2023 Rhode Island General Laws › Title 7 - Corporations, Associations and Partnerships › Chapter 7-12.1 - Uniform Partnership Act › Article 4 - Relations of Partners to Each Other and to Partnership › Section 7-12.1-406. - Limitations on distributions by limited liability partnership.

§ 7-12.1-406. Limitations on distributions by limited liability partnership.
(a)
A limited liability partnership may not make a distribution, including a distribution under § 7-12.1-806, if after the distribution:
(1)
The partnership would not be able to pay its debts as they become due in the ordinary course of the partnership’s business; or
(2)
The partnership’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the partnership were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution and winding up of partners and transferees whose preferential rights are superior to the rights of persons receiving the distribution.
(b)
A limited liability partnership may base a determination that a distribution is not prohibited under subsection (a) of this section on:
(1)
Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or
(2)
A fair valuation or other method that is reasonable under the circumstances.
(c)
Except as otherwise provided in subsection (e) of this section, the effect of a distribution under subsection (a) of this section is measured:
(1)
In the case of a distribution as defined in § 7-12.1-102(5)(i), as of the earlier of:
(i)
The date money or other property is transferred or debt is incurred by the limited liability partnership; or
(ii)
The date the person entitled to the distribution ceases to own the interest or rights being acquired by the partnership in return for the distribution;
(2)
In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
(3)
In all other cases, as of the date:
(i)
The distribution is authorized, if the payment occurs not later than one hundred twenty (120) days after that date; or
(ii)
The payment is made, if the payment occurs more than one hundred twenty (120) days after the distribution is authorized.
(d)
A limited liability partnership’s indebtedness to a partner or transferee incurred by reason of a distribution made in accordance with this section is at parity with the partnership’s indebtedness to its general, unsecured creditors, except to the extent subordinated by agreement.
(e)
A limited liability partnership’s indebtedness, including indebtedness issued as 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 is made only if and to the extent that a payment of a distribution could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is made.
(f)
In measuring the effect of a distribution under § 7-12.1-806, the liabilities of a dissolved limited liability partnership do not include any claim that has been disposed of under § 7-12.1-807, 7-12.1-808, or 7-12.1-809.
History of Section.
P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.