LLC Distribution Limits and Improper-Distribution Liability in Oregon
At a glance
| Governing law, entity, distribution, and winding-up scope | Oregon LLC Act, ch. 63; distribution includes money/property, interest acquisition, and debt (§ 63.001(6)); § 63.229 limits distributions and § 63.235 supplies internal recovery; winding-up assets separately use creditor-first tiers (§ 63.625) |
|---|---|
| Ordinary-course debt-payment and insolvency test | Responsible members/managers must judge LLC able after distribution to pay debts as due in ordinary course (§ 63.229(1)(a)) |
| Assets, liabilities, preferences, fair value, and exclusions | Fair value of total assets must at least equal liabilities plus superior dissolution preferences unless articles permit otherwise; excess of limited-recourse liability over specific-property fair value disregarded (§ 63.229(1)(b), (3)) |
| Accounting statements, valuation methods, and decision date | May use financial statements reasonably believed prepared under reasonable practices/principles, or fair valuation/another method reasonably believed reasonable; governing date follows transaction-specific measurement (§ 63.229(2), (4)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Interest acquisition measured at earlier of property transfer/debt incurrence or member cessation for acquired interest; other debt at distribution; otherwise authorization if paid within 120 days, payment if later (§ 63.229(4)) |
| Conditional distribution debt, creditor status, parity, and subordination | Distribution debt at parity with general unsecured debt unless member agrees to subordination or LLC grants member security/lien; entitled member has creditor remedies. No conditional-debt exclusion or payment-by-payment retest stated (§§ 63.225, 63.229(5)) |
| Authorizer, standard, and liability to the company | Voting/assenting member of member-managed LLC, or member/manager of manager-managed LLC, liable to LLC for excess if distribution violates § 63.229/articles/agreement and person failed § 63.155 duties (§ 63.235(1)) |
| Recipient knowledge, return amount, defenses, and contribution | Knowing-recipient rule expressly covers member of manager-managed LLC for excess; sued authorizer may implead other liable authorizers and covered recipients for contribution; no separate recipient defense stated (§ 63.235(2)-(3)) |
| Limitation or repose period, accrual, and survival | Proceeding under § 63.235 barred unless commenced within two years after distribution (§ 63.235(4)) |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Authorizer recovery expressly turns on § 63.155 duties and cannot be exculpated/indemnified under § 63.160; winding-up tiers pay creditors first (§§ 63.155, 63.160, 63.625). No solvency calculation, valuation/method choice, duty/knowledge finding, tax treatment, fraudulent-transfer result, bankruptcy outcome, or creditor-standing conclusion here |
Requirements one by one
Oregon assigns the judgment to the management structure
Under ORS § 63.229(1), the responsible members in a member-managed LLC or managers in a manager-managed LLC must judge that both after-payment tests are satisfied. An entitled member separately receives creditor status and creditor remedies under § 63.225, while § 63.625 supplies the creditor-first winding-up order.
Both liquidity and fair-value tests must hold
The first branch asks whether the LLC can pay debts as they become due in the ordinary course. The second requires the fair value of total assets to at least equal total liabilities plus superior dissolution preferences.
The articles may remove the preference add-on. For limited-recourse debt, subsection (3) disregards only the amount by which the liability exceeds the fair value of the specific property. This page does not calculate those values.
Determination methods include a belief standard
Under § 63.229(2), the members or managers may use financial statements they reasonably believe were prepared under reasonable-in-the-circumstances accounting practices and principles. They may instead use fair valuation or another method they reasonably believe is reasonable in the circumstances.
Oregon has three measurement branches
For a purchase, retirement, or other interest acquisition, Oregon uses the earlier of property transfer/debt incurrence or the member's cessation as to the acquired interest. Other indebtedness distributions are measured when the debt is distributed. Everything else uses authorization if paid within 120 days and payment if paid later.
Section 63.229 states no conditional-debt exclusion or payment-by-payment retest. Instead, compliant distribution debt ranks with general unsecured debt unless the member agrees to subordination or the LLC grants a security interest or other lien securing it.
Authorizer liability depends on the duty standard
Section 63.235(1) reaches a voting or assenting member of a member-managed LLC and a voting or assenting member or manager of a manager-managed LLC. The distribution must violate § 63.229, the articles, or an operating agreement, and liability follows only if the person failed the applicable § 63.155(3)-(4) duties. The amount is the excess above what could have been distributed.
Section 63.160 does not permit the articles or agreement to exculpate or indemnify a member or manager for an unlawful distribution under § 63.235.
The recipient clause names only a manager-managed member
Under § 63.235(2), the standalone knowing-recipient rule expressly covers a member of a manager-managed LLC and limits liability to the excess received. It does not state a parallel clause for a member-managed-company recipient.
A sued authorizer may implead other liable authorizers and may compel contribution from a covered recipient for the improper amount.
The special period is two years after distribution
Section 63.235(4) bars a proceeding under that section unless commenced within two years after the distribution. It does not use the measurement date, discovery, or adjudication as the stated trigger.
What trips people up
- Oregon's limited-recourse adjustment is unusual. It disregards the liability's excess over the specific property's fair value.
- Acquisitions use the earlier of two dates. Member cessation can precede property transfer or debt incurrence.
- Distribution debt can be secured. Section 63.229(5) expressly recognizes an LLC-granted security interest or lien.
- The recipient clause is management-structure-specific. Subsection (2) names only a member of a manager-managed LLC.
Common questions
May the articles remove the preference add-on?
Yes. Section 63.229(1)(b)(B) makes that amount apply unless the articles permit otherwise; both basic financial tests remain.
Does Oregon retest each payment on distribution debt?
No such rule appears in § 63.229. An indebtedness distribution is measured when the indebtedness is distributed, subject to its stated transaction branch.
Can a member's distribution debt outrank unsecured creditors?
The statute allows the LLC to grant a security interest or other lien; otherwise the debt is at parity unless the member agrees to subordination. Priority on particular facts is outside this survey.
Is every recipient directly liable to the LLC?
No. Section 63.235(2) requires knowledge and expressly describes a member of a manager-managed LLC.
Statutes and sources
- ORS §§ 63.001(6) and 63.225 — distribution definition and entitled-member creditor remedies. Official current Chapter 63 (accessed September 19, 2026).
- ORS § 63.229 — financial tests, methods, limited-recourse adjustment, measurement, and distribution-debt priority. Official current Chapter 63 (accessed September 19, 2026).
- ORS §§ 63.155, 63.160, and 63.235 — conduct standard, nonexculpability, authorizer and recipient liability, contribution, and two-year period. Official current Chapter 63 (accessed September 19, 2026).
- ORS § 63.625 — winding-up asset order. Official current Chapter 63 (accessed September 19, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
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