LLC Distribution Limits and Improper-Distribution Liability in Montana

At a glance

Requirements one by one

Montana uses two tests but lets company documents remove the preference add-on

MCA § 35-8-604(1) bars a distribution if the LLC could not pay debts as they become due in the usual course or assets would fall below liabilities plus superior member dissolution preferences. The articles or operating agreement may remove the preference amount from the second test; the statute does not authorize removal of the debts-as-due test or liabilities floor.

The definition in § 35-8-102(9) reaches money, property, or another benefit transferred to a member in that capacity or a transferee of the member's distributional interest. Section 35-8-604 states no compensation, benefit-plan, or liability exclusion.

Reasonable statements, fair valuation, or another reasonable method may be used

Under § 35-8-604(2), the company may rely on financial statements prepared using reasonable accounting practices and principles, fair valuation, or another reasonable method. This page does not select or apply a method.

The ordinary rule measures authorization if payment follows within 120 days and payment if later. Montana states no separate acquisition or other-debt issuance date. Each payment on debt issued as a distribution is retested when actually paid.

Conditional debt is excluded and compliant debt is at parity

Section 35-8-604(5)(a) excludes debt payable only if and to the extent a member distribution could then be made. Its text cross-references determinations under subsection (2), and this page preserves that cross-reference rather than silently rewriting it.

Compliant member distribution debt has parity with general unsecured debt except as an agreement otherwise provides under subsection (4). The statute does not characterize the debt as secured.

Authorizer and recipient exposure have different reach

Under MCA § 35-8-605(1), a member or manager who votes for or assents to a statutory or governing-document violation is liable to the LLC—but not other persons—for the unlawful excess if failure to comply with § 35-8-310 duties is established.

The separate recipient provision is narrower. Subsection (2) reaches a member of a manager-managed company who knew of the violation and caps recovery at the unlawful excess received. It does not state a parallel recipient claim against every member-managed-company member or nonmember transferee.

A sued authorizer may implead other liable authorizers and the knowing member- recipients covered by subsection (2), and compel contribution under subsection (3).

Every proceeding under the liability section has a two-year bar

MCA § 35-8-605(4) bars a proceeding under the section unless commenced within two years after the distribution. The sentence states no adjudication condition or dissolution extension.

Winding up follows a separate priority order

MCA § 35-8-905 first pays or reasonably provides for creditors other than identified member-distribution liabilities, then addresses those distribution liabilities, returns contributions, and allocates the residual according to distribution shares. Sections 35-8-604 and 35-8-605 state no winding-up exclusion from their financial and recovery rules.

What trips people up

• The preference add-on is document-sensitive. The articles or agreement may remove it, but not the cash-flow test or liabilities floor.
• The recipient class is narrow. Section 35-8-605(2) says “member of a manager-managed company.”
• The conditional-debt cross-reference is unusual. Section 35-8-604(5)(a) names determinations under subsection (2) as written.

Common questions

Is a member-managed recipient directly liable merely for knowing receipt?

Section 35-8-605(2)'s separate recipient rule does not say so; it identifies a member of a manager-managed LLC. A member-managed recipient might separately face the authorizer rule if its voting, assent, violation, and duty elements are established.

Can an agreement subordinate lawful distribution debt?

Yes. MCA § 35-8-604(4) states parity with general unsecured debt except as an agreement otherwise provides.

Must distribution shares be stated in writing?

To replace the equal-share default, yes. MCA § 35-8-601 requires the alternative method to appear in writing in the articles or operating agreement.

Statutes and sources

• MCA §§ 35-8-102(9), 35-8-601 — define distributions and state entitlement and the written sharing rule. Official § 35-8-102 and § 35-8-601 (accessed September 19, 2026).
• MCA § 35-8-604 — states the financial tests, document variation, valuation, timing, distribution-debt, and parity rules. Official current text (accessed September 19, 2026).
• MCA §§ 35-8-109, 35-8-310, and 35-8-605 — state agreement boundaries, conduct standards, authorizer and recipient liability, contribution, and the two-year bar. Official § 35-8-109, § 35-8-310, and § 35-8-605 (accessed September 19, 2026).
• MCA § 35-8-905 — states the winding-up asset order. Official current text (accessed September 19, 2026).