Originating in Wyoming in 1977 and spreading thereafter to all fifty states, including to Tennessee in 1994, the limited liability company (LLC) has become the most popular form of entity for newly created businesses in the United States. Particularly since the IRS’s adoption of “check the box” regulations twenty years ago, entrepreneurs are drawn to the LLC due to its flexibility. State LLC Acts, including Tennessee’s, contain primarily default provisions and very few regulatory provisions. This makes the private ordering of the LLC through the drafting of the operating agreement absolutely essential to defining the rights and responsibilities of the LLC’s members.
The TBA Business Law Section’s 2019 Annual CLE Forum helped business lawyers learn and refresh their knowledge about issues that may arise when drafting an LLC operating agreement. Topics include an overview of the two extant Tennessee LLC acts and a comparison of those acts with the Delaware LLC Act; other distinctions of Tennessee law that impact the operating agreement; drafting key provisions, including distribution and allocation, employee and member compensation, and exit rights; and ethical considerations for lawyers drafting LLC operating agreements.
This course features an overview of the Tennessee Limited Liability Act (the Prior Act) and the Tennessee Revised Limited Liability Act (the Revised Act), including an important reminder that the Prior Act is alive and well, remains effective, and continues to govern LLCs formed prior to January 1, 2006 that have not elected to be governed by the Revised Act. Specifically, the presentation addresses significant distinctions between the Prior Act and the Revised Act, including those with respect to: management paradigms; agency authority of members, managers, governors, directors, and officers; termination of membership interests; dissolution; and private ordering of affairs under LLC documents.
This program will feature an overview of the Delaware LLC Act and discuss some key distinctions between the Delaware and Tennessee acts. These include waiver and scope of fiduciary duties, management structures, agency rules, state franchise and excise taxes, and use of series LLCs. By the end of the session, attendees should have a better idea about when to recommend to clients that they form their LLC in Delaware rather than in Tennessee or another jurisdiction.
This session features experts on professional conduct and limited liability company practice, addressing common ethical quandaries encountered in drafting limited liability company operating agreements. Among the questions and dilemmas the panelists will cover are: whether a lawyer who does not practice tax law can and should draft limited liability company operating agreements, how a lawyer properly identifies the client in an engagement that includes drafting a limited liability company operating agreement, and the extent to which Tennessee lawyers can ethically provide advice to clients on the law of Delaware or other states—or to members who reside outside of Tennessee—in connection with the drafting of limited liability operating agreements.
For many business attorneys, the tax allocations and economic provisions of LLC operating agreements are a collection of mysterious paragraphs that the "tax people" will look at and not the domain of the business lawyer. However, these provisions can have substantial impacts on the members of an LLC. In this session, you'll learn about what these sections mean, why they are important, and the different approaches that can be used in drafting them.
This presentation will address issues specific to members who are also employees of an LLC and the provisions in an operating agreement addressing such issues. Among the topics to be covered are: considerations in deciding whether to make an employee a member, alternatives to granting membership interests to employees, ownership structure concerns, the interplay of rights and duties of an equity holder versus that of an employee, and the need for synchronization of operating agreements and employment agreements.
Exits of members from LLCs can be fraught with problems for a number of reasons. This session will discuss various areas for consideration to be included in operating agreements in an effort to facilitate an orderly departure of a member and minimize some of the risk when a member leaves—voluntarily or otherwise—an LLC. Some specific areas that will be covered are membership interest valuation methodology considerations, statutory rights, and special considerations with the departure of members who are also employees of an LLC.