LLC Distribution Limits and Improper-Distribution Liability in North Dakota
At a glance
| Governing law, entity, distribution, and winding-up scope | N.D. ULLCA, ch. 10-32.1; distribution is money/property/other-benefit transfer to member in member capacity or transferee, excluding stated compensation/benefits from financial test. §§ 10-32.1-31 to -32 state no winding-up exclusion; § 10-32.1-54 separately orders winding-up assets (§§ 10-32.1-02, -31(7), -54) |
|---|---|
| Ordinary-course debt-payment and insolvency test | No distribution if afterward LLC could not pay debts as they become due in ordinary course of activities (§ 10-32.1-31(1)(a)) |
| Assets, liabilities, preferences, fair value, and exclusions | No distribution if assets below liabilities plus amount needed for superior member dissolution/winding-up/termination preferences; reasonable service compensation and bona fide ordinary-course benefit payments excluded. No express liability exclusion (§ 10-32.1-31(1)(b), (7)) |
| Accounting statements, valuation methods, and decision date | May rely on financial statements using reasonable accounting practices/principles, fair valuation, or another reasonable method; decision date follows acquisition or 120-day rule (§ 10-32.1-31(2)-(3)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Purchase/redemption/other transferable-interest acquisition: property-transfer or debt-incurrence date; others: authorization if paid within 120 days, payment if later; each payment on distributed debt measured when paid (§ 10-32.1-31(3), (6)) |
| Conditional distribution debt, creditor status, parity, and subordination | Debt payable only when distribution could then be lawful excluded from liabilities and each payment on distributed debt retested; compliant member distribution debt at parity with general unsecured debt, with no express subordination exception. Entitled member/transferee has creditor remedies (§§ 10-32.1-30(4), -31(4)-(6)) |
| Authorizer, standard, and liability to the company | Responsible member, manager, or board governor who consents and fails § 10-32.1-41 duties owes LLC unlawful excess; agreement may reallocate member-managed consent responsibility and cannot eliminate money liability for § 10-32.1-32 duty breach (§§ 10-32.1-13(7)(c), -32(1)-(2)) |
| Recipient knowledge, return amount, defenses, and contribution | Any knowing recipient owes LLC unlawful excess. Sued authorizer may implead other liable authorizers for pro rata contribution and knowing recipients for excess received (§ 10-32.1-32(3)-(4)) |
| Limitation or repose period, accrual, and survival | Any § 10-32.1-32 authorizer, recipient, or contribution action barred unless commenced within 2 years after distribution; no adjudication or dissolution extension stated (§ 10-32.1-32(5)) |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Agreement cannot eliminate § 10-32.1-32 duty liability; authorizer claim incorporates § 10-32.1-41 duties. No tax, transfer, bankruptcy, or calculation result here; table does not decide conduct, knowledge, values, standing, or liability (§§ 10-32.1-13, -32, -41) |
Requirements one by one
North Dakota applies both financial tests and a preference add-on
Under N.D.C.C. § 10-32.1-02(12), a distribution is a money or property transfer on account of a transferable interest, subject to the compensation and benefit exclusions in § 10-32.1-31(7).
N.D.C.C. § 10-32.1-31(1) bars a distribution if the company could not pay debts as they become due in the ordinary course or assets would fall below liabilities plus superior member preferences on a hypothetical dissolution, winding up, and termination.
Subsection (7) excludes reasonable service compensation and reasonable ordinary-course payments under a bona fide retirement plan or other benefits program from the financial test.
Valuation and timing depend on the transaction
The LLC may use reasonable accounting statements, fair valuation, or another reasonable method under § 10-32.1-31(2). This page does not select or apply a method.
For a purchase, redemption, or other acquisition of a transferable interest, subsection (3) measures when money or property moves or debt is incurred. Other payments use authorization if paid within 120 days and payment if later.
Conditional debt is excluded, retested, and at parity
Section 10-32.1-31(5) excludes debt payable only to the extent a distribution could then be made. Each payment on debt issued as a distribution is retested when paid. Compliant member debt is at parity with general unsecured debt under subsection (4), which states no express subordination exception.
Section 10-32.1-30(4) separately gives an entitled member or transferee creditor status and remedies.
Board governors join the authorizer-liability class
Under N.D.C.C. § 10-32.1-32(1), a consenting member of a member-managed LLC, manager of a manager-managed LLC, or governor of a board-managed LLC owes the company the unlawful excess when the payment violates § 10-32.1-31 and the person failed to comply with § 10-32.1-41 duties. The agreement may shift member-managed consent responsibility, but § 10-32.1-13 preserves money liability for a § 10-32.1-32 duty breach.
Any person who knowingly receives a prohibited distribution owes the LLC the unlawful excess. A sued authorizer may implead other liable authorizers for pro rata contribution and knowing recipients for the excess received.
Every action under the liability section has a two-year bar
Section 10-32.1-32(5) bars an action under that section unless commenced within two years after the distribution. The sentence states no adjudication condition or dissolution extension.
Creation date changes distribution allocation
For a predissolution distribution by an LLC created after July 31, 2017, § 10-32.1-30(5) defaults to contribution-value shares; older companies use the equal-share rule in subsection (1). Section 10-32.1-54 applies a parallel creation-date split in winding up, first paying creditors and returning unreturned contributions before the residual allocation.
What trips people up
- Board management adds a third authorizer role. A consenting governor can be liable under the same duty-based excess measure.
- The recipient class is broad. Section 10-32.1-32(3) says “a person,” not only a member.
- The July 31, 2017 line changes the default allocation math. It does not change the two financial tests.
Common questions
Can the agreement eliminate improper-distribution duty liability?
No. N.D.C.C. § 10-32.1-13(7)(c) expressly preserves money-damages liability for a breach of duty under § 10-32.1-32.
Does lawful distribution debt rank below unsecured debt?
No statutory subordination appears in § 10-32.1-31(4). It states parity with general unsecured company debt.
Is contribution divided equally among authorizers?
The text says pro rata contribution, limited to each person's liability under the authorizer subsection. Applying that allocation requires the full record.
Statutes and sources
- N.D.C.C. §§ 10-32.1-13 and 10-32.1-30 — state the liability floor, predissolution allocation split, and creditor status.
- N.D.C.C. §§ 10-32.1-31 to -32 — state the financial tests, valuation, timing, debt rules, authorizer and recipient liability, contribution, and the two-year bar.
- N.D.C.C. § 10-32.1-54 — states the winding-up asset order and creation-date allocation split.
All quoted sections are in the official current Chapter 10-32.1 PDF (accessed September 19, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
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