Law reviews.

- For article discussing the payment of dividends to shareholders, see 3 Ga. L. Rev. 11 (1968). For article discussing "earned" surplus and "capital" surplus concepts under Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968). For article discussing the statute of limitations applicable to shareholders' rights to unclaimed dividends and distributions, see 3 Ga. L. Rev. 11 (1968). For article discussing treasury shares and restrictions placed upon their use by the corporation, see 3 Ga. L. Rev. 11 (1968). For note discussing effect of Georgia law on dividend restrictions, see 24 Ga. B. J. 254 (1961).

COMMENT

Source: Model Act, § 6.23. This replaces former §§ 14-2-84(e) &14-2-90.

Since the Code has eliminated the concept of par value, the distinction between a share "split" and a share "dividend" has not been retained and both types of transactions are referred to simply as "share dividends." A share dividend is solely a paper transaction: No assets are received by the corporation for the shares and any "dividend" paid in shares does not involve the distribution of property by the corporation to its shareholders. Section14-2-623 therefore recognizes that such a transaction involves the issuance of shares "without consideration," and Section14-2-140(6) excludes it from the definition of a "distribution." Such transactions are treated in a fictional way under the former "par value" and "stated capital" statute, which treated a share dividend as involving transfers from a surplus account to stated capital, under former § 14-2-90(a)(4), and assumed that par value shares could be issued without receiving any consideration by reason of that transfer of surplus under former § 14-2-84(e). All share dividends will issue shares that are fully paid and nonassessable, as a result of this change.

Subsection (a) simply provides that stock dividends may be issued pro rata and without consideration, recognizing this as a paper transaction. These shares are then fully paid and nonassessable. Share dividends may create problems when a corporation has more than a single class of shares. The requirement that a share dividend be "pro rata" only applies to shares of the same class or series; if there are two or more classes entitled to receive a share dividend in different proportions, the dividend will have to be allocated appropriately.

Subsection (b) prohibits dividends to one class or series of stock from being made in shares of another class or series, thus preventing dilution of one class by another, unless authorized by the articles of incorporation or the vote of the holders of the class to be issued, or when there are no holders of the class being distributed. Section 14-2-90(a)(5) of the former law is consistent with clauses (1) and (2); clause (3) is new.

Subsection (c) provides a default rule for record date for determination of shareholders entitled to dividends, in the absence of a record date set by the board.

Note to 1997 Amendments Subsection (d) was added in 1997. The amendment, which allows dividends on treasury shares, allows a listed company to preserve the relative value of its treasury shares. While some stock splits will be handled under O.C.G.A. § 14-2-1002(4), others may be dealt with as share dividends.

Cross-References Action by shareholders, see § 14-2-701 et seq. Class of shares, see §§ 14-2-601 &14-2-602. Consideration for shares, see § 14-2-621. Distributions generally, see § 14-2-640. Fractional shares, see § 14-2-604. Record date, see § 14-2-707. Series of shares, see § 14-2-602.

JUDICIAL DECISIONS

RESEARCH REFERENCES