LLC Distribution Limits and Improper-Distribution Liability in Massachusetts

At a glance

Requirements one by one

Agreement-based distribution rules

The Massachusetts Limited Liability Company Act is named in chapter 156C, § 1. Section 2 defines a domestic LLC and the member’s interest, including the right to receive distributions. Section 30 allocates cash or other assets by the operating agreement; absent an allocation term, it uses the recorded agreed value of contributions received and not returned. That allocation formula answers who shares in a distribution, rather than whether a company passes a solvency test.

Sections 30–35 state no separate debts-as-due or asset-liability ceiling, menu of accounting methods, or delayed-payment measurement framework. Section 31 makes entitlement depend on the agreement’s times or events, otherwise the member or manager determination it specifies. Section 32’s default fair-value entitlement is specific to a resigning member and values the interest as of resignation. It is not a general asset-value ceiling for every distribution.

Authorizer liability and contribution

Section 35(a) says a member or manager who votes for or assents to an agreement-violating distribution is liable to the company for “the amount of the distribution that exceeds what could have been distributed without violating the operating agreement.” The claim belongs to the LLC under this provision.

Section 35(b) gives an authorizer held liable contribution from others who could bear authorizer liability and from each member for the amount that member received knowing the distribution violated the agreement. This distinguishes the authorizer’s unlawful-excess measure from the contribution provision’s received-amount measure. Section 35(c) bars a proceeding unless commenced within two years after the distribution.

Creditor status and liquidation order

Section 34 supplies creditor status when a member becomes entitled to a distribution, except as the agreement provides and subject to § 46. Section 46(a) puts ordinary creditor liabilities first, including permitted member and manager creditor claims, but expressly removes § 31 and § 32 distribution liabilities from that first tier. The latter liabilities occupy the next default tier, followed by return of contributions and interests as prescribed there.

Section 46(b) reaches known contingent, conditional, and unmatured obligations and known claims whose claimant identity is unknown. With insufficient assets, payment or provision follows priority and is ratable among claims of equal priority. Its liquidating-trustee protection is conditioned on compliance with that section.

Other-law boundaries

Section 63(b) separately addresses good-faith reliance on the operating agreement and permits expansion or restriction of specified duties and liabilities. Section 46(a) includes creditors only “to the extent otherwise permitted by law.” These clauses are boundaries, not an answer to a fiduciary, fraudulent-transfer, tax, bankruptcy, or creditor-standing dispute. This page does not calculate liquidity, fair value, or an available distribution amount, or decide knowledge or whether a payment should be made.

What trips people up

Under § 36, an agreement-violating resignation can produce company damages offset against amounts otherwise distributable to the departing member. A distribution entitlement and the ultimate amount payable can therefore raise distinct questions.

Common questions

Must a member accept property instead of cash? Section 33’s defaults permit a demand for cash and protect against being compelled to accept an in-kind share larger than the member’s distribution percentage; a written operating agreement may provide otherwise.

Can the agreement choose a record date? Yes. Section 34 expressly permits a record date for allocations and distributions. A record date identifies participation; it does not resolve liability for an agreement-violating payment.

Statutes and sources

Mass. Gen. Laws ch. 156C, § 1

Section 1. This chapter may be cited as the Massachusetts Limited Liability Company Act.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 2

(5) files an answer or other pleading, admitting or failing to contest the material allegations of a petition filed against him in any proceeding of this nature; (6) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the member or of all or any substantial part of his properties; or (b) one hundred and twenty days after the commencement of any proceeding against the member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, if the proceeding has not been dismissed, or if within ninety days after the appointment without his consent or acquiescence of a trustee, receiver or liquidator of the member or of all or any substantial part of his properties, the appointment is not vacated or stayed, or within ninety days after the expiration of any such stay, the appointment is not vacated. (2) ''Certificate of organization'', the certificate referred to in section twelve, and the certificate as amended. (3) ''Contribution'', any cash, property, services rendered or a promissory note or other obligation to contribute cash or property or to perform services, which a person contributes to a limited liability company in his capacity as a member. (4) ''Foreign limited liability company'', a limited liability company formed under the laws of any state other than the commonwealth or under the laws of any foreign country or other foreign jurisdiction and denominated as such under the laws of such state or foreign country or other foreign jurisdiction. (5) ''Limited liability company'' and ''domestic limited liability company'', an unincorporated organization formed under this chapter and having 1 or more members. (6) ''Limited liability company interest'', a member's share of the profits and losses of a limited liability company and the member's right to receive distributions of the limited liability company's assets. (7) ''Manager'', a person who is designated as a manager of a limited liability company pursuant to the operating agreement. (8) ''Member'', a person who has been admitted to a limited liability company as a member as provided in section twenty or, in the case of a foreign limited liability company, in accordance with the laws of the state or foreign country or other foreign jurisdiction under which the foreign limited liability company is organized, and whose membership has not been terminated pursuant to the operating agreement or the operation of law. (9) ''Operating agreement'', any written or oral agreement of the members as to the affairs of a limited liability company and the conduct of its business.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 30

Section 30. Distributions of cash or other assets of a limited liability company shall be allocated among the members, and among classes or groups of members, in the manner provided in the operating agreement. If the operating agreement does not so provide, distributions shall be made on the basis of the agreed value as stated in the records of the limited liability company of the contributions of each member to the extent they have been received by the limited liability company and have not been returned.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 31

Section 31. Except as provided in sections thirty-two and forty-six, a member is entitled to receive distributions from a limited liability company only to the extent and at the times or upon the happening of the events specified in the operating agreement or, if the operating agreement does not so specify, as determined by the members or managers pursuant to section twenty-one or section twenty-six.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 32

Section 32. Upon resignation, a resigning member is entitled to receive any distribution to which he is entitled upon resignation under a written operating agreement. If not otherwise provided in a written operating agreement, a resigning member is entitled to receive, within a reasonable time after resignation, the fair value of his limited liability company interest as of the date of resignation based upon his right to share in distributions from the limited liability company.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 33

Section 33. Except as provided in a written operating agreement, a member, regardless of the nature of his contribution, has no right to demand and receive any distribution from a limited liability company in any form other than cash. Except as provided in a written operating agreement, a member may not be compelled to accept a distribution of any asset in kind from a limited liability company to the extent that the percentage of the asset distributed to him exceeds a percentage of the asset which is equal to the percentage in which he shares in distributions from the limited liability company.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 34

Section 34. Except as provided in the operating agreement, and subject to section forty-six, at the time a member becomes entitled to receive a distribution, he has the status of, and is entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution. An operating agreement may provide for the establishment of a record date with respect to allocations and distributions by a limited liability company.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 35

Section 35. (a) A member or manager who votes for or assents to a distribution in violation of the operating agreement shall be personally liable to the limited liability company for the amount of the distribution that exceeds what could have been distributed without violating the operating agreement. (b) Each member or manager held liable under subsection (a) for an unlawful distribution is entitled to contribution: (1) from each other member or manager who could be held liable under said subsection (a) for the unlawful distribution; and (2) from each member for the amount the member received knowing that the distribution was made in violation of the operating agreement. (c) A proceeding under this section is barred unless it is commenced within two years after the date of the distribution.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 36

Section 36. A member may resign as a member of a limited liability company at the time or upon the happening of events specified in the operating agreement and in accordance with the operating agreement. An operating agreement may provide that a member shall not have the right to resign as a member of a limited liability company. Regardless of whether an operating agreement provides that a member does not have the right to resign as a member of a limited liability company, a member may resign as a member of a limited liability company upon not less than six months' prior written notice to the limited liability company at its office in the commonwealth as set forth in the certificate of organization filed in the office of the state secretary and to each other member and each manager at each other member's and each manager's address as set forth on the records of the limited liability company as of the date of the notice. If the resignation of a member violates the operating agreement, in addition to any remedies otherwise available under applicable law, a limited liability company may recover from the resigning member damages for breach of the operating agreement and offset the damages against any amounts otherwise distributable to the resigning member.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 46

Section 46. (a) Upon the winding up of a limited liability company, the assets shall be distributed as follows: (1) to creditors, including members and managers who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the limited liability company, whether by payment or the making of reasonable provision for payment thereof, other than liabilities for which reasonable provision for payment has been made and liabilities for distributions to members under section thirty-one or section thirty-two; (2) unless otherwise provided in the operating agreement, to members and former members in satisfaction of liabilities for distributions under section thirty-one or section thirty-two; and (3) unless otherwise provided in the operating agreement, to members first for the return of their contributions and second respecting their limited liability company interests, in the proportions in which the members share in distributions. (b) A limited liability company which has dissolved shall pay or make reasonable provision to pay all claims and obligations, including all contingent, conditional or unmatured claims and obligations, known to the limited liability company and all claims and obligations which are known to the limited liability company but for which the identity of the claimant is unknown. If there are sufficient assets, such claims and obligations shall be paid in full and any such provision for payment made shall be made in full. If there are insufficient assets, such claims and obligations shall be paid or provided for according to their priority and, among claims and obligations of equal priority, ratably to the extent of assets available therefor. Unless otherwise provided in an operating agreement, any remaining assets shall be distributed as provided in this chapter. Any liquidating trustee winding up a limited liability company's affairs who has complied with this section shall not be personally liable to the claimants of the dissolved limited liability company by reason of such person's actions in winding up the limited liability company.

Official text (accessed 2026-09-30).

Mass. Gen. Laws ch. 156C, § 63

Section 63. (a) Unless the provisions of this chapter or the context indicate otherwise, each reference in the General Laws to a ''person'', where such reference includes any partnership, whether general or limited and whether domestic or foreign, shall be deemed to include a limited liability company. (b) To the extent that, at law or in equity, a member or manager has duties, including fiduciary duties, and liabilities relating thereto to a limited liability company or to another member or manager, (1) any such member or manager acting under the operating agreement shall not be liable to the limited liability company or to any such other member or manager for the member's or manager's good faith reliance on the provision of the operating agreement, and (2) the member's or manager's duties and liabilities may be expanded or restricted by provisions in the operating agreement.

Official text (accessed 2026-09-30).