275.225 Circumstances preventing distribution -- Determination -- Definition.
422 words·~2 min read·
/ky/chapter-275/275-225A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
(1)No distribution shall be made if, after giving effect to the distribution:
(a)The limited liability company would not be able to pay its debts as they
become due in the usual course of business;
(b)The limited liability company's assets would be less than the sum of its
liabilities plus, unless otherwise provided in an operating agreement, the
amount that would be needed, if the limited liability company were to be
dissolved at the time of the distribution, to satisfy the preferential rights of
other members upon dissolution which are superior to the rights of the
member receiving the distribution; or
(c)The distribution violates the operating agreement.
(2)The determination that a distribution is not prohibited under subsection
(1)of this
section may be based upon:
(a)Financial statements prepared on the basis of accounting practices and
principles that are reasonable under the circumstances; or
(b)A fair valuation or other method that is reasonable under the circumstances.
(3)Except as provided in subsection
(5)of this section, the effect of a distribution
under subsection
(1)of this section shall be measured as of:
(a)The date the distribution is authorized if the payment occurs within one
hundred twenty
(120)days after the date of authorization; or
(b)The date payment is made if it occurs more than one hundred twenty
days after the date of authorization.
(4)A limited liability company's indebtedness to a member incurred by reason of a
distribution made in accordance with this section shall be at parity with the limited
liability company's indebtedness to its general unsecured creditors, except to the
extent subordinated by agreement.
(5)If terms of the indebtedness provide that payment of principal and interest is to be
made only if, and to the extent that, payment of a distribution to members could
then be made under this section, then indebtedness of a limited liability company,
including indebtedness issued as a distribution, shall not be a liability for purposes
of determinations made under subsection
(1)of this section.
(6)If the indebtedness is issued as a distribution, then each payment of principal or
interest on the indebtedness shall be treated as a distribution, the effect of which
shall be measured on the date the payment is actually made.
(7)For purposes of this section, the term "distribution" shall not include amounts
constituting reasonable compensation for present or past services or reasonable
payments made in the ordinary course of business pursuant to a bona fide retirement
plan or other benefit program.