§ 29-3405 — Limitations on distributions

Arizona § 29-3405

• Jurisdiction: Arizona
• Title 29: Arizona Revised Statutes
• Ch. 7: ARIZONA LIMITED LIABILITY COMPANY ACT
• Art. 4: Relations of Members to Each Other and to Limited Liability Company

Text

A. A limited liability company may not make a distribution, including a distribution under section 29-3707, if after the distribution either of the following applies:

1. The company would not be able to pay its debts as the debts become due in the ordinary course of the company's activities and affairs.

2. The company's total assets would be less than the sum of its total liabilities.

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

1. Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances.

2. A fair valuation or other 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 a distribution that is a redemption or other purchase by a limited liability company of a transferable interest or that is a transfer to a member in return for the member's relinquishment of any right to participate as a member in the management or conduct of the company's activities and affairs or to have access to records or other information concerning the company's activities and affairs, as of the earlier of either of the following:

(a) The date that money or other property is transferred or debt is incurred by the limited liability company.

(b) The date that the person entitled to the distribution ceases to own the interest or right being acquired by the company in return for the distribution.

2. In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed.

3. In all other cases, as of the date of either of the following:

(a) The distribution is authorized, if the payment occurs not later than one hundred twenty days after that date.

(b) The payment is made, if the payment occurs more than one hundred twenty days after the distribution is authorized.

D. A limited liability company's indebtedness to a member or transferee 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 except to the extent subordinated by agreement.

E. A limited liability company's indebtedness, including indebtedness issued as a distribution, is not a liability for the purposes of subsection A of this section if the terms of the indebtedness provide that payment of principal and interest is made only if and to the extent that payment of a distribution could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is made.

F. In measuring the effect of a distribution under section 29-3707, the liabilities of a dissolved limited liability company do not include any claim that has been disposed of under section 29-3704, 29-3705 or 29-3706.