§ 16957 Llc Partnership Distribution Limits

This law says a registered limited liability partnership (LLP) can’t give money or property to its partners if, after the giveaway, the LLP wouldn’t be able to pay its bills or would have less stuff than it owes plus any special claims other partners have.

Key Takeaways

•An LLP can’t give away money/property if it would leave the firm unable to pay its debts when they come due.
•The LLP also can’t give away money/property if its remaining assets would be less than what it owes plus any special partner claims.
•If a partner gets an illegal distribution, they have four years to be forced to give it back.

Example

An LLP that owns $100,000 in assets owes $80,000 to creditors and has $10,000 of special claims from other partners. It wants to give $25,000 to its owners.

After giving away $25,000, the LLP would only have $75,000 left. That’s less than the $80,000 it owes plus the $10,000 special claims ($90,000 total). Because it would be short, the distribution is not allowed under the law.

How to Calculate

Assets_post‑distribution < Liabilities + Preferential‑rights‑amount

Find the LLP’s total assets before the distribution.
Subtract the amount being given to partners. This gives Assets_post‑distribution.
Add together all the LLP’s total liabilities and the amount needed to satisfy any preferential rights of other partners.
Compare the numbers. If Assets_post‑distribution is less than the sum from Step 3, the distribution is illegal.

LLP with $100,000 assets, $80,000 liabilities, $10,000 preferential rights, wants to distribute $25,000.

Result: Assets_post = 100000 - 25000 = 75000; Liabilities + Preferential = 80000 + 10000 = 90000; Since 75000 < 90000, the distribution is prohibited.

(a) No distribution shall be made by a registered limited liability partnership if, after giving effect to the distribution: (1) The registered limited liability partnership would not be able to pay its debts as they become due in the usual course of business. (2) The registered limited liability partnership’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the registered limited liability partnership were to be dissolved at the time of the distribution, to satisfy the preferential rights of other partners upon dissolution that are superior to the rights of the partners receiving the distribution. (b) A cause of action with respect to an obligation to return a distribution is extinguished unless the action is brought within four years after the distribution is made. (c) A distribution for purposes of this section means the transfer of money or property by a registered limited liability partnership to its partners without consideration. (Added by Stats. 1996, Ch. 1003, Sec. 2. Effective January 1, 1997.)

Key Takeaways

•An LLP can’t give away money/property if it would leave the firm unable to pay its debts when they come due.
•The LLP also can’t give away money/property if its remaining assets would be less than what it owes plus any special partner claims.
•If a partner gets an illegal distribution, they have four years to be forced to give it back.

Example

An LLP that owns $100,000 in assets owes $80,000 to creditors and has $10,000 of special claims from other partners. It wants to give $25,000 to its owners.

How to Calculate

Assets_post‑distribution < Liabilities + Preferential‑rights‑amount

Find the LLP’s total assets before the distribution.
Subtract the amount being given to partners. This gives Assets_post‑distribution.
Add together all the LLP’s total liabilities and the amount needed to satisfy any preferential rights of other partners.
Compare the numbers. If Assets_post‑distribution is less than the sum from Step 3, the distribution is illegal.

LLP with $100,000 assets, $80,000 liabilities, $10,000 preferential rights, wants to distribute $25,000.

Result: Assets_post = 100000 - 25000 = 75000; Liabilities + Preferential = 80000 + 10000 = 90000; Since 75000 < 90000, the distribution is prohibited.

Key Takeaways

Example

How to Calculate

Key Terms

References

§ 16957 Llc Partnership Distribution Limits

Key Takeaways

Example

How to Calculate

Key Terms

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References