LLC

1. Formation
I. Filings: To form an LLC, an organizer must sign and deliver a certificate of organization for filing to the
Secretary of State.
a. Organizer: The individuals acting to form the LLC under 201. They are not agents of the LLC as
there is no LLC to be a principal.
i. Prior to formation, they are likely considered partners with the purpose of forming an LLC.
ii. If not planning to join, they are agents of future members.
iii. Basically, they are promoters under corporation.
b. The certificate MUST state §201(b)
i. The name (with compliance to 108)
ii. Street/mailing address of initial office and agent for process
iii. If the LLC will have no initial members, a statement to that effect
c. The SOS will then decide of the articles meet the requirements (almost always happens because in
modern times, it is a ministerial act)
d. Cost of filing is $100 in TN.
e. Annual reports
II. Operating agreements: Except as specified in 110(b); (c), the operating agreement governs the internal
management of the LLC. See 110(a) – (b).
a. Limitations (may not)
i. Lawsuits: The operating agreement may not vary the LLC’s capacity to sue and be sued.
110(c)(1).
ii. Choose applicable law: The operating agreement may not vary the law applicable to it.
110(c)(2).
iii. Vary court: The operating agreement may not vary the power of the court. 110(c)(3).
iv. Information: The operating agreement may not unreasonably restrict rights to information.
110(c)(6).
v. Member rights to sue: The operating agreement may not unreasonably vary member’s
rights to sue. 110(c)(9).
vi. Eliminate fid duty: Partnerships may not eliminate the fiduciary duties of members.
110(c)(4-5).
b. Permission (may, if not manifestly unreasonable…) §110(d)
i. May restrict or eliminate:
1. Appropriation of Business Opportunity/Use by member of LLC’s property.
§110(d)(1)(A)
2. Adverse Interest. Refrain from dealing with the company in the conduct or
winding up as or on behalf of a party having an adverse interest. §110(d)(1)(B).
3. Competition. Refrain from competing with the company before its dissolution.
§110(d)(1)(B).
ii. Loyalty. Identify specific types or categories of activities that do not violate the duty of
loyalty. §110(d)(2).
iii. Care. May alter duty of care, except to authorize intentional misconduct or knowing
violation of law. §110(d)(3).
iv. Any other Fiduciary Duty. May alter any other fiduciary duty, including eliminating
particular aspects fo that duty. §110(d)(4).
v. Standards to Measure GFFD. Prescribe standards by which to measure the performance
fo the contractual obligation of GFFD. §110(d)(5)
vi. Other regular mays in §110(e)-(h)(non-manifestly unreasonable)
 1. (e) provide a method for ratification of acts that otherwise would violate duty of
loyalty
c. Effects
i. Effect on LLC: LLCs are bound by the operating agreement, regardless of whether they
signed it. 111(a); Elf.
ii. New members: New members are deemed to have assented to it. 111(b).
iii. Preformation agreements: Before the formation, future members may agree that any
agreement Operating agreement prevails as to members, dissociated members, transferees,
and managers
iv. The record prevails as to third parties 112
v. Record must be delivered to the SoS and be files
vi. nets prior to the formation will become part of the partnership agreement. 111(c).

2. Purpose: §104(b) LLCs may be organized for any lawful purpose, regardless of
profit.

3. Entity Status: §104(a) LLCs are distinct from their individual partners.

4. Continuity: Perpetual §104(c)

5. Ownership Interests
I. Financial Interests
a. No right to interim distributions: Members doesn’t have a right to distributions before the
dissolution and winding up of the LLC unless the LLC decides to give one. 404(b).
b. Right to Distribution: Upon dissolution/windup or if the LLC decides to give an interim
distribution, members are entitled a distribution in equal shares unless otherwise agreed. 404(a).
i. Contribution: Contributions may be tangible or intangible property or other benefits to the
LP (money, services performed, notes, or other agreements). 501.
c. Rights upon distribution: Upon a distribution, the members are entitled to the same rights as a
creditor. 404(d).
i. No like-kind: members do not have a right to demand or receive distributions in kind.
404(c).
II. Property Interests: RULLCA has no provisions on LLC property. Instead, common law should be
considered pursuant to 107.
a. General Information
i. RULLCA does not provide any information about partnership property.
b. Partnership Property: Partnership property is property acquired by a partnership and not by the
partners individually. RUPA § 203. Unless provided in the transfer, individual partners no longer
have any separate interest in the partnership property.
i. Property: Property is defined in 101(9) to include real, personal, mixed, tangible, and
intangible property.
c. Property acquired by a partnership is property of the partnership and not of the partners
individually unless agreed. 203.
i. Partners are not co-owners of partnership property and have no interest in partnership which
can be transferred, either voluntarily or involuntarily. 501.
1. In other words, partnership property is the property of the partnership, not the
collective owners
ii. Partnership Property:
 1. No doubt: Partnership property is property acquired in the name of 1) the
partnership, OR 2) partners with an indication in the transfer instrument of the
person’s capacity as a partner or of the existence of a partnership without naming
it. 204(a)(1-2).
a. Under 204(b), property is acquired in the name of the partnership by a
transfer to either
i. The partnership in its name; or
ii. One or more partners in their capacity as partners, if the name of
the partnership is indicated in the instrument.
2. Presumptions:
a. Partnership Prop: Property is presumed to be partnership property if
purchased with partnership assets regardless of whether there is an
indication of it being partnership property
b. Not: If 1) acquired in the name of a partner 2) without mention of the
partnership and 3) is not acquired using partnership funds, then the
property is presumed to be separate property, regardless of whether it is
used for the partnership’s benefit. 204(d).
c. McCormick – shows the strength of this presumption. Even including the
cows on a government form was not enough to overcome the
presumption.
i. Sharing profits is not enough. 202.
III. Management Rights are below
IV. Transacting Business: pray
V. Transferability: The transferable interest of a member in the LLC is the partner’s right to receive
distributions. 102(21).
a. See condo v. conners
i. Anti-assignment clauses are only duties not to assign but does not render them powerless.
Need to require consent for something,

6. Governance/Management
I. General Notes: On of the primary benefits of LLCs is that they are infinitely malleable in terms of
their management structure.
a. LLCs are managed by their members unless their operating agreement expressly provides that
it is manager-managed. 407(a).
II. Member-Managed
a. General Management Rights: Unless otherwise agreed, each partner has equal rights in the
management and conduct of the partnership business. § 407(b)(2).
b. Ordinary course: Unless otherwise agreed, differences arising in the ordinary course of
business may be decided by a majority of the partners. § 407(3)
 i. More than half constitutes a majority; 50% of the partners is insufficient
ii. Summers v. Dooley – holding a partner in a trash collection business who hired an
employee for the partnership without his partner’s consent could not seek
reimbursement from the partner because the majority of the partners did not consent to
the action.
c. Outside of ordinary course: Unless otherwise agreed, acts outside the ordinary course of the
partnership. § 407(b)(4).
d. Amendment to Operating Agreement: Unless otherwise agreed, unanimity is required to
change the operating agreement. 407(b)(5).
e. New members: Unless otherwise provided in an operating agreement or other special
circumstances, the addition of a new member requires the unanimous vote of all of the
current members. See 401(d).
III. Manager-managed: To become manager managed, the operating agreement must expressly provide
it. 407(a).
a. Becoming a manager: Managers may be chosen at any time by the consent of a majority of
the members of the LLC. 407(c)(5).
i. Non-members may be managers. 407(c)(6).
1. Dissociation of member manager terminates their role.
ii. Duration: Managers remain managers until a successor is chosen, unless the manager
resigns, is removed, or dies (terminates if a corporation).
1. Manager Removal: managers may be removed at anytime without cause or
notice by a majority of the members. 407(c)(5).
b. Decision making: Any matter relating to the activities of the LLC is decided exclusively by
the managers. 407(c)(1).
c. Voting: Each manager has equal rights in the management and conduct of the LLC’s
activities. 407(c)(2).
i. Ordinary course: A difference between managers about matters within the ordinary
course of business may be decided by a majority vote of the managers. 407(c)(3).
ii. Outside ordinary course
1. Selling sub prop: The consent of all of the MEMBERS is required to sell
substantially all of the LLC’s property outside of the ordinary course. 407(c)
(4)(A).
2. Mergers: The consent of all of the MEMBERS is required to effect a merger
or other transaction. 407(c)(4)(B)
3. Outside ordinary course: The consent of all of the MEMBERS is required to
undertake acts outside of the ordinary course of business. 407(c)(4)(C).
4. Amending operating agreement: The consent of all of the MEMBERS is
required to amend the operating agreement. 407(c)(4)(D).
IV. Members can vote by proxy. 407(d).
V. Everything is governed by the agreement
VI. General note on voting on authority.
a. Restricting a partner’s authority requires a majority vote just. In a two-person partnership, the
restriction will require both people to restrict the authority. Therefore, the only choice if one
of them is that mad is to dissolve
i. If one partner keeps buying shit for the partnership with the authority to do so and the
other wants him to stop but he refuses, then they may have to dissolve.
 1. Different from Summers v. Dooley because the partnership had to act to hire
him, therefore, one partner was not enough

7. Contract Liability
I. No agency: A member is not an agent of an LLC solely by reason of being a member. 301(a).
a. Sources of member authority
i. Actual Authority may be given via the operating agreement.
ii. Apparent and Actual Authority may be given by a statement of authority.
iii. Authority may be given under agency law. 107.
II. Managers?
a. Very tricky, it does not expressly give them the power. However, there could be an argument that
as managers, they have apparent authority.
i. Back it up with 407(c)(2).
III. No apparent authority: The other uniform acts confer apparent authority on general partners of LPs and
GPs. However, authority to bind the LLC must be given in either a contract or the statement of authority.
a. Why? General partnerships and LPs automatically lead to an inference that a partner has
authority. Here, because management structures are so diverse, the same rule should not apply and
the LLC structure essentially serves as a notice that you don’t know.
b. Look to statement of authority or any contracts
i. Section 302 provides that a statement of authority is a filing to the SoS that includes
1. The address of the business
2. The authority, or limitations on authority, for a specific person or position to
a. Enter transfers of real property
b. Enter other transactions
IV. A person’s status as a member does not prevent or restrict law other than this act from imposing liability
on an LLC company because of the person’s conduct. 301(b).
a. Contract law and agency law
i. Look to operating agreement as well, even if oral
1. i.e. A and B have late night talks about starting a band management company. A
agrees to do the talent side, and B will handle logistics. Upon the formation of the
LLC, they will both have actual authority to do their respective jobs
V. Member-managed: each member has the authority to bind the corporation in some states

8. Liability to 3rd Parties

I. LLC liability: LLC’s are liable for all of their own debts and obligations. They are not liable for the
actions of members unless the member was acting with authority. 107; 301(b)
II. Partner Liability: LLCs provide a limited liability shield for both members and managers. 304(a)
(1)-(2).
a. Piercing the veil: The failure of the LLC to observe any formalities relating the exercise of
its activities is not grounds for liability. 304(b).
i. Domination is most important
b. agency

9. Lawsuits
I. Litigation between partners and partnership
a) Direct actions: Members may bring direct actions against other members/the LLC to enforce their
rights under RULLCA or the operating agreement. 901(a).
b) Derivative actions §902: A member may maintain a derivative to enforce a right of the LLC if
i) The member first makes a demand of the management team and
(1) they do not do anything within a reasonable time §902(1) or
(2) it will fall on deaf ears if they did §902(2)
10. Duties and Rights of Partners
I. Fiduciary Duties: The duties of care and loyalty are expressly included in the RULLCA, however, there
is no limiting language. 409(a).
a. Manager Managed: 409(g)(1) supplies the duties of the managers.
i. Members
1. Generally: In a manager-managed LLC, members do not have any fiduciary duty
to the LLC or other members. 409(g)(5).
2. GFFD: NOT FID members shall discharge duties to the LLC and other members
consistently with obligations of good faith and fair dealing. 409(d).
ii. Managers:
1. Duty of Care: Subject to the BJR, manager’s duty of care is limited to act with
the care of a person in a like position would reasonably exercise in a similar
circumstance. 409(c).
a. BJR: see Corporation
b. Limiting the duty: The operating agreement may alter the duty of care
except to make intentional o.k.. 110(d)(3).
c. Managers may rely in good faith on information provided by people that
the managers reasonably believe to be a reliable source. 409(c).
2. Duty of Loyalty: Unlike other unincorporated entities, the duty of loyalty is not
limited to accounting, self-dealing, and competition. 409(b).
a. Accounting/Usurpation: Managers must account to the LLC and hold as
trustee for it any benefits derived by the member in the conduct AND
windup of the LLC including the usurpation/appropriation of LLC
opportunity. 409(b)(1).
i. Meinhard: Salmon and Meinhard form partnership to run a hotel.
Leased the property. At the end of the term, the owner approached
Salmon about renewing the lease in his personal capacity. Salmon
Agreed. Meinhard felt excluded.
1. Rule: partners owe a duty of not just honesty, but the
punctilio of an honor the most sensitive.
a. Judge said that Salmon would not have been
offered the lease had it not been for his being a
partner. Therefore, the renewal was an
opportunity to be shared among the partnership.
b. Self-dealing: managers cannot deal with the partnership in an adverse
way in the conduct or windup of the business. 409(b)(2).
c. Competition: managers cannot directly compete with the partnership
before a dissolution event occurs. 409(b)(3).
d. Fairness is a valid defense for 409(b) violations. 409(e).
b. Member-managed
i. Everything is the same only swap manager for members
II. GFFD: When discharging duties and exercising their rights, managers AND members must act in good
faith and fair dealing. 409(d).
III. Information:
a. Without demand: managers are required to furnish to the other general partners any information
concerning the LLC’s finances or activities that is reasonably required to properly exercise the
members’s rights and duties without demand. 407(b)(1).
b. On demand: managers are required to disclose information on the LLC’s activities unless it is
unreasonable or improper on demand. 408(b)(2).
Rights
Information:
Member-Managed: 410(a) applies. Manager Managed: 401(b) applies.
1) Copy at office(a): Each member may inspect §410(b)(1): The rights stated for [members] in (a)
and copy records regarding activities, financial applies to managers not members
conditions etc. Other info(b)(2): Managers may obtain, inspect,
i. Reasonably notice and copy full information regarding the firms
ii. Reg business hours activities and financial condition as is just and
iii. Reasonably location determined by reasonable if
company i. The manager seeks information for a
iv. Extent necessary (material) to enforce rights purpose reasonably related to his interest
2) Wo demand §410(a)(2)(A): material that the ii. They make a demand describing with
company knows to be material to have members particularity what they want and their
exercise their rights. purpose
3) On demand §410(a)(2)(B): any other iii. The information sought is directly related to
information that is not unreasonably or their purpose
otherwise improper under the circumstances.

11. Dissociation/Dissolution & Winding Up

I. Dissociation: Dissociation is covered in RULLCA Article 6 and may simply be defined as a partner’s
leaving the LLC
a. Members
i. Right to dissociate: Members have a right to dissociation before the termination of the
LLC. 601(a).
1. Wrongful Dissociation:
a. Breach: a member’s dissociation is wrongful if it occurs in breach of
the partnership agreement. 601(b)(1).
b. Express will: a general partner’s dissociation is wrongful if they
dissociate by express will before the termination of the company.
601(b)(2)(A).
c. Judicial: a general partner’s dissociation is wrongful if it is pursuant
to a judicial termination. 604(b)(2)(A).
d. Debtor
e. Willful termination of business entitiy member
ii. Events
1. Express will: A member is dissociated when they give notice of their express
will to leave. 602 (1).
2. Agreed expulsion: A member is dissociated when an event agreed upon in
the partnership agreement occurs. 602(2)
 3. OA provided expulsion: A member is dissociated when they are expelled
pursuant to the partnership agreement. 602(3).
4. Unanimous: A member is dissociated when they are expelled by unanimous
consent under one of the specified scenarios of 602(4).
a. Unlawful to carry on with he limited partner
b. Transfer of all of the partner’s transferable interest
c. A corporation is in trouble
d. LLC or GP has dissolved.
5. Judicial order: A member is dissociated when the LP moves for a judicial
order because 1) the member’s conduct screwed the LP, 2) material breach of
the operating agreement or GFFD. 602(5).
6. Death: A member is dissociated when the limited partner is an induvial and
dies. 602(6).
7. There are others
iii. Effects:
1. Upon dissociation, member’s management rights are terminated. 603(a)(1).
2. If member managed: Upon dissociation, the member fiduciary duties are
terminated for events occurring after the dissociation. 602(a)(2).
II. Dissolution
a. RULLCA Article 7