16-18-504. Limitation on distributions by limited liability partnership.
(1) A limited liability partnership may not make a distribution, including a distribution under Section 16-18-906, if after the distribution:
(a) the limited liability partnership would not be able to pay the limited liability partnership's debts as the debts become due in the ordinary course of the partnership's activities and affairs; or
(b) the limited liability partnership's total assets would be less than the sum of the limited liability partnership's total liabilities plus, unless the partnership agreement permits otherwise, the amount that would be needed, if the partnership were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution and winding up of partners and transferees whose preferential rights are superior to the right to receive distributions of the persons receiving the distribution.
(2) A limited liability partnership may base a determination that a distribution is not prohibited under Subsection (1) on:
(a) financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or
(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:
(a) in the case of a distribution as defined in Subsection 16-18-101(4)(a), as of the earlier of the date:
(i) money or other property is transferred or debt is incurred by the limited liability partnership; or
(ii) the person entitled to the distribution ceases to own the interest or rights being acquired by the limited liability partnership in return for the distribution;
(b) in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
(c) in all other cases, as of the date:
(i) the distribution is authorized, if the payment occurs not later than 120 days after that date; or
(ii) the payment is made, if the payment occurs more than 120 days after the distribution is authorized.
(4) A limited liability partnership's indebtedness to a partner or transferee incurred by reason of a distribution made in accordance with this section is at parity with the limited liability partnership's indebtedness to its general, unsecured creditors, except to the extent subordinated by agreement.
(5)
(a) A limited liability partnership'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 a payment of a distribution could then be made under this section.
(b) 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 16-18-906, the liabilities of a dissolved limited liability partnership do not include any claim that has been disposed of under Sections 16-18-907, 16-18-908, and 16-18-909.
Renumbered and Amended by Chapter 93, 2026 General Session
