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Copyright (c) 1998 Kentucky College of Law
Kentucky Law Journal

NOTES: The Duty of Corporate Directors to Pay Dividends

Fall 1998 / 1999

87 Ky. L.J. 231


By Randall K. Justice *


I. Introduction

Directors have a great deal of power in the corporate world. However, they also have clearly defined obligations. One of these obligations is to pay shareholders dividends on their investments. 1 In determining when dividends should be paid, the directors must look at the financial state of the corporation, the expectations of the shareholders, and the requirements for fulfilling their fiduciary duties.

This Note will examine the recent dividend policies of American corporations and how the business judgment rule has been used by courts to give directors discretion in determining when to pay dividends. Part II of this Note will deal with shareholder expectations. 2 This Part will include an analysis of the recent trends in the payment of dividends by the largest corporations. Part III will discuss the application of the business judgment rule and the intrinsic fairness test to a board of directors' decision regarding distributions to shareholders. 3 This Part will examine the circumstances surrounding cases where directors have been absolved from liability for their decisions, including the most notable case, Dodge v. Ford Motor Co., 4 where a shareholder was successful in compelling the directors of a corporation to pay dividends. Part IV will analyze two special issues dealing with suits to compel the payment of dividends. 5 These issues are whether the suit should be brought as a derivative action against the corporate directors or as an individual action against the corporation 6 and the special problems ...
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