§ 501 Corporate Distribution Restrictions

Corporations Code·California

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Key Takeaways

•A company can't give money or stuff to its owners if it can't pay its bills.
•If giving money to owners would make the company unable to pay bills, it's not allowed.
•This rule also applies to smaller companies owned by the bigger company.

Example

A toy company wants to give $1,000 to each of its owners as a bonus.

If the toy company only has $500 in the bank and owes $2,000 to the toy factory next month, it can't give the bonus. Giving the bonus would mean it can't pay the factory.

AI-generated — May contain errors. Not legal advice. Always verify source.

Official Source

View on CA.gov

§ 501 Corporate Distribution Restrictions

Neither a corporation nor any of its subsidiaries shall make any distribution to the corporation’s shareholders (Section 166) if the corporation or the subsidiary making the distribution is, or as a result thereof would be, likely to be unable to meet its liabilities (except those whose payment is otherwise adequately provided for) as they mature. (Repealed and added by Stats. 1975, Ch. 682.)

Last verified: January 23, 2026

Key Terms

distribution shareholders liabilities adequately provided for

References

Official text at leginfo.legislature.ca.gov
California Legislature. Corporations Code. Section 501.

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Key Takeaways

Example

Key Terms

Related Statutes

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