Corporate Director and Shareholder Liability for Unlawful Distributions in District of Columbia
At a glance
| Law, transactions, and persons | D.C. Code § 29-306.32; director votes or assent to ordinary or post-dissolution shareholder distributions; knowing recipients face director recoupment. |
|---|---|
| Underlying prohibited distribution | Excess over distribution authorized under § 29-304.60(a), including articles restriction, or post-dissolution payment before claim provision under § 29-312.09(a) (§ 29-306.32(a)). |
| Director conduct and defenses | Director must vote for or assent; claimant must establish failure to meet § 29-306.30 conduct standard; qualified reliance may apply (§ 29-306.32(a)). |
| Amount, interest, and shared liability | Personally liable to corporation for amount exceeding what could lawfully be distributed; § 29-306.32 states no separate interest or joint-and-several formula. |
| Who may enforce | Director liability runs to corporation; § 29-306.32(a) places conduct-standard proof on party asserting liability, without specifying direct creditor standing. |
| Recipient shareholder recovery | Liable director may recoup each shareholder’s pro-rata portion of amount accepted knowing the distribution violated § 29-304.60(a) or § 29-312.09(a) (§ 29-306.32(b)(2)). |
| Contribution and dissent | Liable director can seek contribution from every other director liable under § 29-306.32(a); vote or assent and failure of § 29-306.30 standard remain required. |
| Filing periods | Director proceeding: 2 years from distribution-effect measurement, articles-restriction violation, or post-dissolution asset payment; contribution/recoupment: 1 year after final adjudication (§ 29-306.32(c)). |
| Related remedies and limits of this comparison | Ordinary § 29-304.60 tests differ from post-dissolution § 29-312.09(a); § 29-304.60(h) excludes liquidation from its ordinary rule. Other remedies require separate analysis. |
Requirements one by one
Director conduct and amount
D.C. Code § 29-306.32(a) covers a director who votes for or assents to a distribution beyond what § 29-304.60(a) or § 29-312.09(a) permits. The claimant must establish that the director did not meet § 29-306.30's conduct standard when acting. That standard includes good faith, a reasonable belief in the corporation's interests, and care appropriate to the circumstances; § 29-306.30(d)-(e) permits specified reliance when the director lacks knowledge making it unwarranted. Recovery is the excess over what could lawfully have been distributed, payable to the corporation, rather than automatically the full payment.
Contribution and knowing-recipient recoupment
A director held liable under § 29-306.32(a) may seek contribution from every other director who could be held liable under that subsection. Section 29-306.32(b)(2) also permits recoupment from each shareholder for that shareholder's pro-rata portion of the unlawful amount accepted knowing the payment violated the cited distribution rule. The recipient route belongs to a director held liable under subsection (a); mere receipt is not the knowledge condition stated there.
Separate filing clocks
Section 29-306.32(c)(1) bars the director proceeding unless begun within two years after one of three specified events: the § 29-304.60(e) or (g) measurement date, the date an articles restriction was disregarded, or the date a dissolved corporation distributed assets under § 29-312.09(a). Subsection (c)(2) gives contribution or recoupment one year after the claimant's liability is finally adjudicated.
What trips people up
Section 29-304.60(h) excludes liquidation under subchapter XII from its ordinary distribution rule. For a dissolved corporation, § 29-312.09(a) requires payment or reasonable provision for claims before shareholder assets are distributed; subsection (b) limits director liability for claims barred or satisfied under the specified claim procedures. These routes produce different two-year starting events under § 29-306.32(c)(1).
Common questions
Does a prohibited distribution automatically make every director liable?
No. Section 29-306.32(a) requires a vote or assent and proof that the director did not comply with § 29-306.30 when acting.
Is a shareholder's receipt itself enough for recoupment?
Section 29-306.32(b)(2) requires the shareholder to have accepted the payment knowing it violated the cited rule, and gives the recoupment claim to a director held liable under subsection (a).
Statutes and sources
- D.C. Code § 29-304.60 — official Council XML, accessed September 27, 2026.
- D.C. Code § 29-306.30 — official Council XML, accessed September 27, 2026.
- D.C. Code § 29-306.32 — official Council XML, accessed September 27, 2026.
- D.C. Code § 29-312.09 — official Council XML, accessed September 27, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
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