Corporate Director and Shareholder Liability for Unlawful Distributions in Indiana

At a glance

Requirements one by one

Covered payments and director conduct

Ind. Code § 23-1-20-7 defines a distribution to include dividends, share purchases and redemptions, debt, and other shareholder transfers, with stated exclusions for reasonable compensation or benefits and bona fide guaranties. Ind. Code § 23-1-28-3 prohibits a payment that leaves the corporation unable to pay debts as due or below the asset, liability, and superior-preference threshold. This page does not calculate the amount that could lawfully be paid.

Under § 23-1-35-4(a), a director who votes for or assents to a payment violating the article or articles of incorporation owes the corporation the excess, subject to § 23-1-35-1(e). That latter provision requires both a failure to perform director duties and willful misconduct or recklessness before director liability. Section 23-1-35-1(a) describes good faith, ordinarily prudent care, and a reasonable belief in the corporation's best interests; subsections (b) and (c) qualify reliance on specified information and advisers.

Contribution

A director held liable under § 23-1-35-4(a) may seek contribution from every other director who voted for or assented to the payment, subject to the same § 23-1-35-1(e) threshold. The director may also seek contribution from each shareholder for the amount the shareholder accepted (§ 23-1-35-4(b)(2)). That clause does not state a knowledge condition or give the corporation its own direct claim against recipients.

What trips people up

Director assent and shareholder receipt play different roles. The director's liability requires the heightened § 23-1-35-1(e) showing; the recipient clause describes contribution after a director has been held liable. Section 23-1-35-4 itself sets neither a special suit deadline nor a minutes-or-mail dissent procedure, so those questions cannot be answered by importing another state's rule.

Common questions

Is a director liable merely because the distribution was excessive?

No. Section 23-1-35-4(a) applies to a director who votes for or assents to the payment, and it expressly subjects liability to § 23-1-35-1(e)'s two-part standard.

Does a recipient have to know the payment was unlawful for the director's contribution claim?

Section 23-1-35-4(b)(2) says the director may seek contribution for the amount each shareholder accepted; it does not add a recipient-knowledge condition. That is the wording of this statutory contribution route, not a prediction of recovery in a particular dispute.

Statutes and sources

• Ind. Code § 23-1-20-7, accessed September 27, 2026: distribution definition.
• Ind. Code §§ 23-1-28-1 and 23-1-28-3, accessed September 27, 2026: distribution authority and post-payment limits.
• Ind. Code §§ 23-1-35-1 and 23-1-35-4, accessed September 27, 2026: director standard, liability, and contribution.