Iowa Code 488.508 – Limitations on distribution
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1. A limited partnership shall not make a distribution in violation of the partnership agreement.
Terms Used In Iowa Code 488.508
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Distribution: means a transfer of money or other property from a limited partnership to a partner in the partner's capacity as a partner or to a transferee on account of a transferable interest owned by the transferee. See Iowa Code 488.102
- following: when used by way of reference to a chapter or other part of a statute mean the next preceding or next following chapter or other part. See Iowa Code 4.1
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Partner: means a limited partner or general partner. See Iowa Code 488.102
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
- Partnership agreement: means the partners' agreement, whether oral, implied, in a record, or in any combination, concerning the limited partnership. See Iowa Code 488.102
- property: includes personal and real property. See Iowa Code 4.1
- Transferable interest: means a partner's right to receive distributions. See Iowa Code 488.102
2. A limited partnership shall not make a distribution if after the distribution any of the following would result:
a. The limited partnership would not be able to pay its debts as they become due in the ordinary course of the limited partnership’s activities.
b. The limited partnership’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the limited partnership were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of partners whose preferential rights are superior to those of persons receiving the distribution.
3. A limited partnership may base a determination that a distribution is not prohibited under subsection 2 on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
4. Except as otherwise provided in subsection 7, the effect of a distribution under subsection 2 is measured according to either of the following:
a. In the case of distribution by purchase, redemption, or other acquisition of a transferable interest in the limited partnership, as of the date money or other property is transferred or debt incurred by the limited partnership.
b. In all other cases, as of the date of either of the following:
(1) The date the distribution is authorized, if the payment occurs within one hundred twenty days after that date.
(2) The date the payment is made, if payment occurs more than one hundred twenty days after the distribution is authorized.
5. A limited partnership’s indebtedness to a partner incurred by reason of a distribution made in accordance with this section is at parity with the limited partnership’s indebtedness to its general, unsecured creditors.
6. A limited partnership’s indebtedness, including indebtedness issued in connection with or as part of a distribution, is not considered a liability for purposes of subsection 2 if the terms of the indebtedness provide that payment of principal and interest is made only to the extent that a distribution could then be made to partners under this section.
7. If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.