Shareholder Liability for Unlawful Distributions
In the corporate context, most people associate the term “distribution” with dividends or payments at dissolution. In reality, the term covers almost any allocation of corporate property to a shareholder. See T.C.A. §48-11-201(7). Under Tennessee law, these distributions are unlawful if, after being made, the corporation (1) is unable to pay its debts or (2) has liabilities exceeding the sum of its assets. T.C.A. §48-16-401. Importantly, the recipient of the distribution (i.e. the shareholder) can be forced to contribute to a director who is held personally liable if the recipient knew that the distribution would be unlawful or in violation of the charter. T.C.A. §48-18-304.