LLC Distribution Limits and Improper-Distribution Liability in Florida

At a glance

Requirements one by one

Dual financial tests, including winding up

Florida Statutes § 605.0405(1) expressly reaches a distribution under the winding-up provision, § 605.0710. After a distribution, the LLC must remain able to pay debts as they become due in the ordinary course, and total assets must not fall below total liabilities plus the amount needed for superior dissolution and winding-up preferences. Either failure prohibits the payment.

Accounting and valuation methods

Section 605.0405(2) permits financial statements prepared on reasonable accounting practices and principles, a fair valuation, or another reasonable method. Those are permissible bases for the determination; the statute does not select the method or establish the resulting values for a specific LLC.

Acquisitions, debt, and delayed payments

For a purchase, redemption, or other acquisition of a transferable interest, § 605.0405(3)(a) uses the earlier of the property-transfer or debt-incurrence date and the date the person ceases to own the acquired interest or right. A debt distribution is measured when issued. Other distributions use authorization if paid within 120 days and use payment if paid later. Qualifying conditional distribution debt is excluded from liabilities, with each principal or interest payment retested when actually made.

Distribution debt and parity

Under § 605.0405(4), compliant distribution debt owed to a member or transferee has parity with general unsecured debt except to the extent an agreement subordinates it. Section 605.0405(5) separately handles debt whose terms allow payment only when a distribution could then lawfully be made.

Authorizer standard and liability

Section 605.0406(1) requires two things for authorizer liability: the member or manager consented to a distribution that violated § 605.0405 and, in doing so, failed to comply with § 605.04091. The liability runs to the LLC and is limited to the excess over what could properly have been distributed. Section 605.0406(2) follows an express member-managed operating-agreement allocation of distribution-consent authority and responsibility.

Knowing recipients and contribution

Under § 605.0406(3), a recipient who knew of the violation is liable to the LLC only for the excess received. A person sued on authorizer liability may implead another potentially liable authorizer for contribution and may implead a knowing recipient for contribution up to that recipient's improper amount.

Two-year bar

Section 605.0406(5) bars an action under that section unless it begins within two years after the distribution. The statutory trigger is the distribution, not later discovery of financial or knowledge evidence.

What trips people up

The interest-acquisition measurement rule uses the earlier of two events and is not the same as the ordinary 120-day authorization rule. Authorizer exposure is also not strict merely because the financial limit was violated: § 605.0406(1) adds the § 605.04091 conduct standard. During winding up, § 605.0710 first requires creditor obligations to be discharged, and § 605.0405(6) excludes a claim disposed of under the statutory dissolved-company claim process from the liabilities used to measure a winding-up distribution.

Common questions

Does the statute require every recipient to repay an excess distribution?

No. Section 605.0406(3) states a knowledge condition and limits statutory liability to the excess that could not properly have been paid.

What happens to the surplus during winding up?

After creditor obligations are discharged, § 605.0710 first returns unreturned contribution value to owners of transferable interests, then distributes the remaining surplus according to pre-dissolution distribution proportions, subject to the stated transfer and charging-order rules.

Must winding-up distributions be paid in money?

Yes for distributions under § 605.0710(2)-(3). Subsection (4) requires those payments to be in money.

Statutes and sources

• Fla. Stat. § 605.0405 — states the dual tests, permissible valuation bases, measurement dates, debt parity and conditional-debt rules, and winding-up claim exclusion. Official current text (accessed September 19, 2026).
• Fla. Stat. § 605.0406 — states authorizer and knowing-recipient liability, contribution, and the two-year bar. Official current text (accessed September 19, 2026).
• Fla. Stat. § 605.04091(3)-(7) — states the cross-referenced conduct and reliance standards. Official current text (accessed September 19, 2026).
• Fla. Stat. § 605.0710 — supplies the winding-up payment order and money- payment rule. Official current text (accessed September 19, 2026).