LLC Distribution Limits and Improper-Distribution Liability in New Mexico
At a glance
| Governing law, entity, distribution, and winding-up scope | N.M. Limited Liability Company Act; §§ 53-19-23 to -28 govern member distributions and state no winding-up exclusion from § 53-19-26's financial limits. Winding up separately orders assets under § 53-19-44 |
|---|---|
| Ordinary-course debt-payment and insolvency test | No distribution if afterward LLC could not pay debts as they become due in usual course (§ 53-19-26(A)(1)) |
| Assets, liabilities, preferences, fair value, and exclusions | No distribution if afterward fair-market-value assets would be below liabilities; exclude member-interest and limited-recourse liabilities, and count encumbered property only by excess fair market value. No superior-preference add-on stated (§ 53-19-26(A)(2)) |
| Accounting statements, valuation methods, and decision date | LLC may rely on financial statements using accounting practices/principles reasonable under circumstances or another reasonable valuation method; ordinary decision date follows 120-day authorization/payment rule (§ 53-19-26(B)-(C)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Measure authorization if distribution occurs within 120 days, otherwise payment; each payment on debt issued as a distribution is measured when actually paid. No distinct purchase/redemption/interest-acquisition rule stated (§ 53-19-26(C), (E)) |
| Conditional distribution debt, creditor status, parity, and subordination | Debt issued as distribution—or payable only when distribution could then be lawful—is excluded from liabilities; each principal/interest payment on distribution debt retested. Lawful distribution debt has parity with general unsecured debt unless agreed subordinate (§§ 53-19-26(D)-(E), 53-19-28) |
| Authorizer, standard, and liability to the company | Member/manager voting for, approving, or consenting to statutory/document violation is jointly but not severally liable to LLC with other liable authorizers for unlawful excess; defense for authorized statement/method reliance without actual knowledge making reliance unwarranted (§ 53-19-27(A)) |
| Recipient knowledge, return amount, defenses, and contribution | Liable authorizer gets contribution from each other liable authorizer and from each member for amount received knowing distribution violated statute/documents; § 53-19-27 states no separate direct LLC recovery from recipient (§ 53-19-27(B)) |
| Limitation or repose period, accrual, and survival | §§ 53-19-26 to -28 state no special limitation/repose period or accrual/survival rule for the LLC's authorizer claim or statutory contribution; no general civil period substituted |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Act favors contract and supplemental law/equity; § 53-19-27 liability is additional to other liabilities. No tax, fiduciary, fraudulent-transfer, bankruptcy, or solvency-calculation rule supplied here; table does not decide reasonableness, knowledge, standing, value, or liability (§§ 53-19-27, 53-19-65) |
Requirements one by one
Two financial tests govern the distribution
NMSA 1978 § 53-19-26(A) bars a distribution if, after giving effect to it, the LLC could not pay its debts as they become due in the usual course or the fair market value of total assets would be less than specified liabilities.
The second test excludes liabilities to members on their membership interests and limited-recourse liabilities. Property securing limited-recourse debt counts only to the extent its fair market value exceeds that liability. The text adds no superior-liquidation-preference amount.
Reasonable statements or another reasonable valuation method may be used
Under § 53-19-26(B), the LLC may base its determination on financial statements prepared using accounting practices and principles reasonable under the circumstances or another reasonable valuation method. This page does not choose a method or determine whether reliance or valuation is reasonable.
Ordinarily, subsection (C) measures authorization if the distribution occurs within 120 days and measures payment if it occurs later. It states no separate purchase, redemption, or interest-acquisition rule.
Distribution debt is excluded and each payment is retested
Section 53-19-26(D) excludes from liabilities indebtedness issued as a member distribution and debt whose principal and interest are payable only if and to the extent a member distribution could then be lawful. Each principal or interest payment on debt issued as a distribution is itself a distribution, measured when actually paid under subsection (E).
Under § 53-19-28, lawful distribution debt is at parity with the LLC's other general unsecured debt unless subordinated by agreement. Entitlement also gives the member creditor status and remedies with respect to the distribution.
Authorizer liability covers the unlawful excess
NMSA 1978 § 53-19-27(A) reaches a member or manager who votes for, approves, or consents to a distribution violating the articles, operating agreement, or § 53-19-26. The person is jointly but not severally liable to the LLC with other liable authorizers for the amount exceeding what could lawfully have been distributed.
The subsection supplies a defense when the person based the determination on a § 53-19-26(B) statement or valuation method and had no actual knowledge making that reliance unwarranted. It does not decide whether the facts establish reliance or knowledge.
Contribution reaches co-authorizers and knowing recipients
Each liable authorizer is entitled under § 53-19-27(B) to contribution from every other liable authorizer and from each member for the amount that member received knowing the distribution violated the statute or governing documents. The section does not separately state a direct LLC recovery claim against a recipient.
Sections 53-19-26 through 53-19-28 state no special limitation or repose period for the LLC's authorizer claim or this statutory contribution route. This page does not substitute an uncited general civil limitations period.
Winding up follows a separate priority order
NMSA 1978 § 53-19-44 first pays or adequately provides for creditors other than members holding only § 53-19-28 distribution claims. It then addresses distribution and specified dissociation liabilities before allocating the residue by contribution values, subject to the articles and operating agreement where the section says so. Section 53-19-26's “no distribution” rule states no winding-up exclusion, but the priority order remains a separate requirement.
What trips people up
- Authorization and payment do not always use the same date. The 120-day line determines which date controls, while each payment on distribution debt is measured when paid.
- Recipient knowledge appears in contribution. Section 53-19-27 gives the direct LLC claim against a voting, approving, or consenting member or manager; its knowing-recipient language supplies contribution to a liable authorizer.
- Creditor parity is express but conditional. It covers debt arising from a distribution not prohibited by § 53-19-26 and yields to agreed subordination.
Common questions
Who decides when an interim distribution is made?
NMSA 1978 § 53-19-23 first follows the articles or operating agreement; if they do not specify timing, the persons in whom management is vested determine it. The distribution still must pass the financial limits.
Is every approving manager liable automatically?
No. Section 53-19-27 requires a vote, approval, or consent to a violation and supplies the statement-or-valuation reliance defense, including its actual- knowledge condition. Applying those elements requires the full record.
Is there a special two- or three-year wrongful-distribution cutoff?
Not in §§ 53-19-26 through 53-19-28. Those provisions state no special period for the LLC claim or contribution route surveyed here.
Statutes and sources
- NMSA 1978 §§ 53-19-1, 53-19-2, and 53-19-23 — identify the Act, define the ordinary LLC interest, and govern interim distribution shares and timing. Official current Chapter 53 master (accessed September 19, 2026).
- NMSA 1978 §§ 53-19-26 to 53-19-28 — state the financial tests, valuation choices, timing and debt rules, authorizer liability and reliance, contribution, and creditor parity. Official current Chapter 53 master (accessed September 19, 2026).
- NMSA 1978 § 53-19-44 — supplies the winding-up distribution order. Official current Chapter 53 master (accessed September 19, 2026).
- NMSA 1978 § 53-19-65(A)-(B) — states the contract and supplementary-law boundaries. Official current Chapter 53 master (accessed September 19, 2026). The Compilation Commission reports the annotated statutes current through the 2026 Second Session.
Source links
Every statute quoted above, linked, with the date we checked it.
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