LLC Distribution Limits and Improper-Distribution Liability in Maine
At a glance
| Governing law, entity, distribution, and winding-up scope | Maine LLC Act; distribution is money/property transfer on account of transferable interest, excluding stated compensation/benefit payments for § 1555. § 1555 does not apply to winding-up distributions made under § 1601 (§§ 1502(9), 1555(4)-(5), 1601) |
|---|---|
| Ordinary-course debt-payment and insolvency test | No separate debts-as-they-become-due or insolvency test in § 1555; statutory limit is the at-distribution fair-value asset-liability test (§ 1555(1)) |
| Assets, liabilities, preferences, fair value, and exclusions | Bar to extent post-distribution liabilities exceed fair value of assets; exclude member-interest and limited-recourse liabilities, count encumbered property only by excess fair value, and exclude reasonable service compensation and bona fide ordinary-course benefit payments; no superior-preference add-on (§ 1555(1), (4)) |
| Accounting statements, valuation methods, and decision date | § 1555 states fair value and measures at distribution after giving effect; no accounting-statement, projection, reliance, or alternative-method rule stated (§ 1555(1)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Test applies at distribution after giving effect; §§ 1554-.1555 state no separate authorization, 120-day delay, redemption/acquisition, distribution-debt, or payment-by-payment measurement rule |
| Conditional distribution debt, creditor status, parity, and subordination | Entitled member/transferee has creditor status/remedies; §§ 1554-.1555 state no conditional-debt exclusion, payment retest, parity, security, or subordination rule (§ 1554(4)) |
| Authorizer, standard, and liability to the company | § 1555 states recipient liability, not a separate member/manager authorizer claim, conduct standard, or liability amount; § 1554 states no separate authorization procedure |
| Recipient knowledge, return amount, defenses, and contribution | Any knowing recipient owes LLC full distribution; unknowing recipient owes nothing under § 1555. Agreement/other-law obligations preserved subject to compensation/benefit exclusion; no contribution/impleader rule (§ 1555(2), (4)) |
| Limitation or repose period, accrual, and survival | Any action under § 1555 barred unless commenced within 2 years after distribution; section states no adjudication condition or dissolution extension (§ 1555(3)) |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Written LLC agreement may alter duties/liability but not bad-faith implied-covenant damages; § 1555 preserves agreement/other-law recipient exposure and excludes compliant § 1601 wind-up payments. No tax, transfer, bankruptcy, or calculation result here (§§ 1521-1522, 1555) |
Requirements one by one
Maine uses one fair-value asset-liability test
31 M.R.S. § 1555(1) bars a distribution to the extent that, after giving effect to it, specified liabilities exceed the fair value of LLC assets. It excludes liabilities to members on their LLC interests and limited-recourse liabilities, and counts property securing limited-recourse debt only to the extent its fair value exceeds that debt.
The section states no additional debts-as-due or superior-preference test. For this section, reasonable present- or past-service compensation and reasonable ordinary-course payments under a bona fide retirement plan or other benefits program are not distributions.
The general definition in § 1502(9) otherwise treats a distribution as a money or property transfer on account of a transferable interest.
The statutory time is the distribution itself
Section 1555 measures “at the time of the distribution, after giving effect to the distribution.” It states fair value but supplies no accounting-statement, projection, reliance, or alternative-method menu and no separate rule for authorization, delay, redemption, acquisition, distribution debt, or later debt payments.
An entitled member or transferee has creditor status and remedies under § 1554(4). The surveyed sections state no conditional-debt exclusion, parity, security, or subordination rule.
A knowing recipient owes the full distribution
Under § 1555(2), any person who knew at distribution that the payment violated subsection (1) is liable to the LLC for the amount of the distribution. An unknowing recipient is not liable for that amount under the subsection. The measure is the full distribution, not merely an expressly stated excess, and the subsection preserves agreement and other-applicable-law obligations.
Section 1555 does not create a separate claim against a member or manager for authorizing the payment and states no contribution or impleader route.
An action under the section must begin within two years
31 M.R.S. § 1555(3) bars an action under that section if it is not commenced within two years after the distribution. It states no adjudication condition or extension tied to dissolution.
Compliant winding-up payments use a separate order
Section 1555(5) expressly excludes distributions made in accordance with § 1601. That winding-up section first pays or adequately provides for creditors, then returns unreturned contributions and allocates remaining surplus by the owners' predissolution distribution shares. If the surplus is insufficient to return contributions, it is divided in proportion to their value.
Sections 1521 and § 1522 separately govern how a written LLC agreement may alter duties and liabilities while preserving damages for a bad-faith violation of the implied contractual covenant.
What trips people up
- The recipient measure is the whole distribution. It is not phrased as only the amount beyond what could have been paid.
- The two-year period applies to an action under § 1555. The section does not supply a separate authorizer or contribution action.
- Section 1601 distributions are expressly carved out. The winding-up order, not § 1555's ordinary-payment test, governs a compliant wind-up distribution.
Common questions
Does a recipient owe anything without knowledge?
Not under § 1555(2). That subsection states that a person who did not know of the violation is not liable for the distribution amount.
Does dissociation automatically create a distribution right?
No. Under § 1554(2), the LLC must decide to make an interim distribution; dissociation alone does not entitle the former member to one.
Can a member demand an in-kind distribution?
No by default. Section 1554(3) states a money-only demand right, while allowing a company to make a proportionate in-kind distribution subject to the separate winding-up rule.
Statutes and sources
- 31 M.R.S. §§ 1501, 1502(9), and 1554 — identify the Act, define distribution, and state interim entitlement, form, allocation, and creditor status. Official § 1502 and § 1554 (accessed September 19, 2026).
- 31 M.R.S. § 1555 — states the financial test, exclusions, knowing-recipient liability, two-year bar, preserved obligations, and winding-up carveout. Official current text (accessed September 19, 2026).
- 31 M.R.S. §§ 1521-1522 — state agreement duty and liability boundaries. Official § 1521 and § 1522 (accessed September 19, 2026).
- 31 M.R.S. § 1601 — states the winding-up asset order. Official current text (accessed September 19, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
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