shareholder voting on extraordinary matters), 21.415(a) (voting by directors). 104 Xxxxxxx x. Xxxx, 443 S.W.3d 856, 885 (Tex. 2014). 105 Id. 106 Id. at 886. 107 Id. 108 Sec. 21.303. 109 Sec. 21.316. reasons—such as maintaining a working capital reserve, investing in capital spending, paying debts—that would limit or preclude the payment of dividends. A dividend requirement runs the risk of severely injuring the corporation at a business level. A carefully crafted dividend provision in a shareholder agreement might deal with most of those issues through various formulas; however, it is almost impossible to anticipate every circumstance in which the payment of dividends might be injurious to the corporation, and the more latitude given to the board, the less protection against oppressive conduct. Moreover, dividends are paid out of profits, and profits can be easily manipulated. Majority shareholders can readily decrease the amount of profit available for distribution by increasing salary and bonuses to themselves and their allies. One solution would be to require that shareholder-employees work for no salary, but dividends only. That solution is likely to be unfair and resisted in practice because it would be a rare situation when the value of the services each shareholder contributes to the enterprise exactly matches the percentage ownership of ...

Required Dividends. Each Obligor and each Affiliate of each Obligor (including Michigan Managed Care and Ohio Managed Care) in which NBD does not enjoy a first-priority, properly perfected, security interest in substantially all of its assets must pay dividends in an amount equal to the maximum amount allowed by applicable law to an Obligor in which NBD enjoys a first-priority, properly perfected, security interest in substantially all of its assets so that NBD ends up with a first-priority, properly perfected, security interest in all such dividends.