LLC Distribution Limits and Improper-Distribution Liability in Georgia
At a glance
| Governing law, entity, distribution, and winding-up scope | Georgia LLC Act; § 14-11-407 reaches member, assignee, and dissociated-interest distributions. Winding up first discharges/provides/disposes of liabilities, then distributes remaining assets; separate undisposed-claim recovery applies (§ 14-11-605) |
|---|---|
| Ordinary-course debt-payment and insolvency test | Prohibited if, after distribution, LLC could not pay debts as they become due in usual course of business (§ 14-11-407(a)(1)) |
| Assets, liabilities, preferences, fair value, and exclusions | Prohibited if assets would be less than liabilities plus superior dissolution preferences; articles or written operating agreement may remove preference add-on. Conditional distribution debt excluded (§ 14-11-407(a)(2), (e)) |
| Accounting statements, valuation methods, and decision date | May use reasonable accounting statements, fair valuation, or another reasonable method; measurement date depends on acquisition, debt distribution, or authorization/payment timing (§ 14-11-407(b)-(c)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Interest acquisition measured at earlier of property/debt transfer or member-status cessation; other debt when distributed; otherwise authorization if paid within 120 days, payment if later; distribution-debt installments retested when paid (§ 14-11-407(c), (e)) |
| Conditional distribution debt, creditor status, parity, and subordination | Compliant debt at parity with general unsecured debt unless subordinated or secured; conditional distribution debt excluded and payments retested. Entitled member has creditor status/remedies (§§ 14-11-407(d)-(e), 14-11-409) |
| Authorizer, standard, and liability to the company | Voting or expressly consenting member/manager liable to LLC for excess if noncompliance with § 14-11-407 and breach of § 14-11-305 duty are established, disregarding permitted duty limitation (§ 14-11-408(a)) |
| Recipient knowledge, return amount, defenses, and contribution | Liable authorizer entitled to contribution from other persons liable under § 14-11-408(a) and from each member for amount knowingly received in violation; no separate direct LLC claim against recipient stated in § 14-11-408(b) |
| Limitation or repose period, accrual, and survival | Proceeding under § 14-11-408 barred unless commenced within 2 years after distribution-effect measurement date under § 14-11-407 (§ 14-11-408(c)) |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Authorizer liability expressly depends on § 14-11-305 duty; no solvency calculation, valuation, knowledge or duty finding, creditor-standing conclusion, tax treatment, fraudulent-transfer result, or bankruptcy outcome here (§ 14-11-408(a)) |
Requirements one by one
Covered payments and winding up
Georgia § 14-11-407 reaches a distribution to a member or assignee and one made with respect to a dissociated member's interest. Section 14-11-605 separately requires a winding-up LLC to discharge, provide for, or use the statutory claim process for liabilities before distributing remaining assets. An undisposed claim can reach distributed winding-up assets within § 14-11-605(b)'s limits.
Dual financial tests and governing-document preference rule
After a distribution, the LLC must remain able to pay debts as they become due in the usual course, and assets must not fall below liabilities plus superior dissolution preferences. Section 14-11-407(a)(2) lets the articles or a written operating agreement remove the preference add-on; it does not permit those records to erase the ordinary-course debt-payment test.
Valuation and measurement
Section 14-11-407(b) permits reasonable accounting statements, a fair valuation, or another reasonable method. A purchase, redemption, or other interest acquisition uses the earlier of property transfer or debt incurrence and cessation of member status. Other distributed debt is measured when distributed; an ordinary payment uses authorization when paid within 120 days and uses payment when made later.
Distribution debt and creditor status
Compliant distribution debt has parity with general unsecured debt unless it is subordinated or secured. Qualifying conditional distribution debt is excluded from liabilities, and each principal or interest payment is retested when made. Section 14-11-409 separately gives an entitled member creditor status and remedies for the distribution.
Authorizer liability, recipient contribution, and time bar
Section 14-11-408(a) requires a vote or express consent, noncompliance with the financial-limit section, and a violation of a § 14-11-305 duty, tested without the permitted duty limitation. Liability runs to the LLC for the excess. A liable authorizer may obtain contribution from other liable authorizers and from a member for the amount knowingly received. The section does not state a separate direct LLC cause of action against that recipient. A proceeding is barred two years after the § 14-11-407 measurement date.
What trips people up
Georgia's preference add-on can be displaced only through the articles or a written operating agreement, while the debt-payment test remains. The time bar runs from the statutory measurement date, which may be authorization, payment, debt distribution, or the earlier-of acquisition date—not necessarily the day cash ultimately changes hands. Recipient exposure in § 14-11-408 is written as the liable authorizer's contribution right, so it should not be restated as a broader direct company claim.
Common questions
Are ordinary distributions shared equally by default?
Yes. Section 14-11-404 uses equal shares when the articles or a written operating agreement does not provide the allocation, subject to the separate dissociation-distribution provision.
May a member demand an in-kind payment?
Not by default. Section 14-11-406 states a cash-only demand right and protects a member from being compelled to accept an asset percentage exceeding the member's distribution share, unless the articles or written agreement provide otherwise.
What if a winding-up claim was not discharged or provided for?
Section 14-11-605(b) permits enforcement against undistributed LLC assets and against each recipient member up to the assets distributed to that member, with contribution rights designed to reproduce the result of pre-distribution payment as far as practicable.
Statutes and sources
- O.C.G.A. §§ 14-11-404, 14-11-406 — state equal-sharing and in-kind defaults. Current public-domain Code Revision Commission text (accessed September 19, 2026).
- O.C.G.A. § 14-11-407 — states the dual tests, governing-record preference rule, valuation, measurement, and debt treatment. Current public-domain Code Revision Commission text (accessed September 19, 2026).
- O.C.G.A. § 14-11-408 — states authorizer liability, contribution, and the two-year bar. Current public-domain Code Revision Commission text (accessed September 19, 2026).
- O.C.G.A. § 14-11-409 — gives an entitled member creditor status and remedies. Current public-domain Code Revision Commission text (accessed September 19, 2026).
- O.C.G.A. § 14-11-605 — states the winding-up liability-first rule and undisposed-claim recovery. Current public-domain Code Revision Commission text (accessed September 19, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
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