Corporate Director and Shareholder Liability for Unlawful Distributions in Maryland

At a glance

Requirements one by one

Distribution limit and director conduct

Md. Code, Corps. & Ass'ns § 2-309(b) permits a board-authorized distribution subject to the charter and § 2-311. Under § 2-311(a)(1), a distribution may not leave the corporation unable to pay indebtedness as due or below the asset, liability, and superior-preference threshold. Subsection (a)(2) expressly permits distribution from specified current or recent net earnings as an exception to the asset test. This page does not calculate any of those amounts.

Section 2-312(a) makes a director who votes for or assents to a distribution contrary to the charter or § 2-311 personally liable to the corporation for the excess, if the director failed to comply with § 2-405.1. That standard requires good faith, a reasonable belief in the corporation's best interests, and ordinarily prudent care; it also permits qualified reliance on specified officers, professionals, and committees.

Contribution and filing clocks

A director held liable may seek contribution from every other director who could be liable and from each stockholder for the amount accepted knowing the payment violated the charter or § 2-311 (§ 2-312(b)). This is a right of the liable director; § 2-312(b) does not state a separate corporation claim against the recipient.

Section 2-312(c)(1) permits a director-liability proceeding only within three years after the payment's effect was measured under § 2-311(c) or (e). Those provisions vary the measurement event for buybacks, indebtedness, other payments made within or beyond 120 days of authorization, and conditional distribution debt. Contribution has a different clock: one year after the claimant director's liability is finally adjudicated (§ 2-312(c)(2)).

What trips people up

The net-earnings exception in § 2-311(a)(2) modifies the asset-side prohibition, so a bare balance-sheet shorthand can misstate the underlying trigger. The director claim and later contribution also start at different events. Section 2-312(d) says its liabilities are in addition to other liabilities imposed by law; this survey does not assess those other claims.

Common questions

Does a director owe the full payment automatically?

No. Section 2-312(a) limits this statutory claim to the excess above what could have been distributed and requires proof that the director failed the § 2-405.1 standard.

Is every recipient stockholder included in the director's contribution right?

Section 2-312(b)(2) ties recipient contribution to the amount a stockholder accepted knowing the payment violated the charter or § 2-311.

Statutes and sources

• Md. Code, Corps. & Ass'ns § 2-309, accessed September 27, 2026: board authorization subject to charter and statutory limits.
• Md. Code, Corps. & Ass'ns § 2-311, accessed September 27, 2026: financial limits, earnings exception, and measurement dates.
• Md. Code, Corps. & Ass'ns § 2-405.1, accessed September 27, 2026: director standard and reliance.
• Md. Code, Corps. & Ass'ns § 2-312, accessed September 27, 2026: director liability, contribution, periods, and other-liability clause.