Iowa Code

Iowa Code § 489.405 (2026)

Limitations on distribution

✓ current as of July 2026

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1. A limited liability company shall not make a distribution, including a distribution under section 489.707, if after the distribution any of the following applies:

a. The limited liability company would not be able to pay its debts as they become due in the ordinary course of the company’s activities and affairs.

b. The limited liability company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the company were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution and winding up of members and transferees whose preferential rights are superior to the rights of persons receiving the distribution.

2. A limited liability company may base a determination that a distribution is not prohibited under subsection 1 on any of the following:

a. Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances.

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

3. Except as otherwise provided in subsection 5, the effect of a distribution under subsection 1 is measured as follows:\n\nTue Dec 09 22:07:31 2025 Iowa Code 2026, Chapter 489 (303, 2) 27 UNIFORM LIMITED LIABILITY COMPANY ACT, §489.406\n\n a. In the case of a distribution as defined in section 489.102, subsection 5, paragraph “a”, as of the earlier of any of the following:

(1) The date money or other property is transferred or debt is incurred by the limited liability company.

(2) The date the person entitled to the distribution ceases to own the interest or right being acquired by the limited liability company in return for the distribution.

b. In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed.

c. In all other cases any of the following:

(1) The date the distribution is authorized, if the payment occurs not later than one hundred twenty days after that date.

(2) The date the payment is made, if the payment occurs more than one hundred twenty days after the distribution is authorized.

4. A limited liability company’s indebtedness to a member or transferee incurred by reason of a distribution made in accordance with this section is at parity with the company’s indebtedness to its general, unsecured creditors, except to the extent subordinated by agreement.

5. A limited liability company’s indebtedness, including indebtedness issued as a distribution, is not a liability for purposes of subsection 1 if the terms of the indebtedness provide that payment of principal and interest is made only if and to the extent that payment of a distribution could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is made.

6. In measuring the effect of a distribution under section 489.707, the liabilities of a dissolved limited liability company do not include any claim that has been disposed of under section 489.704, 489.705, or 489.706. 2008 Acts, ch 1162, §35, 155; 2023 Acts, ch 152, §39, 161 Referred to in §489.105, 489.406, 489.408 \n

Notes of Decisions

Cited in 3 cases (2 in the last 5 years), 2016–2022 · leading case: Joseph Goche v. WMG, L.C., an Iowa Ltd. Liab. Co. (Iowa Ct. App. 2021).

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Joseph Goche v. WMG, L.C., an Iowa Ltd. Liab. Co. (Iowa Ct. App. 2021). · cites it 6× “The court refused to create a bright-line rule barring 7 Sections 489.405 and .409 govern, respectively, limits on distributions and standards of conduct for members and managers.”

Craig P. Damos v. the Weitz Co. I, Inc., an Iowa Corp. N/K/A Twc I, LLC, an Iowa Ltd. Liab. Co. The Weitz Co. II, Inc., an Iowa Corp., N/K/A Twc II, LLC, an Iowa Ltd. Liab. Co. The Weitz Grp., LLC, an Iowa Ltd. Liab. Co. The Weitz Co. LLC, an Iowa Ltd. Liab. Co. & Orascom Contruction Indus. S.A.E., A/K/A Orascom Constr. Indus. Co., an Egyptian Jt. Stock Co. (Iowa Ct. App. 2016). · cites it 3× “It also rejected his argument the Weitz defendants violated Iowa Code sections 489.405 and 490.640 (2011) when they made distributions to stockholders after the sale to OCI Limited without first paying their outstanding debts to note holders such as Damos.”

Joseph Goche v. WMG, L.C. (Iowa 2022). · cites it 2× “This statute would entitle a manager to recoup expenses incurred defending the company or prosecuting claims on behalf of the company 3Section 489.405 restricts distributions when the company is insolvent or near insolvency and that provision is not at issue.”

— Iowa Code § 489.405(1)(a) — 1 case

Craig P. Damos v. the Weitz Co. I, Inc., an Iowa Corp. N/K/A Twc I, LLC, an Iowa Ltd. Liab. Co. The Weitz Co. II, Inc., an Iowa Corp., N/K/A Twc II, LLC, an Iowa Ltd. Liab. Co. The Weitz Grp., LLC, an Iowa Ltd. Liab. Co. The Weitz Co. LLC, an Iowa Ltd. Liab. Co. & Orascom Contruction Indus. S.A.E., A/K/A Orascom Constr. Indus. Co., an Egyptian Jt. Stock Co. (Iowa Ct. App. 2016). “It also rejected his argument the Weitz defendants violated Iowa Code sections 489.405 and 490.640 (2011) when they made distributions to stockholders after the sale to OCI Limited without first paying their outstanding debts to note holders such as Damos.”

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