Corporate Director and Shareholder Liability for Unlawful Distributions in Texas

At a glance

Requirements one by one

Prohibited distribution and director conduct

Tex. Bus. Orgs. Code § 21.303 bars a distribution that violates the certificate of formation. Outside a distribution made in compliance with Chapter 11, it also bars a payment that leaves the corporation insolvent or exceeds the distribution limit. Section 21.316(a) attaches joint and several liability to directors who vote for or assent to such a payment, measured by the amount above what § 21.303 would permit.

Section 21.316(b) removes liability for an excess amount if a distribution of that amount would have been permitted after the director authorized it. Subsection (c) provides additional routes for a director acting in good faith and with ordinary care who relies on specified financial or professional information, treats assets as worth at least book value, or relies on information about another person's obligation to discharge corporate liabilities. Those conditions turn on the actual facts and records.

Claims and contribution

Section 21.316(a) makes the directors liable to the corporation. A director held liable may seek contribution from knowing recipient shareholders in proportion to what each received under § 21.318(a). A director liable on the claim may seek contribution from other liable directors in an amount appropriate to achieve equity under subsection (b). Section 21.318(c) defines the recipient's liability for accepting a § 21.303-prohibited payment and expressly preserves the separate fraudulent-transfer and bankruptcy sources it names.

Filing period

Section 21.317 bars an action against a director under § 21.316 after the second anniversary of the alleged act giving rise to liability. The section does not use the later date of final adjudication as its stated starting event.

What trips people up

The director defense in § 21.316(b) asks whether the amount would have become distributable after authorization. That is different from deciding that the original authorization satisfied § 21.303. Section 21.316(d) also says its imposed liability is the director's only liability to the corporation or creditors for authorizing a distribution prohibited by § 21.303, while subsection (e) preserves the external remedies named there.

Common questions

Can a recipient be required to contribute without knowledge?

Section 21.318(a) makes the director's contribution claim depend on the shareholder having accepted or received the wrongful distribution knowing that § 21.303 prohibited it. This page does not determine a recipient's knowledge.

Does the two-year rule govern every related claim?

Section 21.317 expressly governs an action against a director under § 21.316. Section 21.318 states contribution rights without a separate filing period. A different claim's deadline requires its own source and analysis.

Statutes and sources

• Tex. Bus. Orgs. Code § 21.303, accessed September 27, 2026: “A corporation may not make a distribution that violates the corporation's certificate of formation.”
• Tex. Bus. Orgs. Code § 21.316, accessed September 27, 2026: voting or assenting directors “are jointly and severally liable to the corporation” for the excess, subject to the stated defenses.
• Tex. Bus. Orgs. Code § 21.317, accessed September 27, 2026: “An action may not be brought against a director of a corporation under Section 21.316 after the second anniversary of the date the alleged act giving rise to the liability occurred.”
• Tex. Bus. Orgs. Code § 21.318, accessed September 27, 2026: a liable director may receive contributions from shareholders who knowingly received the payment and from other liable directors.