Corporate Director and Shareholder Liability for Unlawful Distributions in Washington

At a glance

Requirements one by one

Distribution and director conduct

RCW 23B.01.400(8) defines a distribution to include dividends, share purchases or redemptions, indebtedness, and partial or complete liquidation payments. RCW 23B.06.400(1), (3) lets the board approve distributions subject to the articles and prohibits one that leaves the corporation unable to pay liabilities as they come due or below the statutory asset and preferred-rights threshold. Those are the cross-referenced triggers; this page does not calculate whether a particular payment exceeds a lawful amount.

RCW 23B.08.310(1) makes a director who votes for or assents to a prohibited distribution personally liable to the corporation for the excess only if the director did not perform duties in compliance with RCW 23B.08.300. That standard requires good faith, ordinarily prudent care, and a reasonable belief in the corporation's best interests; it also sets reliance conditions. Section 23B.08.310(1) preserves defenses ordinarily available to a director.

Knowing recipients and contribution

RCW 23B.08.310(3) separately makes a recipient shareholder liable to the corporation for the excess received if the shareholder accepted the distribution knowing it violated RCW 23B.06.400 or the articles. Under subsections (2) and (4), a liable director can seek contribution from other directors who could be liable and from knowing recipients, while a liable shareholder can seek contribution from other shareholders who could be liable.

Filing cutoffs

RCW 23B.08.310(5) bars a proceeding unless commenced before the earlier of two years after the effect of the distribution was measured or the RCW 23B.14.340 dissolution survival period. The director-liability provision still prints a reference to RCW 23B.06.400(4), but its reviser's note explains that the 2022 amendment moved the measurement rule to subsection (5). That rule varies the measurement date by distribution type and includes a 120-day authorization/payment distinction for other distributions. For a dissolution effective on or after June 7, 2006, RCW 23B.14.340 states a three-year survival period from its effective date; the earlier cutoff still governs this proceeding.

What trips people up

Knowledge is a condition for the shareholder's direct liability and for a liable director's contribution from that recipient. It is distinct from the director's conduct test. RCW 23B.06.400(8) also delays treating certain dissolved-corporation transfers to a trust or successor as distributions until assets reach shareholders.

Common questions

Can the corporation sue a shareholder who received too much?

Yes, if it is established that the shareholder accepted the excess knowing the payment violated RCW 23B.06.400 or the articles (§ 23B.08.310(3)). The amount is limited to what the shareholder received above what could lawfully have been paid to that shareholder.

Does a director have any reliance protection?

RCW 23B.08.300(2) permits reliance on specified officers, employees, professionals, and board committees when its belief conditions are met. Subsection (3) says knowledge making that reliance unwarranted defeats good faith, while subsection (4) protects a director who performed duties in compliance with the section.

Statutes and sources

• RCW 23B.01.400, accessed September 27, 2026: subsection (8) defines a distribution.
• RCW 23B.06.400, accessed September 27, 2026: subsections (1), (3), (5), and (8) govern authorization, financial limits, measurement, and certain dissolution transfers.
• RCW 23B.08.300, accessed September 27, 2026: director conduct, reliance, and protection for compliance.
• RCW 23B.08.310, accessed September 27, 2026: director and shareholder liability, contribution, and the filing cutoff; its reviser's note identifies the renumbered measurement subsection.
• RCW 23B.14.340, accessed September 27, 2026: dissolution survival period.