California Codes

Cal. Corporations Code § 506 (2026)

✓ current as of May 2026

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(a)Any shareholder who receives any distribution prohibited by this chapter with knowledge of facts indicating the impropriety thereof is liable to the corporation for the benefit of all of the creditors or shareholders entitled to institute an action under subdivision (b) for the amount so received by the shareholder with interest thereon at the legal rate on judgments until paid, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders, as the case may be. For purposes of determining the value of any noncash property received in a distribution described in the preceding sentence, the shareholder receiving that illegal distribution shall be liable to the corporation for an amount equal to the fair market value of the property at the time of the illegal distribution plus interest thereon from the date of the distribution at the legal rate on judgments until paid, together with all reasonably incurred costs of appraisal or other valuation, if any, of that property, but not exceeding the liabilities of the corporation owed to nonconsenting creditors at the time of the violation and the injury suffered by nonconsenting shareholders, as the case may be.

(b)Suit may be brought in the name of the corporation to enforce the liability (1) to creditors arising under subdivision (a) for a violation of Section 500 or 501 against any or all shareholders liable by any one or more creditors of the corporation whose debts or claims arose prior to the time of the distribution to shareholders and who have not consented thereto, whether or not they have reduced their claims to judgment, or (2) to shareholders arising under subdivision (a) for a violation of Section 500 against any or all shareholders liable by one or more holders of shares having preferential rights with respect to cumulative dividends in arrears, in the case of a violation of paragraph (1) of subdivision (a) of Section 500, or upon dissolution, in the case of a violation of paragraph (2) of subdivision (a) of Section 500, in each case who have not consented to the applicable distribution, without regard to the provisions in Section 800, and in each case to the extent the applicable shares with preferential rights were outstanding at the time of the distribution; provided that holders of shares of preferential rights shall not have the right to bring suit in the name of the corporation under this subdivision unless the preferential dividends arrears amount, in the case of a violation of paragraph (1) of subdivision (a) of Section 500, or the preferential rights amount, in the case of a violation of paragraph (2) of subdivision (a) of Section 500, was greater than zero. A cause of action with respect to an obligation to return a distribution pursuant to this section shall be extinguished unless the action is brought within four years after the date the distribution is made.

(c)Any shareholder sued under this section may implead all other shareholders liable under this section and may compel contribution, either in that action or in an independent action against shareholders not joined in that action.

(d)Nothing contained in this section affects any liability which any shareholder may have under Chapter 1 (commencing with Section 3439) of Title 2 of Part 2 of Division 4 of the Civil Code.

Notes of Decisions

Cited in 5 cases, 1986–2020 · leading case: Credit Managers Ass'n of S. California v. Fed. Co., 629 F. Supp. 175 (C.D. Cal. 1986).

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Credit Managers Ass'n of S. California v. Fed. Co., 629 F. Supp. 175 (C.D. Cal. 1986). · cites it 4× “41 monthly debt service payments to Federal pursuant to the Note and the Deed of Trust were unlawful distributions to shareholders in violation of California Corporations Code §§ 500 and 501.”

Fed. Deposit Ins. Corp. v. Ching, 189 F. Supp. 3d 978 (E.D. Cal. 2016). · cites it 3× “” Cal. Corp. Code § 506 (a). On this record the court cannot conclude the distribution was prohibited by sections 500 through 511 of the Corporations Code, so section 506(a) cannot transform CVB into a joint tortfeasor, and its $4 million payment canpot reduce the directors’…”

Kupetz v. Cont'l Ill. Nat. Bank & Trust Co., 77 B.R. 754 (C.D. Cal. 1987). “[7] Shelton testified that he did not lend much credence to the valuation of Adashek's assets or in his personal guaranty.”

Kupetz v. Cont'l Illinois Nat'l Bank & Trust Co. of Chicago, 77 B.R. 754 (C.D. Cal. 1987). “04 and as improper distributions under Cal.Corp.Code § 506. The Court previously ruled that summary judgment was appropriate on these claims.”

Floridians for Solar Choice, Inc. v. PCI Consultants, Inc. (S.D. Fla. 2020). · cites it 2× “Next, Defendants argue that Count VIII must be dismissed because Plaintiffs lack standing to bring it—an argument not previously made in the Motion to Dismiss.”

— Cal. Corporations Code § 506(a) — 2 cases

Credit Managers Ass'n of S. California v. Fed. Co., 629 F. Supp. 175 (C.D. Cal. 1986). “41 monthly debt service payments to Federal pursuant to the Note and the Deed of Trust were unlawful distributions to shareholders in violation of California Corporations Code §§ 500 and 501.”

Fed. Deposit Ins. Corp. v. Ching, 189 F. Supp. 3d 978 (E.D. Cal. 2016). “” Cal. Corp. Code § 506 (a). On this record the court cannot conclude the distribution was prohibited by sections 500 through 511 of the Corporations Code, so section 506(a) cannot transform CVB into a joint tortfeasor, and its $4 million payment canpot reduce the directors’…”

— Cal. Corporations Code § 506(b) — 2 cases

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