Limited Liability Companies
Limitations on distribution
(1)A distribution may be made by a limited liability company to any member only if, after giving effect to the distribution, in the judgment of the members, for a member-managed limited liability company, or the managers, for a manager-managed limited liability company:
(a)The limited liability company would be able to pay its debts as they become due in the ordinary course of business; and
(b)The fair value of the total assets of the limited liability company would at least equal the sum of:
(A)Its total liabilities; plus
(B)Unless the articles of organization permit otherwise, 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 upon dissolution, if any, of other members that are superior to the rights of the members receiving the distribution.
(2)The members or managers of a limited liability company may base a determination that a distribution is not prohibited under subsection (1) of this section either on:
(a)Financial statements that the members or managers reasonably believe have been prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or
(b)A fair valuation or other method that the members or managers reasonably believe is reasonable in the circumstances.
(3)For purposes of this section, the amount, if any, by which a liability as to which the recourse of creditors is limited to specific property of the limited liability company exceeds the fair value of such specific property shall be disregarded as a liability of the limited liability company.
(4)The effect of a distribution under subsection (1) of this section is measured for purposes of this section:
(a)In the case of distribution by purchase, retirement or other acquisition of all or a portion of a member’s interest in the limited liability company, as of the earlier of the date the money or other property is transferred or debt incurred by the limited liability company or the date the member ceases to be a member with respect to the membership interest purchased, retired or otherwise acquired;
(b)In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
(c)In all other cases, as of the date a distribution is authorized if the payment occurs within 120 days after the date of authorization or the date the payment is made if it occurs more than 120 days after the date of authorization.
(5)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 limited liability company’s indebtedness to its general unsecured creditors, unless the member agrees to subordination or the limited liability company grants the member a security interest or other lien against limited liability company assets to secure the indebtedness. [1993 c.173 §46; 1999 c.86 §11]
Law Review Citations
73 OLR 55 (1994)
Law Review Citations
30 WLR 291 (1994); 73 OLR 5, 25, 43, 133, 151 (1994)