2023 Texas Statutes › Business Organizations Code › Title 3 - Limited Liability Companies › Chapter 101 - Limited Liability Companies › Subchapter E. Allocations and Distributions › Section 101.206. Prohibited Distribution; Duty to Return

Sec. 101.206.  PROHIBITED DISTRIBUTION;  DUTY TO RETURN.  (a)  Unless the distribution is made in compliance with Chapter 11, a limited liability company may not make a distribution to a member of the company if, immediately after making the distribution, the company's total liabilities, other than liabilities described by Subsection (b), exceed the fair value of the company's total assets.
(b)  For purposes of Subsection (a), the liabilities of a limited liability company do not include:
(1)  a liability related to the member's membership interest;  or
(2)  except as provided by Subsection (c), a liability for which the recourse of creditors is limited to specified property of the company.
(c)  For purposes of Subsection (a), the assets of a limited liability company include the fair value of property subject to a liability for which recourse of creditors is limited to specified property of the company only if the fair value of that property exceeds the liability.
(c-1)  For purposes of this section, the determination of the amount of a limited liability company's liabilities or the value of a company's assets may be based on:
(1)  financial statements of the company, which may include the financial statements of subsidiary entities or other entities accounted for on a consolidated basis or on the equity method of accounting, that:
(A)  present the financial condition of the company and any subsidiary or other entities included in those financial statements, in accordance with generally accepted accounting principles or international financial reporting standards; or
(B)  have been prepared using the method of accounting used to file the company's federal income tax return or using any other accounting practices and principles that are reasonable under the circumstances;
(2)  financial information, including condensed or summary financial statements, that is prepared on the same basis as financial statements described by Subdivision (1);
(3)  projections, forecasts, or other forward-looking information relating to the future economic performance, financial condition, or liquidity of the company that is reasonable under the circumstances;
(4)  a fair valuation or information from any other method that is reasonable under the circumstances; or
(5)  a combination of a statement, valuation, or information authorized by this subsection.
(c-2)  Subsection (c-1) does not apply to the computation of the franchise tax or any other tax imposed on a limited liability company under the laws of this state.
(d)  A member of a limited liability company who receives a distribution from the company in violation of this section is not required to return the distribution to the company unless the member had knowledge of the violation.
(e)  This section may not be construed to affect the obligation of a member of a limited liability company to return a distribution to the company under the company agreement, another agreement, or other state or federal law.
(f)  For purposes of this section, "distribution" does not include an amount constituting reasonable compensation for present or past services or a reasonable payment made in the ordinary course of business under a bona fide retirement plan or other benefits program.
(g)  An action alleging a distribution is made in violation of this section must be commenced not later than the second anniversary of the date of the distribution.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
Amended by:
Acts 2009, 81st Leg., R.S., Ch. 84 (S.B. 1442), Sec. 41, eff. September 1, 2009.
Acts 2021, 87th Leg., R.S., Ch. 39 (S.B. 1203), Sec. 27, eff. September 1, 2021.
Acts 2023, 88th Leg., R.S., Ch. 27 (S.B. 1514), Sec. 37, eff. September 1, 2023.