Code of the District of Columbia

§ 29–804.05. Limitations on distribution.

(a) A limited liability company shall not make a distribution, including a distribution under § 29-807.05(c), 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, unless the operating agreement permits otherwise, the amount that would be needed if the company 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 transferees whose preferential rights are superior to those of persons receiving the distribution.

(b) A limited liability company may base a determination that a distribution is not prohibited under subsection (a) of this section 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 under the circumstances.

(c) Except as otherwise provided in subsections (e) and (f) of this section, the effect of a distribution under subsection (a) of this section shall be measured:

(1) In the case of a distribution as defined in § 29-801.02(3), as of the earlier of (i) the date money or other property is transferred or debt incurred by the company or (ii) 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;

(2) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and

(3) In all other cases, as of the date:

(A) The distribution is authorized, if the payment occurs within 120 days after that date; or

(B) The payment is made, if the payment occurs more than 120 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 shall be 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 in connection with or as part of a distribution, shall not be a liability for purposes of subsection (a) of this section if the terms of the indebtedness provide that payment of principal and interest are made only to the extent that a distribution could be made to members under this section.

(f) If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness shall be treated as a distribution, the effect of which is measured on the date the payment is made.

(g) In measuring the effect of a distribution under § 29-807.05, the liabilities of a dissolved limited liability company do not include any claim that has been disposed of under § 29-807.03, § 29-807.04, or § 29-807.07.