KRS 275.225: Circumstances preventing distribution -- Determination -- Definition.

(1) No distribution shall be made if, after giving effect to the distribution:

(a) The limited liability company would not be able to pay its debts as they

become due in the usual course of business;

(b) The limited liability company's assets would be less tha n the sum of its

liabilities plus, unless otherwise provided in an operating agreement, the

amount that would be needed, if the limited liability company were to be

dissolved at the time of the distribution, to satisfy the preferential rights of

other memb ers upon dissolution which are superior to the rights of the

member receiving the distribution; or

(c) The distribution violates the operating agreement.

(2) The determination that a distribution is not prohibited under subsection (1) of this

section may be based upon:

(a) Financial statements prepared on the basis of accounting practices and

principles that are reasonable under the circumstances; or

(b) A fair valuation or other method that is reasonable under the circumstances.

(3) Except as provided in s ubsection (5) of this section, the effect of a distribution

under subsection (1) of this section shall be measured as of:

(a) The date the distribution is authorized if the payment occurs within one

hundred twenty (120) days after the date of authorization; or

(b) The date payment is made if it occurs more than one hundred twenty (120)

days after the date of authorization.

(4) A limited liability company's indebtedness to a member incurred by reason of a

distribution made in accordance with this section sha ll be at parity with the limited

liability company's indebtedness to its general unsecured creditors, except to the

extent subordinated by agreement.

(5) If terms of the indebtedness provide that payment of principal and interest is to be

made only if, and to the extent that, payment of a distribution to members could

then be made under this section, then indebtedness of a limited liability company,

including indebtedness issued as a distribution, shall not be a liability for purposes

of determinations made under subsection (1) of this section.

(6) If the indebtedness is issued as a distribution, then each payment of principal or

interest on the indebtedness shall be treated as a distribution, the effect of which

shall be measured on the date the payment is actually made.

(7) For purposes of this section, the term "distribution" shall not include amounts

constituting reasonable compensation for present or past services or reasonable

payments made in the ordinary course of business pursuant to a bona fide retirement

plan or other benefit program.