LLC Distribution Limits and Improper-Distribution Liability in Louisiana

At a glance

Requirements one by one

Louisiana applies financial and governing-document limits

Under La. R.S. § 12:1327(A), a distribution fails if either financial test does not hold afterward or if its authorization or payment violates a restriction in the articles or a written operating agreement. During winding up, § 12:1337 separately protects debts, liquidation costs, and known contingent liabilities before the document-sensitive member distribution tiers.

The statute uses cash-flow and asset-preference tests

The first branch asks whether the LLC could pay debts as they become due in the usual course. The second asks whether assets cover liabilities plus the amount needed for superior member preferences on a hypothetical dissolution.

The articles or written operating agreement may remove the preference add-on. Section 12:1327 states no general limited-recourse-debt exclusion, but it does exclude conditionally payable distribution debt under subsection B(5).

Louisiana adds detailed accounting rules

Under § 12:1327(B), the LLC may use financial statements prepared under reasonable accounting practices and principles, fair valuation, or another reasonable method. GAAP is expressly deemed reasonable.

The section also addresses depreciation, depletion, known losses, deferred assets, prepaid expenses, wasting assets, limited-life property, and specified intangible drilling, leasehold, and related extractive or oil-and-gas costs. Those are statutory inputs, not permission for this page to choose a method or calculate availability.

The 120-day rule has no acquisition-specific branch

Section 12:1327(C) measures authorization if payment occurs within 120 days and payment itself if it occurs later. Unlike some uniform-act provisions, it states no separate transfer-or-debt date for a purchase, redemption, or interest acquisition and no payment-by-payment retest for debt issued as a distribution.

Conditional distribution debt is excluded from test liabilities, but the section states no general-unsecured parity or subordination rule.

Authorizer and recipient measures are different

Under § 12:1328(A), a voting or assenting member in a member-managed LLC or manager in a manager-managed LLC is jointly and severally liable when that person knew or failed to exercise reasonable care and inquiry. The violation may be of § 12:1327, the articles, or an operating agreement, and the authorizer's measure is the excess above what could have been distributed.

The next sentence makes every recipient member liable to the LLC for the amount received in violation. It states no recipient-knowledge qualifier and does not limit the recipient measure to the excess. Subsection B gives a liable member or manager contribution from each other member or manager who could be liable under subsection A.

Louisiana states two different two-year clocks

The main liability action must begin within two years from the date selected by § 12:1327's measurement rule. An authorizer held liable solely for voting or assenting may bring a contribution action within two years from that person's payment on the liability. Section 12:1328(C) says neither clock is suspended on any ground and interruption occurs only by timely suit.

What trips people up

• The preference add-on is document-sensitive. Only the articles or a written operating agreement can displace it under § 12:1327(A)(2).
• The recipient rule is not knowledge-based. The knowledge/reasonable-care standard belongs to voting or assenting authorizers.
• The limitation date may be authorization. A distribution paid within 120 days uses that earlier measurement date.
• Extractive assets have their own computation language. Applying it requires facts and accounting judgment beyond this survey.

Common questions

Is GAAP the only allowed accounting basis?

No. GAAP is deemed reasonable, but fair valuation or another reasonable method is also permitted.

Does a valid distribution note rank with unsecured debt?

Sections 12:1327 and 12:1328 state no parity rule. They address conditional debt only by excluding it from liabilities when payment is limited to amounts that could then be distributed.

May an authorizer avoid liability by making no inquiry?

No. Section 12:1328(A) reaches knowing approval and approval made without the exercise of reasonable care and inquiry.

Does the same two-year trigger govern contribution?

Not when the person was held liable solely for voting or assenting. That contribution action uses two years from the person's payment.

Statutes and sources

• La. R.S. § 12:1327 — financial and document tests, accounting/depletion rules, conditional debt, and 120-day measurement. Official current section (accessed September 19, 2026).
• La. R.S. § 12:1328 — authorizer and recipient liability, contribution, and two limitation periods. Official current section (accessed September 19, 2026).
• La. R.S. § 12:1337 — winding-up creditor, contingency, and member order. Official current section (accessed September 19, 2026).