Legal Definitions - nonliquidating distribution

A nonliquidating distribution is when a corporation or partnership distributes its assets to its shareholders or partners without going out of business. This can include excess capital that is not needed for current operations.

• A corporation distributes a portion of its profits to its shareholders as a dividend.
• A partnership distributes cash to its partners as a return on their investment.

These examples illustrate how a nonliquidating distribution works. The corporation or partnership is not dissolving or going out of business, but is instead distributing some of its assets to its shareholders or partners.