Corporate Director and Shareholder Liability for Unlawful Distributions in Louisiana

At a glance

Requirements one by one

Ordinary and liquidation distributions

La. R.S. § 12:1-140(6) defines distributions to include dividends, share purchases or redemptions, and debt to shareholders. Section 12:1-833(A) reaches excess distributions under two provisions: § 12:1-640(A) for ordinary distributions and § 12:1-1409(A) for assets distributed after dissolution. Section 12:1-640(A) is subject to articles restrictions and the post-payment debt and asset/preference tests in subsection C. Section 12:1-1409(A) permits the dissolved corporation’s board to distribute only after it pays or reasonably provides for all obligations owed.

A director must vote for or assent to an excess distribution, and the party asserting liability must establish that the director failed to comply with § 12:1-830 when acting (§ 12:1-833(A)). Section 12:1-830 requires good faith, a reasonable belief in the corporation’s best interests, appropriate care, and disclosure of known material information subject to its stated exceptions. It permits qualified reliance when the director lacks knowledge making reliance unwarranted.

Excess recovery, contribution, and indemnity

Under § 12:1-833(A), the director owes the corporation only the amount beyond what § 12:1-640(A) or § 12:1-1409(A) would permit. A director held liable may obtain contribution from every other director who could be liable and indemnity from each shareholder for the pro-rata portion of the unlawful amount the shareholder received (§ 12:1-833(B)). The indemnity clause does not state a recipient-knowledge condition.

Peremptive filing periods

Section 12:1-833(C)(1) bars a director proceeding unless commenced within two years after the relevant event: measurement under § 12:1-640(E) or (G), an articles-restriction violation of § 12:1-640(A), or a § 12:1-1409(A) asset distribution to shareholders. Contribution or shareholder indemnity must begin within one year after the claimant’s liability is finally adjudicated (§ 12:1-833(C)(2)). Subsection D calls both periods peremptive.

What trips people up

Section 12:1-640(H) excludes Part 14 liquidation distributions from the ordinary distribution section. Section 12:1-833(A) nevertheless invokes § 12:1-1409(A), so the liquidation route has its own predicate and two-year starting event. Section 12:1-1409(B) protects directors from liability for breach of subsection A as to claims barred or satisfied under the listed dissolution-claims procedures; applying that rule requires the actual claims record.

Common questions

Must a recipient shareholder know the distribution was unlawful?

Section 12:1-833(B)(2) states a liable director’s indemnity right for the pro-rata unlawful amount each shareholder received without adding a knowledge condition.

Is the deadline measured from the original board vote in every case?

Section 12:1-833(C)(1) lists three starting events keyed to the type of violation. The relevant event depends on the distribution and its statutory predicate.

Statutes and sources

• La. R.S. § 12:1-140, accessed September 27, 2026: corporation and distribution definitions.
• La. R.S. § 12:1-640, accessed September 27, 2026: ordinary distribution limits, timing, and liquidation exclusion.
• La. R.S. § 12:1-830, accessed September 27, 2026: director conduct and reliance.
• La. R.S. § 12:1-1409, accessed September 27, 2026: post-dissolution distribution and claims provision.
• La. R.S. § 12:1-833, accessed September 27, 2026: liability, contribution, indemnity, and peremptive periods.