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Restrictions on Withdrawals

April 13, 2006

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To limit the amount of vulnerable assets within a business that could be exposed to a creditor's claims, a business owner should have a plan to continuously and regularly withdraw funds from the entity.

Before deciding on the best withdrawal strategies, small business owners must be aware of the different restrictions on withdrawals in every state's statutes governing limited liability companies (LLCs) and corporations, as well as the general restrictions imposed by the Uniform Fraudulent Transfers Act (UFTA).

The UFTA outlaws two different types of fraudulent transfers: constructive fraud and actual fraud. The UFTA's actual fraud provisions will apply to withdrawals from a business entity. Further, the separate provisions imposed by the LLC and corporation statutes are based on the UFTA's constructive fraud provisions, although, the corporation statutes, in particular, usually impose more significant restrictions than the UFTA.

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