drafting llc operating agreements

170 Pages·2017·4.16 MB·English

by  Faith Copeland

LLC OPERATING AGREEMENTS: DRAFTING MANAGEMENT, DISTRIBUTION &
TAX PROVISIONS, PART 1 & PART 2
First Run Broadcast: June 13 & 14, 2017
Live Replay: April 19 & 20, 2018
1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00a.m. P.T. (60 minutes each day)

LLC operating agreements may be the most commonly document drafted or reviewed and
negotiated by transactional counsel. The almost default choice of entity that LLCs have become
make these agreements pervasive. But their virtual universality belies their complexity. The tax
allocation and property distribution provisions alone – where tax reality and cash reality may
differ substantially – require a firm grasp of tax law, the client’s distribution plans, and financial
accounting. Management provisions vary depending on whether the entity is member-managed
or manager-managed, with fiduciary duties modifiable in a way they are not in other
entities. These and other provisions make LLC operating agreements challenging to draft and
negotiate. This program will provide you with a real world guide to drafting the most important
provisions of LLC operating agreements.

Day 1 – April 19, 2018:

• Drafting the most important provisions of LLC operating agreements
• Planning for different types of capital contributions – capital v. services, current
contributions v. future capital calls
• Management provisions depending on whether the LLC is member-managed v. manger-
managed LLCs
• Fiduciary duties of members, modifications, and the “LLC opportunity doctrine”
• Restrictions on transfers of capital and profits interests
• Relationship between tax allocation and property distribution provisions, including IRC
Section 704(b) accounting

Day 2 – April 20, 2018:

• Drafting allocation provisions for maximum tax benefit and to secure the safe harbor
• How “payments to member” (not distributions) are treated for financial v. tax purposes
• Drafting ordinary distributions, minimum tax distributions, waterfall distributions,
liquidating distributions
• Rights of first refusal, rights of first offer, buy-sell provisions – understanding the
alphabet soup of exit alternatives
• Liquidations of the entity and sale of an individual member’s interests

Speakers:

Leon Andrew Immerman is a partner in the Atlanta office of Alston & Bird, LLP, where he
concentrates on federal income tax matters, including domestic and international tax planning
and transactional work for joint ventures, partnerships, limited liability companies and
corporations. He formerly served as chair of the Committee on Taxation of the ABA Business
Law Section and as chair of the Partnership and LLC Committee of the State Bar of Georgia
Business Law Section. He is also co-author of “Georgia Limited Liability Company Forms and
Practice Manual” (2d ed. 1999, and annual supplements). Mr. Immerman received his B.A.,
magna cum laude, from Carleton College, his M.A. from the University of Minnesota, and
another M.A. and his Ph.D. from Princeton University, and his J.D. from Yale Law School.

Lee Lyman is a shareholder in the Atlanta office of Carlton Fields Jorden Burt, LLP and has
more than 20 years’ experience in corporate and real estate transactions. She provides corporate
and transactional advice, with an emphasis on advising clients engaged in ongoing business
transactions, including joint ventures, mergers and acquisitions, and business restructurings. She
has extensive experience in LLC and partnership law, organization, structure, and operations.
She has extensive experience structuring equity and debt financing for the acquisition,
development and sale of real estate and in general corporate transactions. Ms. Lyman received
her B.S. from Florida State University, her M.A. from the University of Pittsburg, her J.D. from
Duke University School of Law.
VT Bar Association Continuing Legal Education Registration Form

Please complete all of the requested information, print this application, and fax with credit info or
mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax:
[phone] PLEASE USE ONE REGISTRATION FORM PER PERSON.

First Name ________________________ Middle Initial____ Last Name__________________________
Firm/Organization _____________________________________________________________________
Address ______________________________________________________________________________
City _________________________________ State ____________ ZIP Code ______________________
Phone # ____________________________Fax # ______________________
E-Mail Address ________________________________________________________________________

LLC Operating Agreements:
Drafting Management, Distribution & Tax Provisions, Part 1
Teleseminar
April 19, 2018
1:00PM – 2:00PM
1.0 MCLE GENERAL CREDITS

VBA Members $ 75
Non-VBA Members $115

NO REFUNDS AFTER April 12, 2018

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________

Credit Card (American Express, Discover, Visa or Mastercard)

Credit Card # _______________________________________ Exp. Date _______________

Cardholder: __________________________________________________________________
VT Bar Association Continuing Legal Education Registration Form

Please complete all of the requested information, print this application, and fax with credit info or
mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax:
[phone] PLEASE USE ONE REGISTRATION FORM PER PERSON.

First Name ________________________ Middle Initial____ Last Name__________________________
Firm/Organization _____________________________________________________________________
Address ______________________________________________________________________________
City _________________________________ State ____________ ZIP Code ______________________
Phone # ____________________________Fax # ______________________
E-Mail Address ________________________________________________________________________

LLC Operating Agreements:
Drafting Management, Distribution & Tax Provisions, Part 2
Teleseminar
April 20, 2018
1:00PM – 2:00PM
1.0 MCLE GENERAL CREDITS

VBA Members $ 75
Non-VBA Members $115

NO REFUNDS AFTER April 13, 2018

PAYMENT METHOD:

Check enclosed (made payable to Vermont Bar Association) Amount: _________

Credit Card (American Express, Discover, Visa or Mastercard)

Credit Card # _______________________________________ Exp. Date _______________

Cardholder: __________________________________________________________________
Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited

Sponsor: Vermont Bar Association

Date: April 19, 2018

Seminar Title: LLC Operating Agreements: Drafting Management, Distribution
& Tax Provisions, Part 1

Location: Teleseminar - LIVE

Credits: 1.0 MCLE General Credit

Program Minutes: 60 General

Luncheon addresses, business meetings, receptions are not to be included in the computation
of credit. This form denotes full attendance. If you arrive late or leave prior to the program
ending time, it is your responsibility to adjust CLE hours accordingly.
Vermont Bar Association

CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited

Sponsor: Vermont Bar Association

Date: April 20, 2018

Seminar Title: LLC Operating Agreements: Drafting Management, Distribution
& Tax Provisions, Part 2

Location: Teleseminar - LIVE

Credits: 1.0 MCLE General Credit

Program Minutes: 60 General

Luncheon addresses, business meetings, receptions are not to be included in the computation
of credit. This form denotes full attendance. If you arrive late or leave prior to the program
ending time, it is your responsibility to adjust CLE hours accordingly.
DRAFTING LLC OPERATING AGREEMENTS:
“DEVELOPMENT COMPANY, LLC”

Lee Lyman
Carlton Fields Jorden Burt – Atlanta
[phone]
[email protected]

Saba Ashraf
Ballard Spahr LLP – Philadelphia
[phone]
[email protected]

L. Andrew Immerman
Alston & Bird LLP – Atlanta
[phone]
[email protected]

June 13 & 14, 2017

ADMIN/21349074v3
DEVELOPMENT COMPANY, LLC
LIMITED LIABILITY COMPANY AGREEMENT

THIS LIMITED LIABILITY COMPANY AGREEMENT (the “Agreement”)
of DEVELOPMENT COMPANY, LLC (the “Company”), effective the 11th day of
October, 2011, is made and entered into by the Members of the Company.

BACKGROUND

____________ (“Investor”) and ____________ (“Developer”)
(collectively, the “Initial Members”) have formed Delaware Company, LLC as a limited
liability company under the Delaware Limited Liability Company Act, and desire to enter
into this Agreement to govern the operations of the Company.

The Members intend that the Company be classified as a partnership for federal
and state income tax purposes

NOW, THEREFORE, the Members on behalf of themselves agree as follows:

1. THE COMPANY

1.1 Formation. [Omitted]

1.2 Name; Place of Business; Registered Office and Agent. [Omitted]

1.3 Purpose. [Omitted]

1.4 Dissolution.

1.4.1 Events Causing Dissolution. The Company shall be dissolved and
its affairs wound up only upon the earlier of the following to occur:
(a) The written agreement of all of the Members to dissolve the
Company;
(b) A decree of judicial dissolution; or
(c) When required by law.
Notwithstanding the provisions of the Delaware Act, the Company shall not dissolve
upon an event of disassociation with respect to the last remaining Member, but instead
the legal successor to such Member shall automatically become a Member of the
Company with all the rights appurtenant thereto in accordance with the Delaware Act.

ADMIN/21349074v3
1.4.2 Liquidation of Property and Application of Proceeds.

Upon the dissolution of the Company, the Managers (or, if none, a
liquidator appointed by the Personal Representatives of the deceased Members) will wind
up the Company's affairs in accordance with the Delaware Act, and will be authorized to
take any and all actions contemplated by the Delaware Act as permissible, including,
without limitation:

(a) prosecuting and defending suits, whether civil,
criminal, or administrative;

(b) settling and closing the Company's business, causing
the Accountants to prepare a final financial statement in accordance with Section 1.5.3,
and making adjustments among Members with respect to distributions under Article 4
based upon such financial statement;

(c) liquidating and reducing to cash the Property as
promptly as is consistent with obtaining its fair value;

(d) discharging or making reasonable provision for the
Company's liabilities; and

(e) distributing the proceeds of liquidation and any
undisposed Property to the Members in accordance with [their positive Capital Account
balances]1 [Section 4.1.1]2.

1.5 Books, Records and Tax and Accounting Matters.

1.5.1 Availability. [Omitted]

1.5.2 Tax and Accounting Decisions. Unless otherwise provided in
Section 3.1.6 or other provision of this Agreement, all decisions as to tax and accounting
matters shall be made by the Managers; provided, however, that at the request of any
Member, the Company shall make an election under Section 754 of the Code. Each of
the Members shall supply to the Company the information necessary properly to give
effect to any tax election made by the Company under this Section 1.5.2.

1.5.3 Reports. Within ninety (90) days after the end of each fiscal year,
or such other times as determined by the Managers, the Managers shall cause to be
delivered to all Members a profit and loss statement for, and a balance sheet as of the end
of, such year or other period and the related notes, if any, together with any report
thereon prepared and delivered by the Accountants.

1 For use with traditional (“layer cake”) allocations. See Section 4.2.1, Alternative 1.
2 For use with targeted (forced) allocations. See Section 4.2.1, Alternative 2.
2
1.5.4 Tax Returns. The Managers shall cause the Accountants to
prepare all federal, state, municipal and other tax returns that the Company is required to
file, and file with the appropriate taxing authorities all returns required to be filed by the
Company in a manner required for the Company to be in compliance with any law
governing the timely filing of such returns.

1.5.5 Taxable and Fiscal Year. The Company's taxable and fiscal years
are the calendar year.

1.6 Amendment of Certificate of Formation [Omitted]

2. MEMBERS

2.1 Rights and Obligations of Members.

2.1 Limitation on Members' Liabilities. Each Member's liability shall
be limited as set forth in this Agreement, the Delaware Act and other applicable law.

2.2 Priority and Return of Capital. Except as otherwise set forth in this
Agreement: (i) no Member shall have the right to demand or receive property other than
cash in return for a Capital Contribution or as a distribution pursuant to Article 4; and (ii)
no Member shall have priority over any other Member, either as to the return of Capital
Contributions or as to any distributions pursuant to Article 4.

2.2 Meetings. [Omitted]

2.3 Capital Contributions.

2.3.1 Member's Capital Contribution. Each Member's initial Capital
Contribution is set forth on Exhibit B.

2.3.2 Additional Contributions. Subject to the approval of all Members,
the Managers of the Company may require each Member to make additional Capital
Contributions to the Company, on a pro rata basis, if the Managers determine that the
Company needs additional capital. If a Member fails or is unable to meet a required
capital call, the other Members may contribute their pro rata share of the defaulted
contribution for the defaulting Member and, as determined by the Managers, the
defaulting Member's interest will be diluted in favor of such contributing Member or
Members. A Member's pro rata share of the defaulted contribution is determined by
dividing the Member's required additional Capital Contribution by the total required
additional Capital Contributions of all Members willing to make such a contribution for
the defaulting Member.

2.3.3 Other Matters.
3