Texas Business Organizations Code 21.316 – Liability of Directors for Wrongful Distributions
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(a) Subject to Subsection (c), the directors of a corporation who vote for or assent to a distribution by the corporation that is prohibited by Section 21. 303 are jointly and severally liable to the corporation for the amount by which the distribution exceeds the amount permitted by that section to be distributed.
(b) A director is not liable for all or part of the excess amount if a distribution of that amount would have been permitted by § 21.303 after the date the director authorized the distribution.
Terms Used In Texas Business Organizations Code 21.316
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Bankruptcy: Refers to statutes and judicial proceedings involving persons or businesses that cannot pay their debts and seek the assistance of the court in getting a fresh start. Under the protection of the bankruptcy court, debtors may discharge their debts, perhaps by paying a portion of each debt. Bankruptcy judges preside over these proceedings.
- Business: means a trade, occupation, profession, or other commercial activity. See Texas Business Organizations Code 1.002
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Corporation: means an entity governed as a corporation under Title 2 or 7. See Texas Business Organizations Code 1.002
- Director: means an individual who serves on the board of directors of a foreign or domestic corporation. See Texas Business Organizations Code 1.002
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Member: means :
(A) in the case of a limited liability company, a person who has become, and has not ceased to be, a member in the limited liability company as provided by its governing documents or this code;
(B) in the case of a nonprofit corporation, a person who has membership rights in the nonprofit corporation under its governing documents;
(C) in the case of a cooperative association, a member of a nonshare or share association;
(D) in the case of a nonprofit association, a person who has membership rights in the nonprofit association under its governing documents; or
(E) in the case of a professional association, a person who has membership rights in the professional association under its governing documents. See Texas Business Organizations Code 1.002 - Person: means an individual or a corporation, partnership, limited liability company, business trust, trust, association, or other organization, estate, government or governmental subdivision or agency, or other legal entity, or a protected series or registered series of a domestic limited liability company or foreign entity. See Texas Business Organizations Code 1.002
- United States: includes a department, bureau, or other agency of the United States of America. See Texas Government Code 311.005
(c) A director is not jointly and severally liable under Subsection (a) if, in voting for or assenting to the distribution, the director:
(1) relies in good faith and with ordinary care on:
(A) the statements, valuations, or information described by § 21.314; or
(B) other information, opinions, reports, or statements, including financial statements and other financial data, concerning the corporation or another person that are prepared or presented by:
(i) one or more officers or employees of the corporation;
(ii) a legal counsel, public accountant, investment banker, or other person relating to a matter the director reasonably believes is within the person’s professional or expert competence; or
(iii) a committee of the board of directors of which the director is not a member;
(2) acting in good faith and with ordinary care, considers the assets of the corporation to be valued at least at their book value; or
(3) in determining whether the corporation made adequate provision for payment, satisfaction, or discharge of all of the corporation’s liabilities and obligations, as provided by Sections 11.053 and 11.356, relies in good faith and with ordinary care on financial statements of, or other information concerning, a person who was or became contractually obligated to pay, satisfy, or discharge some or all of the corporation’s liabilities or obligations.
(d) The liability imposed under Subsection (a) is the only liability of a director to the corporation or its creditors for authorizing a distribution that is prohibited by § 21.303.
(e) This section and Sections 21.317 and 21.318 do not limit any liability imposed under Chapter 24, Business & Commerce Code, or the United States Bankruptcy Code.