Iowa Code § 490.832
Directors’ liability for unlawful distributions
Redline — January 1, 2012 → current.View current text →
Current — January 1, 2023
As of January 1, 2012
1. A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the director’s interest in the transaction if any one of the following is true:
a. The material facts of the transaction and the director’s interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or committee authorized, approved, or ratified the transaction.
b. The material facts of the transaction and the director’s interest were disclosed or known to the shareholders entitled to vote and the shareholders authorized, approved, or ratified the transaction.
c. The transaction was fair to the corporation.
2. For purposes of this section, a director of the corporation has an indirect interest in a transaction if either of the following is true:
a. Another entity in which the director has a material financial interest or in which the director is a general partner is a party to the transaction.
b. Another entity of which the director is a director, officer, or trustee is a party to the transaction and the transaction is or should be considered by the board of directors of the corporation.
3. For purposes of subsection 1, paragraph “a”, a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the directors on the board of directors or on the committee, who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single director. If a majority of the directors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a director with a direct or indirect interest in the transaction does not affect the validity of any action taken under subsection 1, paragraph “a”, if the transaction is otherwise authorized, approved, or ratified as provided in that subsection.
4. For purposes of subsection 1, paragraph “b”, a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the shares entitled to be counted under this subsection. Shares owned by or voted under the control of a director who has a direct or indirect interest in the transaction, and shares owned by or voted under the control of an entity described in subsection 2, paragraph “a”, shall not be counted in a vote of shareholders to determine whether to authorize, approve, or ratify a conflict of interest transaction under subsection 1, paragraph “b”. The vote of those shares, however, is counted in determining whether the transaction is approved under other sections of this chapter. A majority of the shares, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection constitutes a quorum for the purpose of taking action under this section.
1. A director who votes for or assents to a distribution in excess of what may be authorized and made pursuant to section 490.640, subsection 1, or section 490.1409, subsection 1, is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating section 490.640, subsection 1, or section 490.1409, subsection 1, if the party asserting liability establishes that when taking the action the director did not comply with section 490.830.
2. A director held liable under subsection 1 for an unlawful distribution is entitled to all of the following:
a. Contribution from every other director who could be held liable under subsection 1 for the unlawful distribution.
b. Recoupment from each shareholder of the pro rata portion of the amount of the unlawful distribution the shareholder accepted, knowing the distribution was made in violation of section 490.640, subsection 1, or section 490.1409, subsection 1.
3. a. A proceeding to enforce the liability of a director under subsection 1 is barred unless it is commenced within two years after any of the following:
(1) The date on which the effect of the distribution was measured under section 490.640, subsection 5 or 8.
(2) The date as of which the violation of section 490.640, subsection 1, occurred as the consequence of disregard of a restriction in the articles of incorporation.
(3) The date on which the distribution of assets to shareholders under section 490.1409, subsection 1, was made.
b. A proceeding to enforce contribution or recoupment under subsection 2 is barred unless it is commenced within one year after the liability of the claimant has been finally adjudicated under subsection 1.
89 Acts, ch 288, §91; 90 Acts, ch 1205, §26; 2002 Acts, ch 1154, §39, 125
89 Acts, ch 288, §92
Referred to in
CS89, §490.833
C2022, §490.832
Official source: Iowa Legislature. Reproduced from public-domain Iowa statutes; confirm against the official source for the current text. Not legal advice.