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New Jersey Statutes, Title: 42, PARTNERSHIPS AND PARTNERSHIP ASSOCIATIONS
Chapter 2c: Revised Uniform Limited Liability Company Act
Section: 42:2c-35: Limitations on distribution.
35. Limitations on Distribution.
a. A limited liability company may not make a distribution 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; or
(2) the 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, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of members 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 subsection f. of this section, the effect of a distribution under subsection a. of this section is measured:
(1) in the case of a distribution by purchase, redemption, or other acquisition of a transferable interest in the company, as of the date money or other property is transferred or debt incurred by the company; and
(2) 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 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.
e. A limited liability company's indebtedness, including indebtedness issued in connection with or as part of a distribution, is not 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 is treated as a distribution, the effect of which is measured on the date the payment is made.
g. As used in this section, "distribution" does not include amounts constituting reasonable compensation for present or past services or reasonable payments made in the ordinary course of business under a bona fide retirement plan or other benefits program.
L.2012, c.50, s.35.
This section added to the Rutgers Database: 2012-10-16 15:25:26.
Older versions of 42:2c-35 (if available):
Court decisions that cite this statute:
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