2022 Updates to Operating Agreements and Partnership Provisions: Capital Calls, Dilution, Removal, Breaches

Recording of a 90-minute CLE video webinar with Q&A

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Conducted on Thursday, March 17, 2022

Recorded event now available

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Course Materials

This CLE course will address updates to operating and partnership agreements that corporate counsel may want to consider as a result of court decisions, statutory updates to several state corporate statutes, including Delaware, in connection with capital calls, and rights and remedies in connection with enforcing such obligations. The panel will address such updates and issues related to drafting or revising governance documents to meet the business needs of an entity in times of economic uncertainty, including to make capital calls, remove members, or take other actions to address issues arising out of the current evolving economic environment.

Description

With the COVID-19 pandemic and economic uncertainties arising therefrom, many partnerships and LLCs have taken steps to improve or protect their financial position and to continue operating by making capital calls, diluting or removing members, or other measures.

Properly drafted partnership agreements and operating agreements will set out the obligations to fund business ventures, including the responsibility to contribute additional capital when needed. These governance documents also typically describe the consequences of failing to do so.

A partner's or LLC member's failure to contribute necessary capital may be regarded as a breach of obligations. There can be significant consequences for committing such a breach. For instance, in the case of an LLC, a repeated failure of a member to comply with financial obligations under an operating agreement may be grounds for removal or dilution where an operating agreement provides for such specified penalties or consequences. However, the exercise of any such remedies generally requires strictly complying with the operating agreement, the applicable state LLC act, and other applicable laws, such as the common law of the state of formation.

Counsel should consider whether updates should be made to their clients’ governance documents to provide flexibility to raise capital and take other actions to allow a company or partnership to address economic uncertainty, including to respond appropriately to members or partners who breach their obligations under such governance documents. As part of this consideration, counsel for partnerships and LLCs should consider the scenarios that could exist in various situations, including the history between the parties, the nature of the business, and prior contributions made by each party.

Listen as our expert panel discusses potential changes to partnership agreements and operating agreements that may provide flexibility for businesses when addressing economic uncertainty. The panel will address these and other factors on how LLCs and partnerships can best minimize the impact of the COVID-19 crisis on the governance and fund raising of such LLCs and partnerships.

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Outline

  1. Partnership agreements
    1. Capital contributions and calls
    2. Breaches of a partnership agreement
    3. Remedies for a breach of the partnership agreement
  2. Operating agreements
    1. Capital contributions and calls
    2. Breaches of an operating agreement
    3. Remedies for a breach of an operating agreement
  3. Practical considerations in drafting governance documents to address the foregoing

Benefits

The panel will address these and other relevant issues, including:

  • How has the current economic crisis affected partnerships' and LLCs' need for capital calls?
  • When can a partnership or LLC move forward with the removal of a breaching partner or member?
  • What other remedies are available to partnerships or LLCs with a breaching partner or member?

Faculty

Gorby, Michael
Michael J. Gorby

Founder/Partner
Gorby Peters & Associates

Mr. Gorby has tried hundreds of cases and handled thousands of matters for corporations and individuals across the...  |  Read More

Maxwell, Michael
Michael P. Maxwell

Partner
Potter Anderson & Corroon

Mr. Maxwell provides advice to clients on matters of Delaware corporate and business law for transactions involving...  |  Read More

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