Corporate Director and Shareholder Liability for Unlawful Distributions in Pennsylvania

At a glance

Requirements one by one

Director conduct and recoverable amount

Under 15 Pa.C.S. § 1553(a), a director who votes for or assents to a dividend or other distribution contrary to the business-corporation subpart or a bylaw restriction can be jointly and severally liable to the corporation if the director failed the § 1712 conduct standard. The amount is the paid dividend or value of another distribution above what could have been made without the violation. Section 1551(b) applies its debt-payment and asset tests to ordinary and specified winding-up distributions.

Section 1712(a) sets good faith, reasonable belief, care, and reasonable-inquiry duties; subsections (a.1) and (b) describe reliance on specified people and information and the effect of actual contrary knowledge. Section 1553(a) expressly makes its rule subject to § 1713: a shareholder-adopted bylaw can limit personal monetary liability under that section, subject to its breach and self-dealing, willful-misconduct, or recklessness conditions. These are statutory conditions, not findings about any director.

Contribution

A director held liable under § 1553 may seek contribution from a shareholder who accepted or received the distribution knowing it violated the corporate subpart, proportionate to the amount received (§ 1553(b)). Subsection (c) allows contribution from another director who voted for or assented to the action and failed the applicable statutory duty standard. Neither subsection turns mere receipt into a complete personal-liability conclusion.

Filing period

Section 1553(d) expressly points to 42 Pa.C.S. § 5524(5), which places an action upon a statute for a civil penalty or forfeiture within a two-year period. These quoted provisions do not set a separate starting event for contribution; no date is calculated here.

What trips people up

Bylaw and articles rules differ. Section 1553(a) reaches a distribution contrary to a bylaw restriction, and subsection (e) says the liability section generally cannot be varied by the articles except as subsection (a) provides. The shareholder-adopted bylaw liability limit comes from § 1713, which § 1553(a) expressly preserves.

Common questions

Does a recipient need to know the distribution was prohibited?

For the director's contribution route, yes. Section 1553(b) requires that the shareholder accepted or received the distribution knowing it violated the corporate subpart. Whether the recipient knew is a factual question beyond this table.

Does dissolution remove the distribution limit?

Section 1551(b) expressly includes distributions under its cited winding-up and postdissolution subchapters. It still states post-distribution debt-payment and asset limits, subject to the provision's own terms.

Statutes and sources

• 15 Pa.C.S. § 1551, accessed September 27, 2026: subsection (b) applies the distribution limit to ordinary and specified winding-up payments.
• 15 Pa.C.S. § 1553, accessed September 27, 2026: a noncompliant voting or assenting director “shall ... be liable to the corporation, jointly and severally”; subsections (b)–(d) address contribution and time limits.
• 15 Pa.C.S. § 1712, accessed September 27, 2026: sets director care, reliance, and business-judgment conditions.
• 15 Pa.C.S. § 1713, accessed September 27, 2026: subsection (a) sets conditions for a shareholder-adopted bylaw limiting monetary liability.
• 42 Pa.C.S. § 5524, accessed September 27, 2026: the listed actions “must be commenced within two years”; subsection (5) concerns an action upon a statute for a civil penalty or forfeiture.