Corporate Director and Shareholder Liability for Unlawful Distributions in Arizona

At a glance

Requirements one by one

Director conduct and excess amount

Ariz. Rev. Stat. § 10-140(19) defines a distribution to include dividends, share reacquisitions, debt, and other shareholder transfers. Section 10-833(A) applies when a director votes for or assents to a distribution that violates § 10-640 or the articles. The director owes the corporation only the amount above what could lawfully have been distributed, and only if it is established that the director failed to perform duties in compliance with § 10-830. The latter requires good faith, ordinarily prudent care, and a reasonable belief in the corporation's best interests, with qualified reliance on specified information and advisers.

Section 10-640(C) supplies the underlying ability-to-pay and asset/preference limits. Sections 10-640(E) and (G) set measurement dates by payment type, including when a purchase/redemption ends share status, when indebtedness is distributed, and when certain conditional debt payments are actually made. This page does not calculate a permissible payment.

Dissent and contribution

Under § 10-833(B), a director present at the meeting where an unlawful distribution is approved is presumed to assent. The director can rebut that presumption by entering dissent in the minutes, filing written dissent with the meeting secretary before adjournment, or sending it by registered or certified mail to the corporate secretary before 5:00 p.m. on the next business day. A director who voted for the action has no dissent right under that subsection.

A director held liable may obtain contribution from every other director who could be liable and from each shareholder for the amount that shareholder accepted knowing it violated § 10-640 or the articles (§ 10-833(C)). That is a contribution route through the liable director; § 10-833 does not itself create a direct corporation claim against a recipient shareholder.

Filing period

Section 10-833(D) bars a proceeding under that section unless commenced within four years after the effect of the distribution was measured under § 10-640(E) or (G). The measurement event depends on the form and timing of payment, so the approval date alone may not start the clock.

What trips people up

The recorded-dissent choices and their deadlines apply to a director present at a meeting where the unlawful distribution action is taken. A shareholder's knowledge matters for a liable director's contribution claim; it is distinct from the director's § 10-830 performance standard.

Common questions

Is every director at the meeting automatically liable?

No. Section 10-833(B) creates an assent presumption that a timely dissent can rebut, while subsection (A) separately requires failure to meet the § 10-830 standard and an excess distribution.

Does the four-year clock always start when the board votes?

No. Section 10-833(D) refers to the date the distribution's effect is measured under § 10-640(E) or (G), whose triggers vary by transaction and timing.

Statutes and sources

• Ariz. Rev. Stat. § 10-140, accessed September 27, 2026: distribution definition.
• Ariz. Rev. Stat. § 10-640, accessed September 27, 2026: authorization, prohibition, and measurement dates.
• Ariz. Rev. Stat. § 10-830, accessed September 27, 2026: director conduct and reliance.
• Ariz. Rev. Stat. § 10-833, accessed September 27, 2026: liability, dissent, contribution, and four-year filing period.