§ 489.405 — Limitations on distribution

Iowa § 489.405

• Jurisdiction: Iowa
• Title XII: BUSINESS ENTITIES
• Ch. 489: UNIFORM LIMITED LIABILITY COMPANY ACT

Text

1. A limited liability company shall not make a distribution, including a distribution under
section 489.707, if after the distribution any of the following applies:
a. The limited liability company would not be able to pay its debts as they become due in
the ordinary course of the company’s activities and affairs.
b. The limited liability 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 and
wound up at the time of the distribution, to satisfy the preferential rights upon dissolution
and winding up of members and transferees whose preferential rights are superior to the
rights of persons receiving the distribution.
2. A limited liability company may base a determination that a distribution is not
prohibited under subsection 1 on any of the following:
a. Financial statements prepared on the basis of accounting practices and principles that
are reasonable in the circumstances.
b. A fair valuation or other method that is reasonable under the circumstances.
3. Except as otherwise provided in subsection 5, the effect of a distribution under
subsection 1 is measured as follows:

a. In the case of a distribution as defined in section 489.102, subsection 5, paragraph “a”,
as of the earlier of any of the following:
(1) The date money or other property is transferred or debt is incurred by the limited
liability company.
(2) Thedatethepersonentitledtothedistributionceasestoowntheinterestorrightbeing
acquired by the limited liability company in return for the distribution.
b. In the case of any other distribution of indebtedness, as of the date the indebtedness is
distributed.
c. In all other cases any of the following:
(1) The date the distribution is authorized, if the payment occurs not later than one
hundred twenty days after that date.
(2) The date the payment is made, if the payment occurs more than one hundred twenty
days after the distribution is authorized.
4. 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.
5. A limited liability company’s indebtedness, including indebtedness issued as a
distribution, is not a liability for purposes of subsection 1 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.
6. In measuring the effect of a distribution under section 489.707, the liabilities of a
dissolved limited liability company do not include any claim that has been disposed of under
section 489.704, 489.705, or 489.706.