2018 Tennessee Code
Title 48 - Corporations and Associations
Limited Liability Companies
Chapter 249 - Tennessee Revised Limited Liability Company Act
Part 3 - Finance
§ 48-249-306. Limitations on distributions.

Universal Citation: TN Code § 48-249-306 (2018)
  • (a) Restriction on distributions. No distribution may be made by an LLC, if, after giving effect to the distribution:

    • (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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