Operating Agreements and Partnership Provisions: Capital Calls, Dilution, Removal, Breaches
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Corporate Law
- event Date
Thursday, December 7, 2023
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will address updates to operating and partnership agreements that corporate counsel may want to consider based on recent court decisions and state corporate statutory updates, including Delaware. The panel will address updates and issues related to drafting or revising governance documents to meet business needs in times of economic uncertainty, including making capital calls, removing members, or taking other actions to address issues arising out of the current evolving economic environment.
For over a decade, Mr. Garza has represented companies, business owners, and other stakeholders regarding a wide variety of business matters including entity formation, corporate governance, joint ventures, and more. He routinely represents his clients in the reviewing, drafting, and negotiating of a wide variety of business agreements including those with shareholders, vendors, clients, and partners.
Mr. Gorby has tried hundreds of cases and handled thousands of matters for corporations and individuals across the United States throughout his three- decade legal career. His practice focuses on Insurance Coverage Disputes, Commercial Litigation and Liability for Owners and Managers of Property. Mr. Gorby is also a certified mediator.
Ms. Sprance focuses her practice on corporate and business transactions including the structure and use of Delaware business entities such as corporations, limited liability companies, limited and general partnerships and statutory and common law trusts. She also assists with the representation of lenders and borrowers in commercial real estate and other financing transactions and has worked on multiple commercial real estate acquisition and construction transactions, as well as commercial loan modifications. Ms. Sprance provides third-party legal opinions concerning Delaware’s General Corporation Law, Delaware’s alternative entity statutes and the Delaware Uniform Commercial Code.
After the fallout from the pandemic and other 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, and taking other measures as needed to ensure viability.
Properly drafted partnership and operating agreements establish the obligations to fund business ventures, including the responsibility to contribute additional capital when needed. These governance documents also typically describe the consequences for failing to do so.
A partner's or LLC member's failure to contribute necessary capital may be regarded as a breach of obligations, and the consequences for such a breach can be significant. 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 penalties. However, exercising these remedies generally requires strict compliance with the operating agreement, the applicable state's LLC act, and other applicable laws, such as the common law in 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 as necessary to allow the company or partnership to address economic uncertainty. As part of these considerations, counsel 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 and operating agreements that allow for flexibility when addressing current and future economic uncertainty.
- Partnership agreements
- Capital contributions and calls
- Breaches of a partnership agreement
- Remedies for breach
- Operating agreements
- Capital contributions and calls
- Breaches of an operating agreement
- Remedies for breach
- Practical considerations and key takeaways when drafting governance documents
The panel will address these and other relevant issues:
- How have current economic conditions affected partnerships' and LLCs' need for capital calls?
- When can a partnership or LLC remove a breaching partner or member for failing to contribute necessary capital?
- What other remedies are available to partnerships or LLCs when a partner or member breaches the partnership or operating agreement?
