Shareholder Liability for Improper Corporate Distributions

Written by Adam Peck Category: Injury Law January 14th, 2013 1 min read

A shareholder whom receives an improper distribution, knowing of its improprierty, is personally liable to the corporation for the benefit of creditors and shareholders who are entitled to sue.

Liability, though, is limited to the amount received for the shares, plus interest at the statutory legal rate on
judgments until paid, but not in excess of (1) the corporate liabilities owed to nonconsenting creditors at the
time of the violation and (2) the injury suffered by the nonconsenting shareholders.

To be found liable, the selling shareholder is not required to have knowledge that the distribution was illegal;
it is enough if the shareholder knew the facts indiciating the impropriety.

For example, shareholders who knew that the corporation would be likely to be unable to meet its current
liabilities would be liable for receiving an improper distribution, even if they did not know of the impropriety
of the distribution. Shareholders who are active in the management of a closely held corporation should be
particulary careful to structure their buy-sell agreements to avoid liability of a deceased or withdrawing
shareholder for improper distributions in redemption of their shares.

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Written by Adam Peck

Expertise: Personal Injury

Adam J. Peck, ESQ is a principal with Peck Law Group, APC. In 2008, Mr. Adam Peck received his Juris Doctorate from Whittier Law School where he graduated Cum Laude. His practice is primarily dedicated to representing Elders, Dependent Adults, along with their loved ones and family members, who have suffered horrific personal injuries.