Corporate Director and Shareholder Liability for Unlawful Distributions in Colorado
At a glance
| Law, transactions, and persons | C.R.S. § 7-108-405; voting/assenting directors and knowing shareholder recipients through contribution; § 7-101-401(13) includes dividends, reacquisitions, and debt. |
|---|---|
| Underlying prohibited distribution | Distribution violates § 7-106-401 or articles; § 7-106-401(3) applies post-payment debt and assets/liabilities/preference tests. |
| Director conduct and defenses | Vote or assent plus established failure of § 7-108-401 good-faith, care, best-interests standard; ordinary defenses and qualified reliance; § 7-108-402(1)(g) lists the vote/assent ground. |
| Amount, interest, and shared liability | Director owes corporation excess above lawful amount (§ 7-108-405(1)); section does not set separate interest or joint-and-several formula. |
| Who may enforce | Corporation is express beneficiary of director liability (§ 7-108-405(1)); creditors not named direct claimants there. |
| Recipient shareholder recovery | Liable director may seek contribution from a knowing recipient shareholder, limited to that recipient's unlawful excess (§ 7-108-405(2)(b)). |
| Contribution and dissent | Contribution from every other director who could be liable; § 7-108-405(1) preserves ordinary defenses and § 7-108-401 conduct standard limits liability. |
| Filing periods | § 7-108-405 sets no express proceeding or contribution filing period. |
| Related remedies and limits of this comparison | § 7-108-401(4) disclaims a creditor fiduciary duty arising only from creditor status; this comparison does not decide distribution amount or other claims. |
Requirements one by one
Distribution limit and director conduct
Colo. Rev. Stat. § 7-101-401(13) defines distributions to include dividends, share purchases or redemptions, and debt to shareholders. Section 7-106-401(3) prohibits a payment that leaves the corporation unable to pay debts as due or below the assets, liabilities, and superior-preference threshold. The liability rule in § 7-108-405(1) also reaches violations of the articles of incorporation. This page does not calculate what a corporation could distribute.
A director who votes for or assents to a prohibited distribution owes the corporation the excess if it is established that the director did not perform duties in compliance with § 7-108-401 (§ 7-108-405(1)). That conduct section requires good faith, care, and a reasonable belief in the corporation's best interests; qualified reliance on specified information and advisers is allowed absent contrary knowledge. Section 7-108-405(1) preserves defenses ordinarily available to a director.
Contribution from directors and knowing recipients
Under § 7-108-405(2), a director held liable may obtain contribution from every other director who could be liable. A shareholder is included only if that shareholder accepted the distribution knowing it violated § 7-106-401 or the articles, and the contribution amount is limited to that shareholder's excess receipt. This is a contribution right of the liable director.
What trips people up
The director's failed-duty test and the recipient's knowing-acceptance test are different. Colo. Rev. Stat. § 7-108-402(1)(g) also lists a vote or assent described in § 7-108-405 as a basis within the director money-liability standards. Section 7-108-405 itself states no special filing period, so this cell makes no claim about a general limitations deadline.
Common questions
Does the statute impose the full payment on a director?
No. Section 7-108-405(1) measures the director's liability by the amount above what could have been distributed without violating § 7-106-401 or the articles.
Does being a creditor alone create a director fiduciary duty?
Section 7-108-401(4) says a director or officer has no fiduciary duty to a creditor arising only from creditor status, whether the corporation is solvent or insolvent. That rule does not decide any other claim.
Statutes and sources
- Colo. Rev. Stat. § 7-101-401, accessed September 27, 2026: distribution definition.
- Colo. Rev. Stat. § 7-106-401, accessed September 27, 2026: distribution prohibition.
- Colo. Rev. Stat. §§ 7-108-401, 7-108-402, and 7-108-405, accessed September 27, 2026: director conduct, money-liability standards, unlawful-distribution liability, and contribution.
Source links
Every statute quoted above, linked, with the date we checked it.
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