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2017 Tennessee Code
Title 48 - Corporations and Associations
Limited Liability Companies
Chapter 240 - Member Management
§ 48-240-103. Member conflicts of interest.
Universal Citation: TN Code § 48-240-103 (2017)
- (a) Conflict and Procedure When Conflict Arises. A contract or other transaction between an LLC and one (1) or more of its members, or between a member-managed LLC and an organization in or of which one (1) or more of its members are governors, directors, managers, officers, partners, fiduciaries or similar equivalent or have a material financial interest, is not voidable because the member or members or the other organizations are parties or because the member or members are present at the meeting of the members or a committee at which the contract or transaction is authorized, approved, or ratified, if:
- (1) The contract or transaction was, and the person asserting the validity of the contract or transaction sustains the burden of establishing that the contract or transaction was, fair and reasonable as to the LLC at the time it was authorized, approved, or ratified;
- (2) The material facts as to the contract or transaction and as to the member's or members' interest are fully disclosed or known to the members and, unless the articles or operating agreement requires the specific approval of subdivision (a)(2)(A) or (a)(2)(B), the contract or transaction is approved in good faith by either:
- (A) The owners of a majority of the voting power of the membership interests entitled to vote that are owned by persons other than the interested member or members; or
- (B) The owners of a majority of the financial interest of the membership interests that are owned by persons other than the interested member or members;
- (3) The material facts as to the contract or transaction and as to the member's or members' interest are fully disclosed or known to the members or a committee, and the members or committee authorizes, approves, or ratifies the contract or transaction in good faith by a majority of the membership interest entitled to vote or committee members, but the interested member or members must not be counted in determining the presence of a quorum and must not vote;
- (4) The material facts of the transaction and the member's or members' interest were disclosed or known to a committee of not less than three (3) members, none of whom had a direct or indirect interest in the transaction, and such committee authorized, approved or ratified the transaction;
- (5) The contract or transaction is a distribution described in chapter 236 of this title or a merger or sale of assets described in chapter 244 of this title; or
- (6) Notwithstanding anything to the contrary in this section, the articles or operating agreement may define the standard of conduct of the members in a manner to reflect the understanding of the parties; provided, that such definition is not manifestly unreasonable under the circumstances.
- (b) Material Financial Interest. For purposes of this section:
- (1) A member does not have a material financial interest in a resolution fixing the compensation of a manager, employee, or agent of the LLC, even though the member is also receiving compensation from the LLC; and
- (2) A member has a material financial interest in each organization in which the member, or the spouse, parents, children and spouses of children, brothers and sisters and spouses of brothers and sisters of the member, or other lineal descendants of the member, or any combination of them, has a material financial interest.
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