Distribution date: Overview, definition, and example
What is a distribution date?
A distribution date is the specific date on which a distribution of assets, payments, or benefits is made to the recipients under an agreement or contract. It marks the time when funds, dividends, royalties, or other assets are formally distributed to the designated parties, such as shareholders, investors, or beneficiaries. The distribution date is an important part of financial transactions, especially in investment funds, shareholder dividends, and trust arrangements, as it defines when recipients are entitled to receive their portion of the assets.
For example, a mutual fund might set a distribution date to pay out dividends to its investors, or a company might have a distribution date for issuing shareholder dividends after the fiscal year ends.
Why is a distribution date important?
A distribution date is important because it ensures that the process of distributing assets or payments occurs at a specific, agreed-upon time, providing clarity and predictability to both the payer and the recipient. It helps to avoid disputes over when funds or assets are to be distributed and ensures that all involved parties understand their rights and obligations. This is particularly critical in financial or legal contexts where deadlines for payments or distributions are essential for tax purposes, compliance, or investment strategy.
For businesses, setting a distribution date helps ensure smooth operations and compliance with agreements, such as paying dividends or making interest payments. For recipients, the distribution date is key to knowing when they will receive their benefits, allowing them to plan accordingly.
Understanding distribution dates through an example
Let’s say an investment fund decides to distribute its annual dividends to shareholders on December 15th. The distribution date of December 15th is when the shareholders will receive their share of the profits generated by the fund throughout the year. Any shareholder who holds shares before this date is eligible to receive the distribution.
In another example, a company may distribute year-end bonuses to employees on a specific date, such as December 31st. The distribution date in this case allows employees to know when they will receive the bonus payment, which could be based on their performance or the company’s financial results.
An example of a distribution date clause
Here’s how a clause like this might appear in an agreement:
“The Company shall make a distribution of profits to the shareholders on the Distribution Date, which will occur on or before [specific date]. All shareholders of record as of the Distribution Date will be eligible to receive their proportional share of the distribution.”
Conclusion
The distribution date is a critical element in many financial agreements, determining when payments, dividends, or benefits are distributed to the designated recipients. By clearly defining the distribution date, both the payer and the recipient can align expectations, ensuring that funds or assets are distributed promptly and according to the terms of the agreement. Whether for investment funds, corporate dividends, or contractual payments, the distribution date provides structure and certainty to financial transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.