2010 Tennessee Code
Title 48 - Corporations And Associations
Chapter 249 - Tennessee Revised Limited Liability Company Act
Part 4 - Management
48-249-404 - Conflict of interest transactions.

48-249-404. Conflict of interest transactions.

(a)  Definition.  A conflict of interest transaction is a transaction with the LLC in which a member, manager, director or officer, as applicable, of the LLC has a direct or indirect interest. A conflict of interest transaction is not void and is not voidable by the LLC, and does not violate the duty of loyalty in § 48-249-403(b)(2), solely because of the interest of a member, manager, director or officer in the transaction, if any one (1) of the following is true:

     (1)  The material facts of the transaction and the interest of the member, manager, director or officer, as applicable, were disclosed or known to the managers or board of directors, as applicable, and the managers or board of directors, as applicable, authorized, approved or ratified the transaction;

     (2)  The material facts of the transaction and the interest of the member, manager, director or officer, as applicable, were disclosed or known either to:

          (A)  The members entitled to vote and they authorized, approved or ratified the transaction; or

          (B)  All the members and all the members authorized, approved or ratified the transaction, even if one (1) or more, or all, the members have a conflict of interest;

     (3)  The transaction was fair to the LLC; or

     (4)  The transaction was of such a nature that the conflict of interest is waived by the LLC documents. Such waiver shall be upheld, unless manifestly unreasonable under the circumstances.

(b)  Indirect interest.  For purposes of this section, a member, manager, director or officer of the LLC has an indirect interest in a transaction, if, but not only if:

     (1)  Another entity in which the member, manager, director or officer has a material financial interest, or in which the member, manager, director or officer, as applicable, is a general partner, is a party to the transaction; or

     (2)  Another entity for which the member, manager, director, or officer is a member, governor, director, manager, officer or trustee is a party to the transaction, and the transaction is, or should be, considered by the members, managers or directors, as applicable, of the LLC.

(c)  Approval by managers or directors.  For purposes of subdivision (a)(1), a conflict of interest transaction is authorized, approved or ratified, if it receives the affirmative majority vote of the managers or of the directors on the board of directors, as applicable, who have no direct or indirect interest in the transaction, and a transaction may be authorized, approved or ratified under this section by a single manager or director, as applicable. If a majority of the managers or the directors, as applicable, 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 manager or director, as applicable, 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 subdivision (a)(1).

(d)  Approval by members.  For purposes of subdivision (a)(2)(A), a conflict of interest transaction is authorized, approved or ratified, if it receives a majority vote of the membership interests entitled to be counted under this subsection (d). Membership interests owned by or voted under the control of a member, director 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)(A). The vote of those membership interests, however, shall be counted in determining whether the transaction is approved under other provisions of this chapter.

(e)  Approval by sole member of single-member LLC.  For purposes of subdivision (a)(2)(B), a conflict of interest transaction may be authorized, approved or ratified by the sole member of a single-member LLC.

[Acts 2005, ch. 286, § 1.]  

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