183.0607 Limitations on distribution.

(1) A limited liability company may not declare or make a distribution to any of its members if, after giving effect to the distribution, any of the following would occur:

(a) The limited liability company would be unable to pay its debts as they become due in the usual course of business.

(b) The fair value of the limited liability company's total assets would be less than the sum of its total liabilities plus, unless an operating agreement provides otherwise, the amount that would be needed, if the limited liability company were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of members, if any, whose preferential rights are superior to those of the members receiving the distribution.

(2) A limited liability company may base a determination that a distribution is not prohibited by sub. (1) on any of the following:

(a) Financial statements and other financial data prepared on the basis of accounting practices and principles that are reasonable under the circumstances.

(b) A fair valuation or other method that is reasonable under the circumstances.

(3) Except as provided in sub. (5), the effect of a distribution for purposes of sub. (1) is measured as of the following date:

(a) The date on which the distribution is authorized if the payment occurs within 120 days after the date of authorization.

(b) The date on which payment is made if the payment occurs more than 120 days after the date of authorization.

(4) 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 limited liability company's indebtedness to its general, unsecured creditors, except to the extent subordinated by written agreement. This subsection does not affect the validity or priority of a security interest in a limited liability company's property that is created to secure the indebtedness to the member.

(5) Indebtedness of a limited liability company, including indebtedness issued as a distribution, is not considered a liability for purposes of a determination under sub. (1) if the terms of the indebtedness provide that payment of principal and interest is to be made only if, and to the extent that, payment of a distribution to members could then be made under this section. 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 on which the payment is made.

History: 1993 a. 112.