I’ve seen a few proxies now where companies identify dividend flexibility as a reason for shifting to Delaware from Nevada. But these claims about dividend differences between Delaware and Nevada law puzzle me. There isn’t any material benefit to shifting from Nevada to Delaware for the purpose of securing additional dividend flexibility because Nevada law already gives companies substantial flexibility to authorize dividends.

Why do these kinds of statements keep happening? Ultimately, it looks like some of these proxies are just scissors and paste pot jobs that replicate old proxies without confirming that the statements were or remain accurate.

Distributions Under Nevada Law

This is the relevant Nevada statute NRS 78.288. It provides:

1.  Except as otherwise provided in subsection 2 and the articles of incorporation, a board of directors may authorize and the corporation may make distributions to the holders of any class or series of the capital stock of the corporation, including distributions on shares that are partially paid.

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

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

      (b) Except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved immediately after the time of the distribution, to satisfy the preferential rights upon such dissolution of holders of shares of any class or series of the capital stock of the corporation having preferential rights superior to those receiving the distribution.

Here, Nevada mostly tracks the Model Business Corporation Act’s Section 6.40(c) with a critical difference. Nevada allows its corporations to opt out of the balance sheet test so long as the articles of incorporation so provide. If a corporation opts to include this sort of articles provision, it still leaves the equity or cash-flow insolvency test in place.

Distributions under Delaware Law

What tests apply for dividend declarations under Delaware law may be a more complex topic and you have to go to Delaware’s case law to actually understand it. The Delaware statute provides for dividends out of “surplus.”

But the statute is not the only limitation. For example, this 2011 law review article explains that:

Delaware law on the cash flow test, like the balance sheet test,
developed from common law jurisprudence. The test is not entirely clear:
the unanswered question is whether the test is present or forward-looking. In
other words, does a company become cash flow insolvent only at the point
when it actually defaults on a debt? Or is it insolvent at an earlier point,
when it becomes clear that the company will not be able to pay its debt in the
future?

Other guidance explains that “[t]he Court of Chancery, in ThoughtWorks, also identified a common law limitation from ‘redeeming…shares when the corporation is insolvent or would be rendered insolvent by the redemption.'”

Delaware has restrictions on dividend declarations and fully understanding them requires understanding Delaware case law.

What Some Proxies Say About Dividends

At this point, I’ve seen a few proxies claiming that Nevada does not offer as much flexibility as Delaware for declaring dividends. For example, LQR House has announced a planned move from Nevada to Delaware and stated that part of the rationale for the move is that “a Delaware corporation has greater flexibility in declaring dividends.” The same phrase appeared in proxies from Upexi (6/2/25), Iveda Solutions (10/7/24), and Nanoviricides (12/17/22).

This is what LQR House said:

For example, a Delaware corporation has greater flexibility in declaring dividends, which can aid a corporation in marketing various classes or series of dividend paying securities. Under Delaware law, dividends may be paid out of surplus, or if there is no surplus, out of net profits from the corporation’s previous fiscal year or the fiscal year in which the dividend is declared, or both, so long as there remains in the stated capital account an amount equal to the par value represented by all shares of the corporation’s stock, if any, having a preference upon the distribution of assets. Under Nevada law, dividends may be paid by the corporation unless after giving effect to the distribution, the corporation would not be able to pay its debts as they come due in the usual course of business, or (unless the corporation’s articles of incorporation permit otherwise) the corporation’s total assets would be less than the sum of its total liabilities, plus amounts payable in dissolution to holders of shares carrying a liquidation preference over the class of shares to which a dividend is declared. These and other differences between Nevada’s and Delaware’s corporate laws are more fully explained below.

Reincorporating For Dividend Flexibility Makes Little Sense

If you’re looking to reincorporate from Nevada to Delaware on the theory that it will allow a corporation to secure more dividend flexibility, I don’t think that’s a real benefit. If you have the votes to reincorporate, you should also have the votes to simply amend your articles of incorporation to waive the balance sheet test–if that’s what you want to do.

LQR House Has A Lot Going On

Notably, the most recent 10-Q reveals that LQR House recently settled legal proceedings. This is how its most recent 10-Q describes the settlement:

As previously disclosed in the Company’s Current Reports on Form 8-K filed on July 15, 2025 and September 26, 2025, the Company, together with certain current and former officers and directors, was named as a defendant in an action filed by Kingbird Ventures, LLC in the Eighth Judicial District Court, Clark County, Nevada. The complaint alleged, among other things, breach of fiduciary duty and related claims arising from corporate governance matters. On September 22, 2025, the Company and other defendants entered into settlement agreements with Kingbird Ventures and related parties to resolve all matters in the litigation. The settlements provide for mutual releases and a total cash payment obligation of approximately $13 million from the Nevada Defendants (as defined in the agreements), including an initial payment of $7.5 million made in September 2025 and a remaining balance of approximately $5.5 million due by December 18, 2025. No admission of liability was made by any party.

Although I haven’t yet pulled the court files, the $13 million settlement illustrates that some claims that Nevada will let companies get away with just about anything appear overstated. LQR House has a market cap now of about $20 million. It paid out well over half that amount when it settled “breach of fiduciary duty and related claims arising from corporate governance matters.” The settlement comes in at 65% of LQR House’s current market cap. Nevada isn’t known for calling foot faults, but don’t think the state can’t drop the hammer.