§ 4056. Limitations on distributions
(a) A distribution shall not be made if:
(1) the limited liability company would not be able to pay its debts as they become due
in the ordinary course of business; or
(2) the company’s total assets would be less than the sum of its total liabilities plus
the amount that would be needed, if the company were to be dissolved, wound up, and
terminated at the time of the distribution, to satisfy the preferential rights upon
dissolution, winding up, and termination of members whose preferential rights are
superior to those receiving the distribution.
(b) A limited liability company may base a determination that a distribution is not prohibited
under subsection (a) of this section on financial statements prepared on the basis
of:
(1) generally accepted accounting practices and principles;
(2) a fair valuation; or
(3) another method that is reasonable under the circumstances.
(c) Except as otherwise provided in subsection (e) of this section, the effect of a distribution
under subsection (a) of this section is measured:
(1) in the case of distribution by purchase, redemption, or other acquisition of a distributional
interest in a limited liability company, as of the date money or other property is
transferred or debt incurred by the company; and
(2) in all other cases, as of the date the:
(A) distribution is authorized if the payment occurs within 120 days after the date of
authorization; or
(B) payment is made if it occurs more than 120 days after the date of authorization.
(d) A limited liability company’s indebtedness to a member incurred by reason of a distribution
made in accordance with this section is at parity with the company’s indebtedness
to its general, unsecured creditors.
(e) Indebtedness of a limited liability company, including indebtedness issued in connection
with or as part of a distribution, is not considered a liability for purposes of determinations
under subsection (a) of this section if its terms provide that payment of principal
and interest are made only if and to the extent that payment of a distribution to
members could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest on the indebtedness and not the
issuance of the indebtedness is treated as a distribution, the effect of which is
measured on the date the payment is made. (Added 2015, No. 17, § 2.)