(a)Restriction on distributions. No distribution may be made by an LLC, if, after giving effect to the distribution:

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Terms Used In Tennessee Code 48-249-306

  • Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
  • Business: means every trade, occupation, profession, investment activity, and other lawful purpose for gain or the preservation of assets, whether or not carried on for profit. See Tennessee Code 48-249-102
  • Dissolution: means that the LLC has incurred an event under §. See Tennessee Code 48-202-101
  • Distribution: means a direct or indirect transfer of money or other property by an LLC, except for the issuance of its own membership interests or financial rights, with or without consideration, or an incurrence or issuance of indebtedness, whether directly or indirectly, including through a guaranty, to or for the benefit of any of its members or holders of financial rights, as applicable, in respect of membership interests or financial rights. See Tennessee Code 48-249-102
  • Financial rights: means a member's or holder's rights to:
    (A) Share in profits and losses, as provided in §. See Tennessee Code 48-249-102
  • holder: means a person, other than a member, owning any financial rights in an LLC. See Tennessee Code 48-249-102
  • Interest: means either or both of the following rights under the organic law of an unincorporated entity:
    (A) The right to receive distributions from the entity either in the ordinary course or upon liquidation. See Tennessee Code 48-11-201
  • Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
  • LLC: means a limited liability company, organized under chapters 201-248 of this title. See Tennessee Code 48-202-101
  • Member: means a person that has been admitted to an LLC as a member, as provided in §. See Tennessee Code 48-249-102
  • Membership: means the rights and obligations a member has pursuant to a corporation's charter, bylaws and chapters 51-68 of this title. See Tennessee Code 48-51-201
  • Property: includes both personal and real property. See Tennessee Code 1-3-105
  • Recourse: An arrangement in which a bank retains, in form or in substance, any credit risk directly or indirectly associated with an asset it has sold (in accordance with generally accepted accounting principles) that exceeds a pro rata share of the bank's claim on the asset. If a bank has no claim on an asset it has sold, then the retention of any credit risk is recourse. Source: FDIC
  • Termination: means the end of an LLC's existence as a legal entity and occurs when the articles of termination are filed with the secretary of state under §. See Tennessee Code 48-202-101
(1) The LLC would not be able to pay its debts as they become due in the ordinary course of business; or
(2) The LLC’s total assets would be less than the sum of its total liabilities, other than liabilities for which the recourse of creditors is limited to specified property, plus the amount that would be needed, if the LLC were to be dissolved, wound up and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up and termination of members and holders of financial rights, whose preferential rights are superior to those receiving the distribution; provided, however, that the value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the total assets of the LLC, only to the extent that the value of the property exceeds such liability.
(b)Basis for determination. An LLC may base a determination that a distribution is not prohibited under subsection (a) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances, or on a fair valuation or other method that is reasonable in the circumstances.
(c)Timing of determination. Except as otherwise provided in subsection (f), the effect of a distribution under subsection (a) is measured:

(1) In the case of distribution by purchase, redemption or other acquisition of a membership interest or financial rights in an LLC, as of the date money or other property is transferred or debt incurred by the LLC; and
(2) In all other cases, as of the date the:

(A) Distribution is authorized, if the payment occurs within four (4) months after the date of authorization; or
(B) Payment is made, if it occurs more than four (4) months after the date of authorization.
(d)Parity of indebtedness. Indebtedness of an LLC to a member or holder of financial rights, or indebtedness incurred by reason of a distribution made in accordance with this section, is at parity with the LLC’s indebtedness to its general, unsecured creditors, except to the extent such indebtedness is subordinated by agreement, or, in the event of dissolution and liquidation, to the extent otherwise provided in § 48-249-620.
(e)Status as liability. Indebtedness of an LLC, including indebtedness issued in connection with, or as part of, a distribution, is not considered a liability for purposes of determinations under subsection (a), if its terms provide that payment of principal and interest are made only if, and to the extent that, payment of a distribution to members and holders of financial rights could then be made under this section.
(f)Treatment of payments. If the indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.
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