Corporate Director and Shareholder Liability for Unlawful Distributions in Kentucky

At a glance

Requirements one by one

Distribution and director conduct

KRS 271B.1-400(7) defines distributions to include dividends, share purchases or redemptions, debt to shareholders, and other transfers in respect of shares. KRS 271B.6-400(1), (3) makes board authorization subject to the articles and bars a distribution that would leave the corporation unable to pay debts as due or below the stated assets, liabilities, and superior-preference threshold. The liability rule in KRS 271B.8-330(1) reaches violations of that section or the articles.

The director must vote for or assent to the distribution, and it must be established that the director failed KRS 271B.8-300’s duties (§ 271B.8-330(1)). Section 271B.8-300(1)–(4) requires good faith, an informed basis, and an honest belief in the corporation’s best interests, with qualified reliance on specified information and advisers. Section 271B.8-330(1) expressly preserves defenses ordinarily available to a director. Section 271B.8-300(5)–(6) separately states a willful-misconduct or wanton/reckless-disregard condition and a clear-and-convincing burden for monetary damages actions under that conduct section; this cell does not resolve its application to a disputed distribution claim.

Excess recovery and contribution

KRS 271B.8-330(1) makes the director liable to the corporation only for the amount above what KRS 271B.6-400 or the articles would permit. A director held liable may claim contribution from every other director who could be liable and from a shareholder for the amount that shareholder accepted knowing the distribution violated KRS 271B.6-400 or the articles (§ 271B.8-330(2)). The shareholder clause is the liable director’s contribution right.

Filing period

A proceeding under KRS 271B.8-330 must begin within two years after the date the distribution’s effect was measured under KRS 271B.6-400(5) or (7) (§ 271B.8-330(3)). Those measurement rules distinguish share reacquisitions, other debt distributions, and other payments, and retest some distribution debt when principal or interest is paid. Section 271B.8-330(3) states the period for a proceeding under the section without a separate later contribution clock.

What trips people up

A prohibited payment alone does not establish director liability under KRS 271B.8-330(1); director vote or assent and failed performance under KRS 271B.8-300 are additional conditions. The liability section names the corporation as beneficiary and does not itself give a direct creditor claim or a separate interest formula. The text does not determine the amount lawfully distributable in a particular transaction.

Common questions

Is every recipient shareholder included in contribution?

No. KRS 271B.8-330(2)(b) requires that the shareholder accepted the amount knowing the distribution violated KRS 271B.6-400 or the articles.

Is the two-year clock necessarily the payment date?

KRS 271B.8-330(3) instead uses the measurement date under KRS 271B.6-400(5) or (7). Section 271B.6-400(5) sets different measurement events for different distribution forms.

Statutes and sources

• Ky. Rev. Stat. § 271B.1-400, accessed September 27, 2026: corporation and distribution definitions.
• Ky. Rev. Stat. § 271B.6-400, accessed September 27, 2026: distribution limits and measurement events.
• Ky. Rev. Stat. § 271B.8-300, accessed September 27, 2026: director conduct, reliance, and monetary-damages language.
• Ky. Rev. Stat. § 271B.8-330, accessed September 27, 2026: excess liability, knowing-recipient contribution, and filing period.