Capital Distribution Law and Legal Definition
According to 12 USCS § 4502 (5) (A), in general, the term capital distribution means--
“ (i) any dividend or other distribution in cash or in kind made with respect to any shares of, or other ownership interest in, an enterprise, except a dividend consisting only of shares of the enterprise;
(ii) any payment made by an enterprise to repurchase, redeem, retire, or otherwise acquire any of its shares, including any extension of credit made to finance an acquisition by the enterprise of such shares; and
(iii) any transaction that the Director determines by regulation to be, in substance, the distribution of capital.
(B) Exception. Any payment made by an enterprise to repurchase its shares for the purpose of fulfilling an obligation of the enterprise under an employee stock ownership plan that is qualified under section 401 of the Internal Revenue Code of 1986 [26 USCS § 401] or any substantially equivalent plan, as determined by the Director, shall not be considered a capital distribution.”