Corporate Director and Shareholder Liability for Unlawful Distributions in New Jersey

At a glance

Requirements one by one

Director liability and covered payments

N.J.S.A. § 14A:6-12(1)(a)–(b) covers dividends or other distributions and own-share purchases contrary to the corporation act or certificate of incorporation. Subsections (c)–(d) separately address asset transfers during or after dissolution without provision for known obligations, and complete liquidation without providing for dissolution expenses. Voting or concurring directors are jointly and severally liable to the corporation for the benefit of injured creditors or shareholders, limited to the injury resulting from the action. The dissolution branches have additional caps tied to assets distributed and unpaid claims or expenses.

Section 14A:7-14.1(2) bars an ordinary distribution if the corporation cannot pay debts as they become due or total assets would fall below total liabilities. The table reports that trigger without deciding whether a payment crossed it.

Director defenses and recipient recovery

Section 14A:6-12(4) removes director liability if the director discharged the § 14A:6-14 duty, which requires good faith and ordinarily prudent diligence, care, and skill and allows specified good-faith reliance. Section 14A:6-14(3) links any certificate-based limitation to § 14A:2-7(3), whose loyalty, bad-faith, knowing-law-violation, and improper-benefit exceptions must also be read.

A director against whom a claim succeeds may seek contribution from other directors who voted for or concurred (§ 14A:6-12(2)). After paying the corporation, the director may be subrogated against knowing recipients of improper dividends, obtain rescission recovery from a knowing seller of shares, or use the dissolution-recipient route described in subsection (3). Those routes have different knowledge conditions.

Filing period

Section 14A:6-12(5) requires every action against a director on subsection (1) liability to begin within six years after the cause accrues. The quoted section does not set a separate recipient-contribution clock or determine an accrual date for a particular dispute.

What trips people up

A dissolution asset distribution and an ordinary dividend are distinct triggers in § 14A:6-12(1). The dissolution clauses impose special value and unpaid-obligation caps, and subsection (3)(c)'s recovery against asset recipients follows a creditor-claim payment rather than the knowing-dividend route.

Common questions

Does shareholder receipt alone establish liability under this section?

No. Section 14A:6-12(3) gives directors specified recovery routes after they pay on a successful claim; ordinary dividend and share-sale routes also state knowledge conditions. A receipt is only one part of those rules.

Can the certificate eliminate every director claim?

Section 14A:6-14(3) permits only the limitation authorized by § 14A:2-7(3), which excludes the stated loyalty, bad-faith, knowing-law-violation, and improper-benefit conduct. Application depends on the certificate and conduct.

Statutes and sources

• N.J.S.A. § 14A:2-7, accessed September 27, 2026: subsection (3) states the certificate-limitation power and its exceptions.
• N.J.S.A. § 14A:6-12, accessed September 27, 2026: voting or concurring directors “shall be jointly and severally liable to the corporation for the benefit of its creditors or shareholders” for resulting injury; subsection (5) gives the six-year period.
• N.J.S.A. § 14A:6-14, accessed September 27, 2026: subsection (1) states good faith and ordinarily prudent diligence, care, and skill.
• N.J.S.A. § 14A:7-14.1, accessed September 27, 2026: subsection (2) bars a payment that fails either debt-payment or asset-versus-liability test.