Corporate Director and Shareholder Liability for Unlawful Distributions in Rhode Island
At a glance
| Law, transactions, and persons | R.I. Gen. Laws § 7-1.2-811; voting or assenting directors; unlawful dividends/asset distributions, own-share purchases, and claims-unprovided liquidation payments. |
|---|---|
| Underlying prohibited distribution | Dividend/distribution violates Chapter 7-1.2 or articles; own-share purchase violates chapter; liquidation pays assets before known debts are paid or adequately provided (§ 7-1.2-811(a)). |
| Director conduct and defenses | Vote or assent; due-care and good-faith defense, including specified good-faith reliance on financial statements (§ 7-1.2-811(b)-(c)). |
| Amount, interest, and shared liability | Joint and several: excess unlawful dividend/asset value or share-purchase consideration; liquidation asset value only to extent debts remain unpaid (§ 7-1.2-811(a)). |
| Who may enforce | Directors liable to corporation (§ 7-1.2-811(a)); liquidation clause measures unpaid known debts but does not name creditors as direct claimants. |
| Recipient shareholder recovery | Liable director may obtain contribution from knowing recipients of unlawful dividends/assets, in proportion to amounts received (§ 7-1.2-811(d)); no parallel recipient clause for share-purchase consideration. |
| Contribution and dissent | § 7-1.2-811(d) gives recipient contribution, not an express other-director contribution route; § 7-1.2-811(b) specifies minute-entry, pre-adjournment written dissent, or immediate registered-mail dissent to rebut presumed assent. |
| Filing periods | § 7-1.2-811 states no special director, contribution, or recoupment filing period; § 7-1.2-614(a)(5) measures distributions but is not a claim deadline. |
| Related remedies and limits of this comparison | §§ 7-1.2-601(f), 7-1.2-614(a)(3) govern ordinary financial limits; § 7-1.2-811(a)(3) separately addresses known debts in liquidation. Other remedies and outcomes need separate law and facts. |
Requirements one by one
Three statutory recovery measures
R.I. Gen. Laws § 7-1.2-811(a)(1) makes voting or assenting directors jointly and severally liable to the corporation for the excess unlawful dividend or asset distribution. Subsection (a)(2) uses excess consideration paid for an unlawful own-share purchase. Subsection (a)(3) reaches a liquidation asset payment made without paying or adequately providing for all known debts, obligations, and liabilities, but measures recovery by distributed asset value only to the extent those obligations remain unpaid.
Due care, good faith, and dissent
Section 7-1.2-811(c) excuses a director who acted with due care and in good faith, including the specified good-faith reliance on financial statements represented by the responsible officer or an independent accountant. Section 7-1.2-811(b) presumes a present director assented unless dissent is entered in the minutes, written dissent is filed with the meeting secretary before adjournment, or dissent is sent by registered mail to the corporate secretary immediately afterward. A favorable voter cannot dissent.
Knowing-recipient contribution
A director held liable for an unlawful dividend or other asset distribution may seek contribution under § 7-1.2-811(d) from shareholders who knowingly accepted or received it, in proportion to their receipts. That clause does not expressly name a separate contribution claim for an own-share purchase.
What trips people up
Section 7-1.2-811 does not specify a two-year or other special filing clock. The distribution measurement dates in § 7-1.2-614(a)(5) address whether a payment passes the financial test; they do not by themselves set a deadline for suing a director. The ordinary financial limits also allow the specified superior-class waiver of the preference add-on under §§ 7-1.2-601(f) and 7-1.2-614(a)(3).
Common questions
Does every liquidating payment expose directors for its full value?
No. Section 7-1.2-811(a)(3) limits the stated measure to distributed asset value to the extent known debts, obligations, and liabilities are not later paid and discharged.
Does any recipient owe contribution merely by receiving a payment?
No. Section 7-1.2-811(d) requires knowledge that the dividend or asset distribution violated the chapter.
Statutes and sources
- R.I. Gen. Laws § 7-1.2-106, accessed September 27, 2026: corporation and insolvency definitions.
- R.I. Gen. Laws § 7-1.2-601, accessed September 27, 2026: own-share purchase limits.
- R.I. Gen. Laws § 7-1.2-614, accessed September 27, 2026: distribution limits and measurement dates.
- R.I. Gen. Laws § 7-1.2-811, accessed September 27, 2026: director liability, defenses, dissent, and knowing-recipient contribution.
Source links
Every statute quoted above, linked, with the date we checked it.
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