Corporate Director and Shareholder Liability for Unlawful Distributions in Utah

Short answer A director who votes for or assents to a distribution violating Utah’s distribution section or the articles can owe the corporation the excess if the statutory director-duty requirements were not met, subject to available defenses. A liable director may obtain contribution from other liable directors and proportionate contribution from shareholders who knowingly accepted the unlawful payment. A proceeding under the liability section must start within two years after the distribution-effect measurement date.

State

Utah

Statute checked

September 27, 2026

Sources

12 statutes

Survey

Compare all 49 jurisdictions covered

At a glance

Law, transactions, and persons	Utah Code §§ 16-10a-640, -842; director vote/assent to distribution, including share purchase/redemption; knowing shareholder contribution.
Underlying prohibited distribution	Distribution violating § 16-10a-640 or articles; § 640(3) addresses debts due and asset/liability plus superior-preference limits (§ 842(1)).
Director conduct and defenses	Vote or assent; failure of § 16-10a-840 duties, including good faith/prudent care; § 840(4) adds gross-negligence, willful-misconduct, or intentional-harm threshold. Ordinary director defenses preserved (§ 842(1)).
Amount, interest, and shared liability	Personally liable to corporation for amount exceeding lawful distribution; § 842 states no separate interest or joint-and-several formula.
Who may enforce	Director liability runs to corporation under § 842(1); this section does not specify direct creditor enforcement.
Recipient shareholder recovery	Liable director may claim knowing shareholder contribution: recipient amount × unlawful excess as percentage of all shareholder distributions (§ 842(2)(b)).
Contribution and dissent	Contribution from every other director who could be liable; § 842(1) preserves ordinary defenses; § 840 compliance matters.
Filing periods	A proceeding under § 842 is barred after 2 years from § 640(5) or (7) distribution-effect measurement; no separate later contribution clock stated.
Related remedies and limits of this comparison	§ 640 contains the financial distribution limits and § 842 governs the cited recovery; other remedies and case-specific liability require separate analysis.

Requirements one by one

Director conduct and defenses

Utah Code § 16-10a-842(1) covers a director who votes for or assents to a distribution violating § 16-10a-640 or the articles and whose duties were not performed in compliance with § 16-10a-840. Section 840(1)-(3) addresses good faith, prudent care, corporate-interest belief, and qualified reliance. Section 840(4) also states a liability condition of gross negligence, willful misconduct, or intentional harm after breach or failure to perform. Section 842(1) expressly preserves the defenses ordinarily available to a director. Recovery to the corporation is the excess over what could lawfully have been paid.

Contribution from directors and knowing shareholders

A liable director can seek contribution from each other director who could be held liable. For a shareholder who accepted the payment knowing it violated § 16-10a-640 or the articles, § 16-10a-842(2)(b) fixes contribution as the amount paid to that shareholder multiplied by the unlawful excess as a percentage of all shareholder distributions. It is a formula, not automatic recovery of every recipient's full payment.

Two-year proceeding period

Section 16-10a-842(3) bars a proceeding under the section unless commenced within two years after the distribution effect was measured under § 16-10a-640(5) or (7). For a purchase, redemption, or other share acquisition, § 640(5)(a) uses the earlier of the asset-transfer/debt or end-of-shareholder-status dates; other distribution forms have different measurement dates.

What trips people up

Section 16-10a-640(1) subjects a distribution to both the articles and subsection (3)'s financial limits. The board may use reasonable accounting statements, fair valuation, or another reasonable method under subsection (4); the director-liability question under § 16-10a-842 remains distinct. The shareholder contribution calculation depends on the overall excess percentage, not just the shareholder's receipt.

Common questions

Is every director who approved an excessive payment liable?

Section 16-10a-842(1) requires vote or assent and failure to perform § 16-10a-840 duties, with ordinary director defenses expressly available.

Can the director seek contribution from a shareholder without proof of knowledge?

No. Section 16-10a-842(2)(b) requires that the shareholder accepted the distribution knowing it violated § 16-10a-640 or the articles.

Statutes and sources

Utah Code §§ 16-10a-640, -840, and -842, official chapter PDF, accessed September 27, 2026.

Source links

Every statute quoted above, linked, with the date we checked it.

Utah Code § 16-10a-640 · accessed 2026-09-27

Utah Code § 16-10a-840 · accessed 2026-09-27

Utah Code § 16-10a-842 · accessed 2026-09-27

This page gives general legal information about statutory recovery for an unlawful distribution by an ordinary domestic business corporation. It is not legal or financial advice. The corporation's governing documents, financial records, transaction terms, board records, and current statute determine which rules apply. The table does not decide whether a distribution is unlawful or whether any director or shareholder is liable. Separate creditor, fraudulent-transfer, bankruptcy, fiduciary-duty, and tax rules may apply. Confirm current official law and obtain licensed advice for a specific dispute or transaction.

What does Utah law mean for your facts?

You just read the general rule. Ask your own question and see which parts of current Utah law apply to your situation, with citations you can check.

Opens in Ezel Pro.

Starts from the statutes this survey is built on
Cites every source it relies on, so you can verify it
Chat, drafting and research in one workspace