Distributions and Withdrawals

§ 15116 (A). Distributions of Money or Property to Members. Distributions of the money or property of a limited liability company shall be made to the members and to any classes of members in the manner provided in the operating agreement. If the operating agreement does not otherwise provide, distributions that are a return of capital shall be made in proportion to the contributions made by each member and distributions COL6/24/2021 CH. 15 LIMITED LIABILITY COMPANIES that are not a return of capital shall be made in proportion to the allocation of profits. § 15116 (B). Entitlement of Member to Receive Distributions Prior to Withdrawal or Dissolution. Except as provided in this article, a member is entitled to receive distributions from a limited liability company before the withdrawal of that member from the limited liability company and before the dissolution and winding up thereof, subject to the limitations contained in § 15116 (E), to the extent and at the times or upon the happening of the events specified in the operating agreement. § 15116 (C). Withdrawal of Member; Notice; Entitlement to Distribution.

(a)A member may withdraw from a limited liability company at the time or upon the happening of events specified in the articles of organization or operating agreement. A written operating agreement may provide that a member may not withdraw the member's contribution from the limited liability company, or may provide specific remedies in the event of a wrongful withdrawal of a member's contribution, prior to the dissolution and winding up of the limited liability company. If the articles of organization or a written operating agreement do not specify the time or the events upon the happening of which a member may withdraw, a member may withdraw from the limited liability company either:

(1)Upon not less than six months' prior written notice to each member at the addresses set forth in the list required to be kept pursuant to this Chapter.

(2)If any amendment to the articles of organization or operating agreement that is adopted over the member's written dissent adversely affects the rights or preferences of the dissenting member's membership interest in any of the ways described in subparagraph (A), (B), (C), or

(E)below, in which event the withdrawal shall be deemed to have occurred as of the effective date of the amendment, if the member gives notice to the limited liability company not more than 60 days after the date of the amendment. In COL6/24/2021 CH. 15 LIMITED LIABILITY COMPANIES valuing the member's distribution pursuant to subdivision (c), there shall be excluded any depreciation in anticipation of the amendment. An amendment that does any of the following is subject to this paragraph:

(A)Altering or amending that member's right to receive a distribution.

(B)Altering or abolishing that member's right to voluntarily withdraw or retire.

(C)Altering or abolishing that member's right to vote on any matter, except as the rights may be altered or abolished through the acceptance of contributions or the making of contribution agreements.

(D)Altering or abolishing that member's preemptive right to make contributions.

(E)Establishing or changing the conditions for or consequences of expulsion. No member withdrawing under this paragraph shall be liable for damages for the breach of any agreement not to withdraw.

(b)Notwithstanding the provisions of subdivision (a), any member who is under an obligation to render services to the limited liability company may withdraw as a member at any time upon written notice to the limited liability company, without prejudice to the rights, if any, of the limited liability company or the other members under any contract to which the withdrawing member is a party. Any provision in an operating agreement governing the withdrawal of services by a member shall be enforceable in accordance with its terms unless the member seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the agreement was made.

(c)Upon a permitted withdrawal that does not cause dissolution of the limited liability company, any withdrawing member is entitled to receive any distribution to which that member is entitled under the operating agreement and, if not otherwise provided in the operating agreement, the member is entitled to receive, within a reasonable time after withdrawal, the COL6/24/2021 CH. 15 LIMITED LIABILITY COMPANIES fair market value of the member's interest in the limited liability company as of the date of withdrawal based upon the member's right to share in distributions from the limited liability company.

(d)Subject to Subsection 15116

(E)and other provisions of this Chapter, at the time a member becomes entitled to receive a distribution, the member has the status of, and is entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution. An operating agreement may provide for the establishment of a record date with respect to sharing of profits and distributions from a limited liability company. § 15116 (D). Distribution in Form Other than Money; Distribution of Asset.

(a)A member, regardless of the nature of the member's contribution, has no right to demand and receive any distribution from a limited liability company in any form other than money.

(b)No member may be compelled to accept from a limited liability company a distribution of any asset in kind in lieu of a proportionate distribution of money being made to other members.

(c)Except upon a dissolution and winding up of a limited liability company, no member may be compelled to accept a distribution of any asset in kind. § 15116 (E). Requirements to Make Distribution.

(a)No distribution shall be made if, after giving effect to the distribution:

(1)The limited liability company would not be able to pay its debts as they become due in the usual course of business.

(2)The limited liability company's total assets would be less than the sum of its total liabilities plus, unless the 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 of other members upon dissolution that COL6/24/2021 CH. 15 LIMITED LIABILITY COMPANIES are superior to the rights of the member receiving the distribution.

(b)The limited liability company may base a determination that a distribution is not prohibited under subdivision

(a)on any of the following:

(1)Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances.

(2)A fair valuation.

(3)Any other method that is reasonable in the circumstances.

(c)Except as provided in subdivision (e), the effect of a distribution under subdivision

(a)is measured as of

(1)the date the distribution is authorized if the payment occurs within 120 days after the date of authorization, or

(2)the date payment is made if it occurs more than 120 days after the date of authorization. (d)(1) If 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, indebtedness of a limited liability company, including indebtedness issued as a distribution, is not a liability for purposes of determinations made under subdivision (b).

(2)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 actually made.

(e)A member or assignee of a member is obligated to return a distribution from a limited liability company to the extent that

(1)the member or assignee had actual knowledge of facts indicating the impropriety of the distribution, and

(2)immediately after giving effect to the distribution, and notwithstanding the compromise of an obligation referred to in COL6/24/2021 CH. 15 LIMITED LIABILITY COMPANIES subdivision

(b)of Subsection 15113 (B), all liabilities of the limited liability company, other than liabilities to members or assignees on account of their interest in the limited liability company and liabilities as to which recourse of creditors is limited to specified property of the limited liability company, exceed the fair market value of the limited liability company's assets, provided that the fair market value of any property that is subject to a liability as to which recourse of creditors is so limited shall be included in the limited liability company assets only to the extent that the fair market value of the property exceeds this liability.

(f)A cause of action with respect to an obligation to return a distribution pursuant to subdivision

(e)is extinguished unless the action is brought within four years after the distribution is made. § 15116 (F). Personal Liability of Manager or Member Who Votes for Unlawful Distribution.

(a)A member or manager who votes for a distribution in violation of the operating agreement or Subsection 15116

(E)or other appropriate provisions of this Chapter, is personally liable to the limited liability company for the amount of the distribution that exceeds what could have been distributed without violating those sections of this Chapter or the operating agreement if it is established that the member or manager did not act in compliance with those sections.

(b)Each member or manager held liable under subdivision

(a)for an unlawful distribution is entitled to compel contribution:

(1)From each other member or manager who could be held liable under subdivision

(a)for the unlawful distribution.

(2)From each member for the amount the member received with knowledge of facts indicating that the distribution was made in violation of Subsection 15116

(E)or other appropriate sections of this Chapter or the operating agreement. COL6/24/2021 CH. 15 LIMITED LIABILITY COMPANIES

(c)A proceeding under this section is barred unless it is commenced within four years after the date on which the effect of the distribution is measured under Subsection 15116 (E).