§ 57C-4-06. Restrictions on making distributions.
§ 57C‑4‑06. Restrictions on making distributions.
(a) No distribution maybe made if, after giving effect to the distribution:
(1) The limitedliability company would not be able to pay its debts as they become due in theusual course of business; or
(2) The limitedliability company's total assets would be less than the sum of its totalliabilities plus, unless the operating agreement provides otherwise, the amountthat would be needed, if the limited liability company were to be dissolved atthe time of the distribution, to satisfy the preferential rights upondissolution of members whose preferential rights are superior to the rights ofthe member receiving the distribution.
(b) The limitedliability company may base a determination that a distribution is notprohibited under subsection (a) of this section on financial statementsprepared on the basis of accounting practices and principles that arereasonable under the circumstances; and for this purpose may determine assetvalues based on book values or on a fair market valuation or other method thatis reasonable under the circumstances.
(c) Except as providedin subsection (e) of this section, the effect of a distribution undersubsection (a) of this section is measured as of (i) the date the distributionis authorized if the payment occurs within 120 days after the date ofauthorization; or (ii) the date payment is made if it occurs more than 120 daysafter the date of authorization.
(d) A limited liabilitycompany's indebtedness issued as a distribution made in accordance with thissection is at parity with the limited liability company's indebtedness to itsgeneral, unsecured creditors except to the extent otherwise provided byagreement.
(e) Indebtedness of alimited liability company, including indebtedness issued as a distribution, isnot considered a liability for purposes of determinations under subsection (a)of this section if its terms provide that payment of principal and interest aremade only if, and to the extent that, payment of a distribution to memberscould then be made under this section. If indebtedness with such terms isissued as a distribution, each payment of principal or interest, and not theissuance of the indebtedness, is treated as a distribution, the effect of whichis measured on the date the payment is actually made.
(f) As used in thissection, "distribution" does not include amounts constitutingreasonable compensation for present or past services and does not includereasonable payments made in the ordinary course of business under a bona fideretirement plan or other benefits program. (1993, c. 354, s. 1; 2009‑247, s. 3.)