Wrongful distributions.

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A. No distribution may be made if, after giving effect to the distribution:

(1) the limited liability company would not be able to pay its debts as they become due in the usual course of business; or

(2) the fair market value of the limited liability company's total assets would be less than the sum of all of its liabilities other than liabilities to members with respect to their membership interests and liabilities for which the recourse of the creditors is limited to specific property of the limited liability company. For purposes of this provision, in the case of specific property that is subject to a liability for which the recourse of the creditors is limited to such property, only the fair market value of such property in excess of such liability shall be included in the fair market value of the limited liability company's assets.

B. The limited liability company may base a determination that a distribution is not prohibited under Subsection A of this section either on:

(1) financial statements prepared on the basis of accounting practices and principles that are reasonable under the circumstances; or

(2) any other valuation method that is reasonable under the circumstances.

C. Except as provided in Subsection E of this section, the effect of a distribution under Subsection A of this section is measured as of:

(1) the date the distribution is authorized if the distribution occurs within one hundred twenty days after the date of authorization; or

(2) the date distribution is made if it occurs more than one hundred twenty days after the date of authorization.

D. Indebtedness of the limited liability company that it issued as a distribution to its members or the terms of which provide that payment of principal and interest is to be made only if and to the extent that payment of a distribution to members would not be wrongful under this section, is not a liability for purposes of determinations made pursuant to Paragraph (2) of Subsection A of this section.

E. Each payment of principal or interest on indebtedness of a limited liability company that it issued as a distribution shall be treated as a distribution, the effect of which is measured on the date such payment is actually made.

History: Laws 1993, ch. 280, § 26.


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