LLC Distribution Limits and Improper-Distribution Liability in Washington
At a glance
| Governing law, entity, distribution, and winding-up scope | Washington LLC Act; § 25.15.231 separately bars agreement violations and financial-test violations. Winding up pays/provides creditors and claims before member distributions (§ 25.15.305) |
|---|---|
| Ordinary-course debt-payment and insolvency test | Prohibited to extent, after distribution, LLC could not pay debts as they became due in usual course of activities (§ 25.15.231(2)(a)) |
| Assets, liabilities, preferences, fair value, and exclusions | Prohibited to extent specified liabilities exceed fair asset value; exclude member-interest liabilities and limited-recourse liabilities, with encumbered property counted only by excess fair value. No superior-preference add-on (§ 25.15.231(2)(b)) |
| Accounting statements, valuation methods, and decision date | May use reasonable accounting statements, fair valuation, or another reasonable method; date depends on interest acquisition, ordinary authorization/payment, or distributed-debt timing (§ 25.15.231(3)-(4), (7)) |
| Authorization, payment, redemption, debt, and delayed-payment measurement | Interest acquisition measured when property transfers or debt incurred; otherwise authorization if paid within 120 days, payment if later; conditional debt payments measured when paid and other debt when distributed (§ 25.15.231(4), (7)) |
| Conditional distribution debt, creditor status, parity, and subordination | Compliant distribution debt at parity with general unsecured debt, with no express subordination qualifier; conditional distribution debt excluded and payments retested. No general recipient-creditor-status rule in §§ 25.15.231-.236 (§ 25.15.231(5)-(7)) |
| Authorizer, standard, and liability to the company | Consenting member/manager liable to LLC for excess only if consent failed duty of care; LLC agreement may shift member consent authority/responsibility (§ 25.15.236(1)-(2)) |
| Recipient knowledge, return amount, defenses, and contribution | Knowing member/transferee liable to LLC only for excess; authorizer defendant may implead other liable authorizers and knowing recipients and compel contribution (§ 25.15.236(3)-(4)) |
| Limitation or repose period, accrual, and survival | Action under § 25.15.236 barred unless commenced within 2 years after distribution (§ 25.15.236(5)) |
| Tax, fiduciary, transfer, bankruptcy, creditor, and calculation boundaries | Authorizer liability turns on duty of care; no solvency calculation, valuation, knowledge or conduct finding, creditor-standing conclusion, tax treatment, fraudulent-transfer result, or bankruptcy outcome here (§ 25.15.236(1)) |
Requirements one by one
Agreement and financial limits
Washington first bars a distribution that violates the LLC agreement. Section 25.15.231 then adds two financial tests: after the payment, the LLC must remain able to pay debts as they become due in the usual course, and specified liabilities must not exceed the fair value of assets. The second test excludes member-interest liabilities and ordinarily excludes limited-recourse debt, while counting encumbered property only by its excess fair value.
Valuation and transaction timing
The LLC may use reasonable accounting statements, a fair valuation, or another reasonable method. A purchase, redemption, or other transferable-interest acquisition is measured when property transfers or debt is incurred. Other payments use authorization when paid within 120 days and payment when made later.
Distribution debt
Compliant distribution debt has parity with general unsecured debt, and the statute states no express agreement-based subordination exception. Conditional distribution debt is excluded from liabilities and each principal or interest payment is retested on payment; other distributed debt is measured when issued.
Authorizer, recipient, and contribution liability
A consenting member or manager is liable to the LLC for the excess only if the person also failed the duty of care. An express member-managed agreement can move consent authority and responsibility. A member or transferee who knew of the violation owes the LLC only the excess received. An authorizer defendant may implead other liable authorizers and knowing recipients and compel contribution.
Two-year bar and winding up
An action under § 25.15.236 is barred unless commenced within two years after the distribution. In winding up, § 25.15.305 separately requires payment or reasonable provision for known claims and obligations before member- distribution liabilities, contribution returns, and residual interests.
What trips people up
Washington independently enforces the LLC agreement and the financial tests, so a payment can be improper even if its fair-value and debt-payment numbers pass. Unlike many uniform-act versions, the asset test has no superior- preference add-on, and the acquisition rule uses the transfer-or-debt date rather than an earlier-of ownership-cessation rule. Distribution debt has statutory parity without an express subordination qualifier in this section.
Common questions
How are distributions allocated if the agreement is silent?
Section 25.15.206 uses each member's agreed contribution value, including a contribution required but not yet made, in proportion to all members' stated amounts.
Does the recipient rule require knowledge?
Yes. Section 25.15.236(3) applies to a member or transferee who knew the payment to that person violated § 25.15.231.
What claims must a dissolved LLC provide for?
Section 25.15.305 includes known contingent, conditional, and unmatured claims and known claims whose claimant identity is unknown, except claims barred under the stated claim sections or other applicable law.
Statutes and sources
- RCW § 25.15.206 — states agreement control and the contribution-value allocation default. Official current text (accessed September 19, 2026).
- RCW § 25.15.231 — states the agreement and financial limits, valuation, measurement dates, debt parity, and conditional-debt rules. Official current text (accessed September 19, 2026).
- RCW § 25.15.236 — states authorizer and knowing-recipient liability, contribution, and the two-year bar. Official current text (accessed September 19, 2026).
- RCW § 25.15.305 — supplies the winding-up claim and distribution order. Official current text (accessed September 19, 2026).
Source links
Every statute quoted above, linked, with the date we checked it.
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