(a)General rule.--A limited liability company may not make a distribution, including a distribution under section 8877 (relating to disposition of assets in winding up), if after the distribution:
(1)the company would not be able to pay its debts as they become due in the ordinary course of the company's activities and affairs; or
(2)the 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.
(b)Valuation.--A limited liability company may base a determination that
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(a) General rule.--A limited liability company may not make a distribution, including a distribution under section 8877 (relating to disposition of assets in winding up), if after the distribution:
(1) the company would not be able to pay its debts as they become due in the ordinary course of the company's activities and affairs; or
(2) the 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.
(b) Valuation.--A limited liability company may base a determination that a distribution is not prohibited under subsection (a)(2) on:
(1) the book values of the assets and liabilities of the company, as reflected on its books and records;
(2) a valuation that takes into consideration unrealized appreciation and depreciation or other changes in value of the assets and liabilities of the company;
(3) the current value of the assets and liabilities of the company, either valued separately or valued in segments or as an entirety as a going concern; or
(4) any other method that is reasonable in the circumstances.
(c) Excluded liabilities.--In determining whether a distribution is prohibited under subsection (a)(2), the company need not consider obligations and liabilities unless they are required to be reflected on a balance sheet, not including the notes to the balance sheet, prepared on the basis of generally accepted accounting principles, or such other accounting practices and principles as are used generally by the company in the maintenance of its books and records and as are reasonable in the circumstances.
(d) Measuring date of distribution.--Except as provided in subsection (e), the effect of a distribution under subsection (a) is measured:
(1) as of the date specified by the company when it authorizes the distribution if the distribution occurs within 125 days of the earlier of the date so specified or the date of authorization; or
(2) as of the date of distribution in all other cases.
(e) Date of redemption.--In the case of a distribution described under paragraph (1) of the definition of "distribution" in section 8812 (relating to definitions), the distribution is deemed to occur as of the earlier of the date money or other property is transferred or debt is incurred by the company or the date the person entitled to the distribution ceases to own the interest or right being acquired by the company in return for the distribution.
(f) Status of distribution debt.--The indebtedness of a limited liability company to a member or transferee incurred by reason of a distribution made in accordance with this section shall be at least on a parity with the company's indebtedness to its general, unsecured creditors, except to the extent subordinated by agreement.
(g) Certain subordinated debt.--The indebtedness of a limited liability company, including indebtedness issued as a distribution, is not a liability for purposes of subsection (a) 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.
(h) Distributions in winding up.--In measuring the effect of a distribution under section 8877, the liabilities of a dissolved limited liability company do not include any claim that has been barred under section 8874 (relating to known claims against dissolved limited liability company) or 8875 (relating to other claims against dissolved limited liability company), or for which security has been provided under section 8876 (relating to court proceedings).
(i) Cross references.--See:
Section 8815(d)(1)(ii) (relating to contents of operating agreement).
Section 8849.1 (relating to standards of conduct for members).
Section 8849.2 (relating to standards of conduct for managers).