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Limitations on Distributions From Closely Held Corporations and Limited Liability Companies in Oregon and Their Potential for Personal Liabilit - LBH 110510

Limitations on Distributions From Closely Held Corporations and Limited Liability Companies in Oregon and Their Potential for Personal Liabilit - LBH 110510

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There are important statutory limitations on the ability of Oregon corporations and limited liability companies (“LLC’s”) to make distributions to their shareholders and members which are often ignored ultimately at the risk of the directors, managers or other members. Distributions, including redemptions, made disregarding the statutory limitations may result in personal liability of those directors, managers or members responsible for an improper distribution if the company subsequently becomes insolvent.
There are important statutory limitations on the ability of Oregon corporations and limited liability companies (“LLC’s”) to make distributions to their shareholders and members which are often ignored ultimately at the risk of the directors, managers or other members. Distributions, including redemptions, made disregarding the statutory limitations may result in personal liability of those directors, managers or members responsible for an improper distribution if the company subsequently becomes insolvent.

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categoriesBusiness/Law
Published by: Hunt and Associates, PC on Dec 17, 2010
Copyright:Traditional Copyright: All rights reserved

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06/25/2013

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Limitations on Distributions from Closely Held Corporations and Limited LiabilityCompanies in Oregon and Their Potential for Personal Liability
There are important statutory limitations on the ability of Oregon corporations and limitedliability companies (³LLC¶s´) to make distributions to their shareholders and members which areoften ignored ultimately at the risk of the directors, managers or other members. Distributions,including redemptions, made disregarding the statutory limitations may result in personalliability of those directors, managers or members responsible for an improper distribution if thecompany subsequently becomes insolvent.The statutory definition of a ³distribution´ for purposes of corporations is ORS 60.001(7) is widein its scope.³Distribution´ means a direct or indirect transfer of money or other property,except of a corporation¶s own shares, or incurrence of any indebtedness by acorporation to or for the benefit of the corporation¶s shareholders in respect of anyof the corporation¶s shares. A distribution may be in the form of a declaration or  payment of a dividend, a purchase, redemption or other acquisition of shares, adistribution of indebtedness, or otherwise.´ORS 63.001(6) defining ³distribution´ by LLC¶s is equally far reaching.The statutory restrictions on distributions by a corporation to its shareholders and by an LLC toits members are identical. Such distributions can only be made if, in the judgment of thoseresponsible for authorizing the distribution (the corporation¶s directors or the managers or, in thecase of a member managed LLC, the members of an LLC) after giving effect to the distribution:1.
 
The corporation or LLC will be able to pay its debts as they come due in theordinary course of the entity¶s business;
and 
,2. The corporation¶s total assets will be at least equal to its total liabilities.ORS 60.181(3)(a) and (b),
defining the corporate limitation
; ORS 63.229(1)(a) and (b),
defining the limitation for LLC¶s
.The statutes also define the effective date on which the distribution is made for purposes of thelimitations. ORS 60.181(5) and ORS 63.229(4).If a redemption or other distribution is made in violation of these statutory restrictions, thedirectors, managers or members responsible for authorizing the distribution may incur personalliability to the company for the amount of the distribution in excess of what was permissiblesubject to certain rights of contribution from others who joined in the wrongful authorization.ORS 60.367 (
 for corporations
) and ORS 63.235 (
 for LLC¶s
) Likewise, any shareholder or member who receives an impermissible distribution knowing it was made in violation of theapplicable statute may also have personal liability to the company to the extent the distributionexceeded the permissible limits set by statute.

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