Corporate Director and Shareholder Liability for Unlawful Distributions in Tennessee
At a glance
| Law, transactions, and persons | Business Corporation Act § 48-18-302 covers director assent to a distribution violating § 48-16-401 or charter; § 48-16-401 includes share acquisitions, debt distributions, and other payments. Recipient liability is a knowing-receipt contribution route. |
|---|---|
| Underlying prohibited distribution | § 48-18-302(a) invokes § 48-16-401 or charter. Section 48-16-401(c) bars a distribution failing the debt-payment or balance-sheet test; this row does not calculate permissibility. |
| Director conduct and defenses | Director must vote for or assent, and failure to comply with § 48-18-301 duties must be established; ordinary director defenses remain available (§ 48-18-302(a)). |
| Amount, interest, and shared liability | Personal liability to corporation for the excess over what could lawfully have been paid; § 48-18-302(a) states no separate interest measure or express joint-and-several phrase. |
| Who may enforce | § 48-18-302(a) makes director liable to corporation; it gives no separate creditor enforcement route. |
| Recipient shareholder recovery | Liable director may recover contribution from each shareholder up to the amount knowingly accepted in violation of § 48-16-401 or charter; § 48-18-302(b)(2) supplies no standalone shareholder claim by corporation. |
| Contribution and dissent | Liable director may seek contribution from every other director who could be liable; § 48-18-205(d) identifies objection, recorded dissent/abstention, and timely written dissent routes for a present director (§§ 48-18-302(b)(1), 48-18-205(d)). |
| Filing periods | Proceeding under § 48-18-302 barred unless begun within two years of § 48-16-401 measurement date; § 48-16-401(e), (g) sets transaction-specific dates. No distinct contribution clock stated in § 48-18-302. |
| Related remedies and limits of this comparison | § 48-16-401(c) supplies the distribution tests and § 48-18-301 the director standard; § 48-18-302 does not address separate fraudulent-transfer, bankruptcy or tax remedies. |
Requirements one by one
Director exposure and beneficiary
Under § 48-16-401(a), the board may authorize distributions subject to charter and statutory limits. Under § 48-18-302(a), a director who votes for or assents to a distribution violating § 48-16-401 or the charter may owe the corporation only the excess over what could have been paid. Liability requires proof that the director did not meet the good-faith, care, and corporate-interest duties in § 48-18-301(a); ordinary director defenses remain. The statute identifies the corporation as the beneficiary, without giving a creditor a separate direct claim under this section.
Contribution from directors and recipients
Under § 48-18-302(b), a liable director may claim contribution from other directors who could also be liable and from a shareholder for the amount knowingly accepted in violation of § 48-16-401 or the charter. This shareholder route depends on a director first being held liable; § 48-18-302(b)(2) does not itself impose an ordinary strict-liability repayment duty on every recipient.
A director present at a meeting can avoid the presumption of assent through the objection, minutes, or timely written-dissent routes in § 48-18-205(d).
Filing period
Under § 48-18-302(c), a proceeding under this section must begin within two years after the distribution's effect was measured under § 48-16-401. Under § 48-16-401(e), the statute sets an earlier-of-two-dates rule for share acquisitions, a debt-incurrence date for debt distributions, and an authorization-or-payment rule for others. Under § 48-16-401(g), the statute measures payment on contingent distribution debt when actually made.
What trips people up
A two-year period does not always begin when cash reaches a shareholder. Under § 48-16-401(e)(1), a share repurchase may be measured when the shareholder stops holding those shares, if that precedes the transfer or debt incurrence.
Common questions
May a director rely on professional advice? Under § 48-18-301(b), the statute permits reliance on information from qualified professionals when the director reasonably believes the matter is within their expertise; the statutory conditions still govern.
Does § 48-18-302 specify interest on that amount? No. The quoted amount-and-remedy clause in § 48-18-302(a) does not state an interest measure; other law is outside this comparison.
Statutes and sources
- Tenn. Code Ann. § 48-18-302 — liability, contribution and two-year period; 2012 redesignation act; accessed October 4, 2026.
- Tenn. Code Ann. § 48-16-401 — distribution limits and measurement; accessed October 4, 2026.
- Tenn. Code Ann. § 48-18-301 and § 48-18-205 — director standard and recorded dissent; accessed October 4, 2026.
Source links
Every statute quoted above, linked, with the date we checked it.
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