(a)Definition and Scope. A conflict of interest transaction is a transaction with the LLC in which a governor, manager or non-governor member of a special litigation committee of the LLC has a direct or indirect interest. A conflict of interest transaction is not voidable by the LLC solely because of the governor’s or manager’s interest in the transaction if any one (1) of the following is true:

lawyer at desk

Need help with a review of an LLC operating agreement?
Have it reviewed by a lawyer, get answers to your questions and move forward with confidence.
Connect with a lawyer now

Terms Used In Tennessee Code 48-239-116

  • board of governors: means the board of governors of an LLC electing to be board-managed or, in the case of a foreign limited liability company, its equivalent. See Tennessee Code 48-202-101
  • Entity: includes the following, whether foreign or domestic: LLCs. See Tennessee Code 48-202-101
  • Governor: means a natural person or entity serving on the board of governors of a board-managed LLC. See Tennessee Code 48-202-101
  • Interest: means either or both of the following rights under the organic law of an unincorporated entity:
    (A) The right to receive distributions from the entity either in the ordinary course or upon liquidation. See Tennessee Code 48-11-201
  • Litigation: A case, controversy, or lawsuit. Participants (plaintiffs and defendants) in lawsuits are called litigants.
  • LLC: means a limited liability company, organized under chapters 201-248 of this title. See Tennessee Code 48-202-101
  • Manager: means a person elected, appointed, or otherwise designated as a manager by the governing body, and any other person considered elected as a manager pursuant to §. See Tennessee Code 48-202-101
  • Member: means a person reflected in the required records of an LLC as the owner of some governance rights of a membership interest of the LLC. See Tennessee Code 48-202-101
  • Membership: means the rights and obligations a member has pursuant to a corporation's charter, bylaws and chapters 51-68 of this title. See Tennessee Code 48-51-201
  • Operating agreement: means a written agreement described in §. See Tennessee Code 48-202-101
  • Quorum: The number of legislators that must be present to do business.
  • Trustee: A person or institution holding and administering property in trust.
(1) The material facts of the transaction and the governor’s or manager’s interest were disclosed or known to the board of governors or a committee of the board of governors and the board of governors or committee authorized, approved, or ratified the transaction;
(2) The material facts of the transaction and governor’s or manager’s interest were disclosed or known to the members entitled to vote and they authorized, approved, or ratified the transaction;
(3) The transaction was fair to the LLC; or
(4) The transaction was of a nature in which the conflict of interest is waived by the articles or operating agreement. Such waiver shall be upheld unless manifestly unreasonable under the circumstances.
(b) For purposes of this section, a governor or manager of the LLC has an indirect interest in a transaction if, but not only if:

(1) Another entity in which the governor or manager has a material financial interest or in which the governor or manager is a general partner is a party to the transaction; or
(2) Another entity of which the governor or manager is a governor, director, manager, officer, or trustee is a party to the transaction and the transaction is or should be considered by the board of governors of the LLC.
(c)Authorization, Approval and Ratification Under Subdivision (a)(1). For purposes of subdivision (a)(1), a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the governors on the board of governors (or on the committee) who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single governor. If a majority of the governors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a governor with a direct or indirect interest in the transaction does not affect the validity of any action taken under subdivision (a)(1) if the transaction is otherwise authorized, approved, or ratified as provided in that subsection.
(d)Authorization, Approval and Ratification Under Subdivision (a)(2). For purposes of subdivision (a)(2), a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the membership interests entitled to be counted under this subsection (d). Membership interests owned by or voted under the control of a governor or manager who has a direct or indirect interest in the transaction, and membership interests owned by or voted under the control of an entity described in subdivision (b)(1), may not be counted in a vote of members to determine whether to authorize, approve or ratify a conflict of interest transaction under subdivision (a)(2). The vote of those membership interests, however, shall be counted in determining whether the transaction is approved under other provisions of chapters 201-248 of this title. A majority of the membership interests, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection (d) constitutes a quorum for the purpose of taking action under this section.
  Previous section
Next section  
 Chapter 239 Contents