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Drafting Buy-Sell and Valuation Provisions in Limited Liability Company Operating Agreements [CC]
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Drafting Buy-Sell and Valuation Provisions in Limited Liability Company Operating Agreements [CC]
This program will explore five key topics which counsel should consider when drafting buy-sell provisions. They are first, the events which trigger buy-sell rights (including deadlocks), second, valuation of the LLC interests, third, the form of transaction and payment terms, fourth, resolution of disputes regarding value, process or both, and fifth, the tax consequences of the transaction.
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Closed Captioned.
Most limited liability company operating agreements contain provisions addressing transfers of interests by the members. In privately held companies, transfers are often severely restricted, and sometimes prohibited altogether. In the absence of specific provisions in an operating agreement, statutory defaults will apply. LLC statutes commonly permit transfers of economic interests (i.e., the right to receive allocations and distributions), but not governance rights (e.g., voting, access to information, etc.). The bifurcation of LLC interests between economic rights and governance rights can tend over time to concentrate management authority in the person or group of persons who still possess governance rights, even though they now represent only a minority of the economic interests in the LLC.
To address this tension, operating agreements often contain provisions - referred to as a "buy-sell" agreement - to facilitate the orderly transfers of economic interests and ensure a reasonable level of congruity between ownership of economic interests in the LLC and its governance. Sometimes these provisions are designed to mimic an unrestricted market dynamic in which capital can be efficiently deployed and property rights easily alienated. More often than not, however, they contain cumbersome processes and ambiguous legal terms which are far removed from the goal of facilitating transfers at a price which "a willing buyer would pay a willing seller".
Product Details
Sponsors
Co-sponsors
LLCs, Partnerships and Unincorporated Entities
Product Code
CL2011LLCW3OLC
Duration
90
Publication Date
11/9/2020 12:00:00 AM
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