Full text of Utah Utah Code § 16-20-405 — Limitation on distributions. (Effective 10/1/2026), with citation guidance and answers to common questions.
§ 16-20-405. Limitation on distributions. (Effective 10/1/2026)
Effective 10/1/2026
16-20-405.
Limitation on distributions.
| (1) | A limited liability company may not make a distribution, including a distribution under Section 16-20-708, if after the distribution:
| (a) | the limited liability company would not be able to pay the limited liability company's debts as the debts become due in the ordinary course of the limited liability company's activities and affairs; or |
| (b) | the limited liability company's total assets would be less than the sum of the limited liability company's total liabilities plus, unless the operating agreement permits otherwise, the amount that would be needed, if the limited liability company were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution and winding up of members and transferees whose preferential rights are superior to those of persons receiving the distribution. |
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| (2) | A limited liability company may base a determination that a distribution is not prohibited under Subsection (1) on:
| (a) | financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or |
| (b) | a fair valuation or other method that is reasonable under the circumstances. |
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| (3) | Except as otherwise provided in Subsection (5), the effect of a distribution under Subsection (1) is measured:
| (a) | in the case of a distribution as defined in Subsection 16-20-101(4)(a), as of the earlier of:
| (i) | the date money or other property is transferred or debt is incurred by the limited liability company; or |
| (ii) | the date the person entitled to the distribution ceases to own the interest or right being acquired by the limited liability company in return for the distribution; |
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| (b) | in the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and |
| (c) | in all other cases, as of the date:
| (i) | the distribution is authorized, if the payment occurs not later than 120 days after that date; or |
| (ii) | the payment is made, if the payment occurs more than 120 days after the distribution is authorized. |
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| (4) | A limited liability company's indebtedness to a member or transferee 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 agreement. |
| (5) |
| (a) | A limited liability company's indebtedness, including indebtedness issued as a distribution, is not a liability for purposes of Subsection (1) if the terms of the indebtedness provide that payment of principal and interest is made only if and to the extent that payment of a distribution could then be made under this section. |
| (b) | 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. |
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| (6) | In measuring the effect of a distribution under Section 16-20-708, the liabilities of a dissolved limited liability company do not include any claim that has been disposed of under Section 16-20-705, 16-20-706, or 16-20-707. |
Renumbered and Amended by Chapter
93, 2026 General Session
Frequently Asked Questions About Utah § 16-20-405
What does Utah Code § 16-20-405 cover?
Section 16-20-405 ("Limitation on distributions. (Effective 10/1/2026)") is part of the Utah Code, the codified statutory law of Utah. It sets out the legal rule or procedure described in the text above. Statutes are amended regularly, so always verify against the official source.
How do I cite Utah § 16-20-405?
A common citation format is "Utah Code § 16-20-405" (Utah). Legal writing may require the code abbreviation, section number, and year or edition. Match the style required by your court, professor, or publisher.
Is this the official text of Utah law?
No. This page is for research and education and may not include the most recent amendments. For official current law, check the Utah official source linked on this page or consult a licensed Utah attorney.
How does Utah § 16-20-405 apply to my situation?
Statutes are interpreted in context, and application depends on your specific facts. Only a licensed attorney in Utah can advise on how this section applies to you. Contact your state or local bar association for a referral.
