2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 8 - Directors and Officers
Part 3 - Standards of Conduct
§ 14-2-832. Liability for Unlawful Distributions

1. A director who votes for or assents to a distribution made in violation of Code Section 14-2-640 or the articles of incorporation is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating Code Section 14-2-640 or the articles of incorporation if it is established that he did not perform his duties in compliance with Code Section 14-2-830. In any proceeding commenced under this Code section, a director has all of the defenses ordinarily available to a director.
2. A director held liable under subsection (a) of this Code section for an unlawful distribution is entitled to contribution:
   1. From every other director who could be held liable under subsection (a) of this Code section for the unlawful distribution; and
   2. From each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of Code Section 14-2-640 or the articles of incorporation.
3. A proceeding under this Code section is barred unless it is commenced within two years after the date on which the effect of the distribution was measured under subsection (e) or (g) of Code Section 14-2-640.

(Code 1981, §14-2-831, enacted by Ga. L. 1988, p. 1070, § 1; Code 1981, §14-2-832, as redesignated by Ga. L. 1989, p. 946, § 33.)

- Ga. L. 1989, p. 946, § 33, effective July 1, 1989, renumbered former Code Section 14-2-831 as present Code Section 14-2-832.

Source: Model Act, § 8.33. This section preserves the essential features of director liability for unlawful distributions formerly found in § 14-2-154.

Subsection (a) provides that if it is established that a director failed to meet the standards of conduct of Section14-2-830 and voted for or assented to an unlawful distribution, the director is personally liable for the portion of the distribution that exceeds the maximum amount that could have been lawfully distributed. It also expressly preserves for a director all defenses that would ordinarily be available, notably the common law business judgment rule. The explicit reference in subsection (a) to the availability of defenses ordinarily available to a director was formulated somewhat more narrowly in former § 14-2-154(c), which provided a defense "if he relied and acted in good faith and upon financial information . . . represented . . . to be correct. . . ."

Subsection (b) provides that a director who is compelled to restore the amount of an unlawful distribution to the corporation is entitled to contribution from every other director who could have been held liable for the unlawful distribution. This preserves the approach of former § 14-2-154(e). The director may also recover the amounts paid to any shareholder who accepted the payments knowing that they were in violation of the statute. A shareholder who receives a payment not knowing of its invalidity is entitled to retain it. This follows former § 14-2-154(d).

Subsection (c) limits the time within which a proceeding may be commenced against a director for an unlawful distribution to two years after the date on which the effect of the distribution was measured. Formerly § 114-2-154(f) provided a six year statute of limitations. Georgia's former statute was among the longest in the nation, and was inconsistent with other provisions of the Code that attempt to clear up contingent claims in shorter periods. The provisions of Sections14-2-1406 and14-2-1407, dealing with claims upon dissolution of a corporation, for example, have been shortened to two years.

Cross-References Director standards of conduct, see § 14-2-830. "Distribution" defined, see § 14-2-140. Distributions generally, see § 14-2-640. Indemnification, see § 14-2-850 et seq.

Cited in Hickman v. Hyzer, 261 Ga. 38, 401 S.E.2d 738 (1991).

PART 4 OFFICERS

Law reviews.

- For article, "The Dynamics Among Shareholders, Directors, and Officers in Corporate Organizations Under Georgia Law," see 37 Mercer L. Rev. 79 (1985). For note on procedure to be followed to determine whether a corporation officer or director has appropriated wrongfully a business opportunity of his corporation for himself under former § 14-2-153, see 33 Mercer L. Rev. 407 (1981).

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Civil Code 1895, § 1861, former Civil Code 1910, § 2225 and former Code Section 14-2-150, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

- If a corporation, after learning of any relevant facts previously unknown to it, retains the benefits of an allegedly unauthorized contract, such a retention of benefits is "implied ratification." Lanier Ins. Agency, Inc. v. Citizens Bank, 168 Ga. App. 424, 309 S.E.2d 419 (1983) (decided under former § 14-2-150).

- In Georgia, if a corporate tort is committed, then an officer who takes part in its commission or who specifically directs the particular act to be done or who participates or cooperates therein is personally liable for the commission of the tort. Alexie, Inc. v. Old S. Bottle Shop Corp., 179 Ga. App. 190, 345 S.E.2d 875 (1986) (decided under former § 14-2-150).

- Persons dealing with one who purports to act in behalf of a corporation are protected if the agent is held out by the company as being the agent empowered to transact such business. Fitzgerald Cotton Oil Co. v. Farmers Supply Co., 3 Ga. App. 212, 59 S.E. 713 (1907) (decided under former Civil Code 1895, § 1861).

If the agent is held out by the company as being the agent empowered to transact such business a corporate bylaw or other limitation upon the power of the officer, not known to a party dealing with the agent, is not relevant. Eminent Household of Columbian Woodmen v. George E. Benz & Co., 11 Ga. App. 733, 76 S.E. 99 (1912); Stubbs v. Fourth Nat'l Bank, 12 Ga. App. 539, 77 S.E. 893 (1913); Blakely Artesian Ice Co. v. Clarke, 13 Ga. App. 574, 79 S.E. 526 (1913); Georgia Hussars v. Haar, 156 Ga. 21, 118 S.E. 563 (1923) (decided under former Civil Code 1895, § 18961, and former Civil Code 1910, § 2225).

- In a suit upon a note executed in behalf of a corporation by one as manager, the corporation having authority under its charter to issue negotiable paper in the due and ordinary course of its business, it is no defense that by reason of a bylaw not known to the plaintiff only the president could execute notes in behalf of the corporation. LaGrange Lumber & Supply Co. v. Farmers & Traders Bank, 37 Ga. App. 409, 140 S.E. 766 (1927) (decided under former Civil Code 1910, § 2225).

- Denying that an assistant manager had authority to execute indorsements, without averring that the plaintiff bank took the paper with knowledge of such want of authority, did not constitute a denial of the indorsements by the principal within the meaning of the code; moreover, by accepting the instruments, the defendant acceptor had admitted the genuineness of the signatures affixed to the them by the company as drawer. Massell v. Fourth Nat'l Bank, 38 Ga. App. 631, 144 S.E. 806 (1928) (decided under former Civil Code 1910, § 2225).

Cited in Patterson v. Duron Paints of Ga., Inc., 144 Ga. App. 123, 240 S.E.2d 603 (1977); McCreery v. RSA Mgt., Inc., 249 Ga. 43, 287 S.E.2d 203 (1982); Hickman v. Hyzer, 261 Ga. 38, 401 S.E.2d 738 (1991).