LLC Distribution Limits and Improper-Distribution Liability in Connecticut
At a glance
| Governing law, entity, distribution, and winding-up scope | Connecticut ULLC Act, ch. 613a; distribution includes interest redemption/purchase and member-right relinquishment but excludes reasonable service compensation/ordinary bona fide benefit payments (§ 34-243a(8)); limits and recovery in §§ 34-255d to -255e; winding-up order in § 34-267f |
|---|---|
| Ordinary-course debt-payment and insolvency test | Prohibited if, after distribution, company could not pay debts as due in ordinary course of activities and affairs (§ 34-255d(a)(1)) |
| Assets, liabilities, preferences, fair value, and exclusions | Prohibited if assets would be below liabilities plus amount needed for superior member/transferee dissolution and winding-up preferences; no limited-recourse or other general liability exclusion, but disposed dissolved-company claims excluded for § 34-267f measurement (§ 34-255d(a)(2), (f)) |
| Accounting statements, valuation methods, and decision date | May use reasonable-under-circumstances accounting statements, fair valuation, or another reasonable method; governing date follows acquisition/authorization/payment rules (§ 34-255d(b)-(c)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Interest acquisition/member-right relinquishment measured at property transfer or debt incurrence; otherwise authorization if paid no later than 120 days, payment if more than 100 days—the official text facially overlaps days 101-120; distribution-debt installments measured when paid (§ 34-255d(c), (e)) |
| Conditional distribution debt, creditor status, parity, and subordination | Compliant distribution debt at parity with general unsecured debt; conditionally payable distribution debt excluded from liabilities and each payment retested; section states no express subordination exception (§ 34-255d(d)-(e)) |
| Authorizer, standard, and liability to the company | Consenting member of member-managed LLC or manager of manager-managed LLC liable to company for excess if § 34-255h good-faith/prudent-person/best-interest standard not met; member-managed agreement may reallocate consent responsibility (§§ 34-255e(a)-(b), 34-255h(c), (i)) |
| Recipient knowledge, return amount, defenses, and contribution | Knowing recipient personally liable to LLC for excess; liable authorizer may implead other liable authorizers and knowing recipients for contribution; no separate recipient defense stated (§ 34-255e(c)-(d)) |
| Limitation or repose period, accrual, and survival | Action under § 34-255e barred unless commenced not later than two years after distribution (§ 34-255e(e)) |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Authorizer liability expressly turns on § 34-255h conduct; winding up discharges creditors first and uses money-only surplus tiers; disposed claims excluded from dissolved-company test liabilities (§§ 34-255d(f), 34-255h, 34-267f). No solvency calculation, valuation choice, duty/knowledge finding, tax treatment, fraudulent-transfer result, bankruptcy outcome, or creditor-standing conclusion here |
Requirements one by one
Connecticut applies the same financial limit during winding up
Under Conn. Gen. Stat. § 34-255d, an LLC may not make a distribution when either after-payment test fails. For a dissolved LLC, subsection (f) removes claims disposed of through the statutory dissolved-company claim processes from the liabilities used to measure a § 34-267f distribution. Section 34-267f separately puts creditors first and requires its surplus tiers to be paid in money.
The distribution definition in § 34-243a(8) includes interest redemptions, purchases, and payments for relinquishing management or information rights, but excludes reasonable service compensation and ordinary bona fide benefit-plan payments.
The statute uses two financial tests
The first branch asks whether the company could pay debts as they become due in the ordinary course of activities and affairs. The second asks whether assets cover liabilities plus the amount needed for superior member or transferee preferences on dissolution and winding up.
The section states no general limited-recourse or other liability exclusion. This page identifies the inputs without deciding which items or preferences enter a real calculation.
Statements, fair value, and other reasonable methods are permitted
Under § 34-255d(b), the LLC may use financial statements prepared under accounting practices and principles reasonable under the circumstances, fair valuation, or another reasonable method. The statute does not select a method or value an item for a particular LLC.
The official timing text has an overlap
Interest acquisitions and member-right relinquishments are measured when money or property transfers or the LLC incurs debt. For other payments, the official text uses authorization when payment occurs no later than 120 days, but payment when it occurs more than 100 days after authorization. That leaves both clauses facially applicable on days 101 through 120. This page preserves the enacted words and does not silently replace “one hundred” with 120.
Every principal or interest payment on debt issued as the distribution is retested when paid. Compliant distribution debt ranks with general unsecured debt, and conditionally payable distribution debt is excluded from test liabilities. The section states no express subordination exception.
Authorizer liability follows the conduct standard
Section 34-255e(a) reaches a consenting member of a member-managed LLC or manager of a manager-managed LLC who fails to comply with § 34-255h(c), (i). That standard uses good faith, ordinarily prudent care in like circumstances, reasonable belief in the LLC's best interests, and specified reliance. Liability is to the company for the excess.
A member-managed operating agreement may expressly shift distribution-consent authority and responsibility to other members, with liability following the shift.
Recipient knowledge and contribution are separate
Under § 34-255e(c), a recipient who knew of the § 34-255d violation is liable to the LLC only for the excess received. A sued authorizer may implead other liable authorizers and knowing recipients for contribution.
Section 34-255e(e) bars an action under the section unless commenced no later than two years after the distribution. It does not use discovery, authorization, or adjudication as the trigger.
What trips people up
- The timing clauses overlap. Days 101 through 120 satisfy both facial conditions in the current official text.
- Disposed dissolution claims leave the measurement. Section 34-255d(f) ties that exclusion to a § 34-267f distribution.
- Consent responsibility can move among members. The agreement's express allocation controls who bears the member-managed authorizer rule.
- Recipient exposure requires knowledge. Receipt alone does not satisfy § 34-255e(c).
Common questions
Can Connecticut rely on reasonable financial statements?
Yes. Fair valuation or another reasonable method is also permitted.
May this survey resolve the 100-day/120-day overlap?
No. The current official statute contains both numbers. Applying them to a particular delayed payment requires licensed advice.
Does distribution debt rank ahead of unsecured creditors?
No priority is stated. Section 34-255d(d) places compliant debt at parity with general unsecured debt.
Are winding-up surplus distributions paid in kind?
No. Section 34-267f(d) requires its surplus distributions to be paid in money.
Statutes and sources
- Conn. Gen. Stat. § 34-243a(8) — distribution definition and exclusions. Official current Chapter 613a (accessed September 19, 2026).
- Conn. Gen. Stat. §§ 34-255d to -255e — financial tests, valuation, measurement, debt, authorizer and recipient liability, contribution, and two-year bar. Official current Chapter 613a (accessed September 19, 2026).
- Conn. Gen. Stat. § 34-255h(c), (i) — applicable care and reliance standard. Official current Chapter 613a (accessed September 19, 2026).
- Conn. Gen. Stat. § 34-267f — creditor-first winding-up order and money-only surplus. Official current Chapter 613a (accessed September 19, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
What does Connecticut law mean for your facts?
You just read the general rule. Ask your own question and see which parts of current Connecticut law apply to your situation, with citations you can check.
Opens in Ezel Pro.
- Starts from the statutes this survey is built on
- Cites every source it relies on, so you can verify it
- Chat, drafting and research in one workspace