Contribution Default Remedies for LLCs and Partnerships: Tax Consequences of Dilution, Set-Offs and Constructive Loans

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


Conducted on Thursday, September 6, 2018

Recorded event now available

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Program Materials

This CLE/CPE webinar will guide tax professionals and advisers on structuring contribution-default remedies for LLCs and partnerships. The panel will discuss the complexities of contribution-default remedies, such as interest dilution, set-offs and loans. The panel will also tackle a variety of tax issues associated with each remedy and mechanisms for drafting provisions in LLC operating and partnership agreements to ensure protection against interest disruption and unintended tax liability.

Description

For an LLC or partnership to be viable, the members must contribute capital or services, either initially at formation or through additional contributions later. A default on member contributions under the LLC operating or partnership agreement can cause significant financial, economic, and tax effects for the entity.

Members who have fulfilled their contribution commitments must recognize that contribution defaults by other members can affect their ownership, voting, and financial interests. Contribution defaults can trigger unwanted regulatory penalties and dismantle counsel’s carefully calibrated entity structure.

For instance, a non-U.S. investor who owns more than 50% of certain entities is subject to U.S. reporting requirements and higher tax rates, requiring the non-U.S. investor to ensure other members do not disrupt their interests by failing to meet a capital commitment. In other circumstances, contributing members may want to ensure that their interests increase disproportionately in relation to the interests of defaulting members.

To guard against unintended tax consequences, members must that LLC operating and partnership agreements include contribution-default remedies, such as interest dilution, distribution set-offs or constructive loans. Specific aspects of contribution commitments and defaults can become complicated. Tax professionals must possess in-depth knowledge of the available contribution-default remedies and the potential tax consequences.

Listen as our panel provides a detailed analysis of contribution-default remedies, the mechanisms for structuring such provisions, the tax implications upon their enforcement, and planning techniques to ensure protection against interest disruption.

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Outline

  1. Capital contribution commitments for LLC and partnership
  2. Contribution-default remedies and other methods to protect LLC and partnership interests
  3. Tax implications of contribution-default remedies
  4. Planning techniques and best practices for drafting default and other interest-maintenance provisions

Benefits

The panel will review these and other principal issues:

  • Available contribution-default remedies for LLCs and partnerships
  • Structuring partnership and LLC operating agreement provisions addressing the failure to satisfy capital commitments
  • Natural and punitive dilution of non-contributing member interest
  • Distribution set-off of unpaid capital commitments and related implications
  • Adopting constructive loans to help ensure that contribution-defaults do not affect members’ interests
  • Tax consequences based on the type of default remedy chosen and the manner in which partners determine percentage interests
  • Strategic tax planning to avoid potential adverse tax consequences for partners and members

Faculty

Borden, Bradley
Professor Bradley T. Borden

Professor of Law
Brooklyn Law School

Professor Borden’s research, scholarship, and teaching focus on taxation of real property transactions and...  |  Read More

Minervini, Anthony
Anthony L. Minervini
Senior Manager
Ernst & Young

Mr. Minervini is a Senior Manager in the Partnership Transactional Planning & Economics Group of Ernst & Young...  |  Read More

Other Formats
— Anytime, Anywhere

Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

CLE On-Demand Video

$297

Download

CPE Not Available

$297