Iowa Code 489.405 – Limitations on distribution
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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.
Terms Used In Iowa Code 489.405
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Distribution: includes all of the following:(1) A redemption or other purchase by a limited liability company of a transferable interest. See Iowa Code 489.102
- following: when used by way of reference to a chapter or other part of a statute mean the next preceding or next following chapter or other part. See Iowa Code 4.1
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Member: means a person for whom all of the following are true:
a. See Iowa Code 489.102- Person: includes a protected series, however denominated, of an entity if the protected series is established under law that limits, or limits if conditions specified under law are satisfied, the ability of a creditor of the entity or of any other protected series of the entity to satisfy a claim from assets of the protected series. See Iowa Code 489.102
- Property: means all property, whether real, personal, or mixed or tangible or intangible, or any right or interest therein. See Iowa Code 489.102
- Transferee: includes a person that owns a transferable interest under section 489. See Iowa Code 489.102
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) The date the person entitled to the distribution ceases to own the interest or right being 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.