                                 CODE OF VIRGINIA

DISTRIBUTIONS TO SHAREHOLDERS (§ 13.1-653)

A. The board of directors may authorize and the corporation may make
distributions to its shareholders, subject to restriction by the articles of
incorporation and the limitation in subsection C.

B. The board of directors may fix the record date for determining shareholders
entitled to a distribution. If the board of directors does not fix the record
date for determining shareholders entitled to a distribution, other than one
involving a purchase, redemption, or other acquisition of the
corporation&#8217;s shares, the record date is the date the board of directors
authorizes the distribution.

C. No distribution may be made if, after giving it effect:

   1. The corporation would not be able to pay its debts as they become due in
   the usual course of business; or

   2. The corporation&#8217;s total assets would be less than the sum of its
   total liabilities plus (unless the articles of incorporation permit otherwise)
   the amount that would be needed, if the corporation were to be dissolved at
   the time of the distribution, to satisfy the preferential rights upon
   dissolution of shareholders whose preferential rights are superior to those
   receiving the distribution.

D. The board of directors may base a determination that a distribution is not
prohibited under subsection C either on financial statements prepared on the
basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. For any public corporation, reliance upon the most recent
financial statements that have been prepared in accordance with generally
accepted accounting principles in the United States shall be deemed to be
reasonable in the circumstances if the financial statements have been audited by
independent certified public accountants whose certification does not include a
going concern qualification.

E. Except as provided in subsection G, the effect of a distribution under
subsection C is measured:

   1. In the case of a distribution by purchase, redemption, or other acquisition
   of the corporation&#8217;s shares, as of the earlier of (i) the date cash or
   other property is transferred or debt to a shareholder incurred by the
   corporation or (ii) the date the shareholder ceases to be a shareholder with
   respect to the acquired shares;

   2. In the case of any other distribution of indebtedness, as of the date the
   indebtedness is distributed; and

   3. In all other cases, as of (i) the date the distribution is authorized if
   the payment occurs within 120 days after the date of authorization or (ii) the
   date payment is made if it occurs more than 120 days after the date of
   authorization.

F. A corporation&#8217;s indebtedness to a shareholder incurred by reason of a
distribution made in accordance with this section is at parity with the
corporation&#8217;s indebtedness to its general, unsecured creditors except to
the extent subordinated by agreement.

G. Indebtedness of a corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection C if its terms provide that payment of principal and interest is made
only if and to the extent that payment of a distribution to shareholders could
then be made under this section. If such indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.

H. This section shall not apply to distributions in liquidation under Article 16
(&#xA7; 13.1-742 et seq.).

HISTORY: Code 1950, §§ 13-206, 13.1-4, 13.1-43, 13.1-62; 1956, c. 428; 1962,
c. 14; 1979, c. 175; 1985, c. 522; 2005, c. 765; 2019, c. 734.