(a)Prerequisites. Unless otherwise provided in chapters 201-248 of this title or the articles or operating agreement, an LLC may lend money to, guarantee an obligation of, become a surety for, or otherwise financially assist a person:

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Terms Used In Tennessee Code 48-242-101

  • Board-managed: means an LLC organized pursuant to this title that elected pursuant to §. See Tennessee Code 48-202-101
  • Business: includes every trade, occupation, profession, investment activity and other lawful purpose for gain or the preservation of assets whether or not carried on for profits. See Tennessee Code 48-202-101
  • Contract: A legal written agreement that becomes binding when signed.
  • Employee: includes an officer but not a director. See Tennessee Code 48-11-201
  • Entity: includes the following, whether foreign or domestic: LLCs. See Tennessee Code 48-202-101
  • Financial rights: means a member's rights to:
    (A) Share in profits and losses as provided in §. 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
  • 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
  • Member-managed: means an LLC organized pursuant to this title that has elected pursuant to §. 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
  • Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
  • Operating agreement: means a written agreement described in §. See Tennessee Code 48-202-101
  • Person: includes individual and entity. See Tennessee Code 48-202-101
  • Subsidiary: means a corporation more than fifty percent (50%) of whose outstanding voting shares are owned by its parent and/or the parent's other wholly-owned subsidiaries. See Tennessee Code 48-11-201
(1) In the usual and regular course of business of the LLC;
(2) With, or for the benefit of, a related LLC, an organization in which the LLC has a financial interest, an organization with which the LLC has a business relationship, or an organization to which the LLC has the power to make donations; or
(3) With, or for the benefit of, a manager or other employee of the LLC or a subsidiary, including a manager or employee who is a member but not a governor of the LLC or a subsidiary, and may reasonably be expected, in the judgment of the body giving the requisite approval, to benefit the LLC. In the case of a loan or guarantee which is with, or for the benefit of, a person who is a governor, approval by a majority of the membership interests of disinterested members entitled to vote is required.
(b)Interest and Security. A loan, guaranty, surety contract, or other financial assistance under subsection (a) may be with or without interest and may be unsecured or may be secured in any manner, including, without limitation, a grant of a security interest in a member’s financial rights in the LLC.
(c)Banking Authority not Granted. This section does not grant any authority to act as a bank or to carry on the business of banking.
(d)Requisite Approval.

(1) Except as otherwise provided in this section, for purposes of this section, “requisite approval” means:

(A) If the LLC is board-managed, an action taken at a duly held meeting and approved by a majority of the disinterested governors or by a majority of the disinterested members at a duly held meeting of the members; or
(B) If the LLC is member-managed, an action taken at a duly held meeting and approved by a majority of the voting interest of members entitled to vote which are held by disinterested persons.
(2) For purposes of this section, a “disinterested person” is a person other than:

(A) A person who receives a direct or indirect benefit from receipt of the loan or guarantee;
(B) The spouse, parents, children and spouses of children, brothers and sisters, other lineal descendants and spouses of brothers and sisters of such person; or
(C) Any entity in which any of the people, or any combination of the people, in subdivisions (d)(2)(A) and (B) have a material financial interest.
(e)Validity of Obligation of Borrower. The fact that a loan or guarantee is made in violation of this section does not affect the borrower’s liability on the loan.
(f)Exception for Sales on Credit. A sale on credit in the ordinary course of business shall not be subject to the restrictions of this section.
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