Admission of Members — Membership Interests — Transferees and Creditors of Members

Tenn. Code Ann. tit. 48, ch. 249, pt. 5

in effect

Tenn. Code Ann. § 48-249-501 Admission of members.

48-249-501. Admission of members. (a) Admission at formation. In connection with the formation of an LLC, a person is admitted as a member of the LLC upon the later to occur of: (1) The formation of the LLC under § 48-249-201; or (2) The time provided in and upon compliance with the LLC documents, or, if the LLC documents do not so provide, the time at which the person's admission is reflected in the records of the LLC. (b) Admission after formation. After an LLC is formed, all members shall approve the admission of a new person as a member, the membership interest of such person and the contribution of such person. All consents under this subsection (b) may be unreasonably withheld and are in the sole discretion of the members. (c) Single member LLCs. An LLC may have one (1) or more members. Acts 2005, ch. 286, § 1.

Tenn. Code Ann. § 48-249-502 Nature of membership interest and statement of interest owned.

48-249-502. Nature of membership interest and statement of interest owned. (a) Nature of membership interest. A membership interest in an LLC is personal property. A member has no interest in specific LLC property. All property transferred to or acquired by an LLC is property of the LLC. (b) Statement of interest owned. At the request of any member or holder of financial rights in an LLC, the LLC shall state in writing the particular membership interest or financial rights, or portion of the membership interest or financial rights, owned by such member or holder as of the time the LLC makes the statement. The statement shall describe such person's rights, if any, to vote, to share in profits and losses, and to share in distributions, as well as any transfer of the member's or holder's rights then in effect. The statement shall not be deemed to be a security, as defined in § 47-8-102(a), except as provided in § 47-8-103(c), shall not be a negotiable instrument, shall not be deemed to be a bond or stocks, as those terms are used in § 67-2-101, and shall not be a vehicle by which a transfer of any membership interest or financial rights may be effected. Acts 2005, ch. 286, § 1.

Tenn. Code Ann. § 48-249-503 Termination of membership interest.

48-249-503. Termination of membership interest. (a) Events constituting termination. A member's membership interest in an LLC is terminated upon the occurrence of any of the following events: (1) The LLC receives written notice from the member of the member's express will to withdraw upon the date of the notice, or on a later date specified by the member in the notice; (2) An event specified in the LLC documents as causing the member's membership interest to terminate; (3) The transfer of all of the member's financial rights, unless the transfer is for security purposes, and has not been foreclosed or is under a court order charging the member's financial rights; (4) The member is expelled under the LLC documents; (5) The member is expelled by unanimous vote of the other members entitled to vote, if: (A) It is unlawful to carry on the business of the LLC with the member; (B)(i) The member is a corporation or an LLC; (ii) Within ninety (90) days after the LLC notifies the member that it will be expelled, because it has filed a certificate of dissolution, or the equivalent, its charter or articles of organization, or the equivalent, have been revoked, or its right to conduct business has been suspended by the jurisdiction of its formation; and (iii) The member fails to obtain a revocation of the certificate of dissolution or a reinstatement of its charter or articles of organization, or the equivalent, or its right to conduct business within such ninety-day period; or (C) The member is a general or limited partnership and has been dissolved and its business is being wound up; (6) On application by the LLC or another member, the member is expelled by judicial determination, because the member: (A) Engaged in wrongful conduct that adversely and materially affected the LLC's business; (B) Willfully or persistently committed a material breach of the LLC documents, or of a duty owed under § 48-249-403 to the LLC or to other members or to holders; or (C) Engaged in conduct relating to the LLC's business that makes it not reasonably practicable to carry on the business with the member; (7) The member: (A) Files a petition as a debtor in bankruptcy; (B) Executes an assignment for the benefit of creditors; (C) Seeks, consents to, or acquiesces in the appointment of a trustee, receiver or liquidator for or of the member, or for or of all or substantially all of the member's property; or (D) Fails, within ninety (90) days after the filing or appointment, to have dismissed the filing against the member of an involuntary petition in bankruptcy, or to have vacated or stayed the appointment of a trustee, receiver or liquidator for or of the member, or for or of all or substantially all of the member's property obtained without the member's consent or acquiescence, or fails within ninety (90) days after the expiration of a stay, to have the appointment vacated; (8) In the case of a member who is an individual: (A) The member dies; (B) A personal representative is appointed for the member; or (C) A judicial determination that the member has become incapable of performing the member's duties under the LLC documents; (9) In the case of a member that is a trust or is acting as a member by virtue of being a trustee of a trust, the distribution of all of the trust's financial rights, but not merely by reason of the substitution of a successor trustee; provided, however, that a distribution to a beneficiary of a trust established under § 2503(c) of the Code (26 U.S.C. § 2503(c)), or a trust that is treated under § 676 of the Code (26 U.S.C. § 676), as owned by the settlor of the trust, shall not be considered to be a distribution of financial rights under this subdivision (a)(9); (10) In the case of a member that is an estate, or is acting as a member by virtue of being a personal representative of an estate, distribution of all of the estate's financial rights, but not merely the substitution of a successor personal representative or beneficiary; (11) In the case of a custodianship under the Uniform Transfers to Minors Act, compiled in title 35, chapter 7, or the equivalent law of any foreign jurisdiction, a transfer of the financial rights held by the custodian, but not a transfer to the beneficiary for whom the custodian is holding the financial rights; or (12) Termination of the existence of a member, if the member is an entity other than an estate, or trust, other than a business trust. (b) Power to terminate. (1) Except as otherwise provided in subdivision (b)(2), and subject to § 48-249-504, a member has the power and right to terminate such member's membership interest at any time, including, without limitation, upon withdrawal by express will under subdivision (a)(1). A provision in the LLC documents that negates any right of a member to terminate the member's membership interest shall also automatically negate the corresponding power of the member to terminate the member's membership interest, unless the corresponding power of the member to terminate the member's membership interest is expressly reserved. Any attempted termination of a member's membership interest as to which the power to terminate has been negated shall be null and void. (2) No member of a family LLC has either the power or the right to terminate the membership interest or financial rights of such member in such family LLC. No event specified in subdivisions (a)(1), (a)(3), (a)(7), (a)(8), (a)(9), (a)(10), (a)(11) or (a)(12) shall result in the termination of the membership interest or financial rights of a member of a family LLC. In the event that a member of a family LLC attempts to terminate the member's membership interest or financial rights by withdrawal by express will under subdivision (a)(1), such attempted termination shall be null and void. Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 30, 31.

Tenn. Code Ann. § 48-249-504 Termination of membership interest in contravention of LLC documents.

48-249-504. Termination of membership interest in contravention of LLC documents. (a) If the membership interest of a member is terminated by the member in contravention of the LLC documents, then: (1) Forfeiture of governance rights. The member forfeits all the member's governance rights in the LLC, including in the winding up and termination process of the LLC; and (2) Liability for damages. The member is liable for damages incurred by all the other members, holders and the LLC due to the wrongful termination. Such damages and all other amounts owing to the LLC, whether or not currently due, arising from the wrongful termination, may be offset against any amount owing from the LLC to the wrongfully terminating member. (b) Nothing in this section shall be deemed to provide a member with the power to terminate the member's membership interest, if the LLC documents negate or, pursuant to § 48-249-503(b)(1), are deemed to negate the power. Acts 2005, ch. 286, § 1; 2006, ch. 620, § 32.

Tenn. Code Ann. § 48-249-505 Effect of termination of membership interest.

48-249-505. Effect of termination of membership interest. (a) Termination other than under § 48-249-503(a)(8). If a member's membership interest terminates for any reason other than as the result of an event specified in § 48-249-503(a)(8), then: (1) If the existence and business of the LLC are continued, the member whose membership interest has terminated loses all governance rights and will be considered merely a holder of the financial rights owned before the termination of the membership interest, other than any financial rights transferred by the member in connection with the termination of the membership interest; and (2) If the existence and business of the LLC are not continued, the member whose membership interest has terminated retains all governance rights owned before the termination, and may exercise those rights through the winding up and termination of the LLC, except as otherwise provided under § 48-249-504, in the case of termination in contravention of the LLC documents. (b) Termination under § 48-249-503(a)(8). If the membership interest of a member terminates as a result of an event specified in § 48-249-503(a)(8): (1) If the existence and business of the LLC are continued, then, effective as of the date of the applicable termination event, the governance rights associated with the affected membership interest are suspended and may not be exercised thereafter, unless and until restored under subdivision (b)(2). So long as such suspension remains in effect, such member, or the personal representative of such member, shall be considered merely the holder of the financial rights owned before the termination under § 48-249-503(a)(8); (2) If the existence and business of the LLC are continued, for a period of sixty (60) days following the event specified in § 48-249-503(a)(8) that results in the suspension of governance rights under subdivision (b)(1), the personal representative of the affected member shall have the option, exercisable by giving written notice to the LLC, to require the LLC to purchase the membership interest of the member whose membership interest has terminated under subsection (c) and § 48-249-506. If the personal representative fails to make such election within such period, then the LLC shall have the option for a period of sixty (60) days following expiration of the personal representative's option, or, if earlier, following the date of written notice from the personal representative that such option will not be exercised, to give written notice to the personal representative that the LLC will purchase the membership interest in accordance with subsection (c) and § 48-249-506. If neither the personal representative nor the LLC elects to exercise their respective options to cause the LLC to purchase the membership interest, the governance rights associated with the membership interest shall be restored, effective as of the first day following expiration of the LLC's option period, and the personal representative shall be automatically admitted and substituted as a member of the LLC without further action. If either the personal representative or the LLC elects to cause the LLC to purchase the membership interest, the suspension of governance rights associated with such membership interest shall continue through the time the purchase is consummated; and (3) If the existence and business of the LLC are not continued, the personal representative of the member whose membership interest has terminated retains all governance rights owned by the affected member before the termination of the membership interest, and may exercise those rights through the winding up and termination of the LLC, except as otherwise provided under § 48-249-504, in the case of termination in contravention of the LLC documents. (c) Purchase at fair value. If the existence and business of the LLC are continued following the termination of a membership interest under § 48-249-503(a), other than terminations arising under § 48-249-503(a)(3), (a)(9), (a)(10) or (a)(11), then, regardless whether such termination of membership interest was wrongful, any member whose membership interest has so terminated, other than a member for whom a personal representative has been automatically substituted and admitted as a member under subdivision (b)(2), is entitled, subject to the offset provisions of § 48-249-504(2), to receive from the LLC the fair value of the terminated membership interest as of the date of termination of such membership interest, calculated as set forth in § 48-249-506, in consideration for all such membership interest. (d) Distribution if business not continued. Subject to § 48-249-504(2), if the business and existence of the LLC are not continued, any member whose membership interest has terminated, regardless of whether such termination was wrongful or otherwise, is entitled to receive that member's distribution under § 48-249-620. Acts 2005, ch. 286, § 1.

Tenn. Code Ann. § 48-249-506 Determination of fair value.

48-249-506. Determination of fair value. If an LLC is required or elects to purchase a membership interest at fair value under § 48-249-505, then: (1) Communication by LLC. The LLC shall communicate its determination of fair value, and its proposed terms of payment, to the member, or the member's personal representative, who is entitled to receive payment in consideration for the member's terminated membership interest, not later than thirty (30) days after the date of termination, or, if applicable, thirty (30) days after the later date of an election made under § 48-249-505(b)(2). Such communication shall be accompanied by: (A) A statement of the LLC's assets and liabilities as of the date of termination; (B) The LLC's latest available balance sheet and income statement, if any; and (C) An explanation of how the determination of fair value was made; (2) LLC documents govern. If the amount of fair value and other terms of payment are fixed or are to be determined by the LLC documents, the amount and terms so fixed or determined govern; and (3) Judicial determination of fair value. (A) If an agreement as to the amount of fair value and payment terms is not made within one hundred twenty (120) days after the termination date, or, if applicable, the later date of an election made under § 48-249-505(b)(2), either the member whose membership interest has terminated, or the member's personal representative, or the LLC may, within another one hundred twenty (120) days, commence a proceeding against the other to determine the fair value and payment terms. Any such proceeding shall be brought in a court of record having equity jurisdiction in the county where the LLC's principal executive office, or, if not in this state, its registered office is located. The LLC, at its expense, shall notify all of the remaining members in writing, and any other person the court directs, of the commencement of the proceeding. The jurisdiction of the court in which the proceeding is commenced under this subdivision (3) is plenary and exclusive. The court shall determine the fair value of the membership interest, in accordance with the standards set forth in subdivision (3)(B) together with the terms for payment; and (B) In a proceeding brought to determine the fair value of a membership interest in an LLC, the court: (i) Shall enforce any governing terms in the LLC documents as to the amount of fair value and other terms of payment as provided in subdivision (2); (ii) In the absence of any such governing terms in the LLC documents, shall determine the fair value of the membership interest, considering, among other relevant evidence, the going concern value of the LLC, any other agreement among any members fixing the price or specifying a formula for determining value of membership interests for any other purpose, the recommendations of an appraiser appointed by the court, if any, the recommendations of any of the appraisers of the parties to the proceeding, and any legal or financial constraints on the ability of the LLC to purchase the membership interest; (iii) Shall specify the terms of the purchase, including, if appropriate, terms for installment payments, subordination of the purchase obligation to the rights of the other creditors of the LLC, security, including the purchased membership interest, for a deferred purchase price, and a covenant not to compete or other restriction on the member whose membership interest has terminated; (iv) Shall require, subject to retention of any security interest by the member whose membership interest has terminated under subdivision (3)(B)(iii) the member whose membership interest has terminated to deliver an instrument of transfer of the membership interest to the LLC upon receipt of the purchase price or the first installment of the purchase price; (v) May award one (1) or more other parties their reasonable expenses, including attorney's fees and the expenses of appraisers or other experts, incurred in the proceeding, if the court finds that a party to the proceeding violated such party's obligations to act in good faith and to engage in fair dealing set forth in § 48-249-403(d); and (vi) Shall order that interest, at the rate specified for judgments under § 47-14-121, shall be paid on such amount, from the date such amount was determined to be due through the date of payment, if the court determines that all or any installment of the amounts to be paid in respect of the terminating member's membership interest should have been paid prior to the date of judgment. Acts 2005, ch. 286, § 1.

Tenn. Code Ann. § 48-249-507 Transfer of financial rights.

48-249-507. Transfer of financial rights. (a) Transferability of financial rights. Except as provided in subsection (c) the financial rights of a member or a holder of financial rights are transferable in whole or in part. (b) Effect of transfer of financial rights. A transfer of the financial rights of a member or a holder of financial rights entitles the transferee to receive, to the extent transferred, only the share of profits and losses and the distributions to which the transferor would otherwise be entitled, together with the right to transfer further the financial rights so transferred. A transfer of the financial rights of a member or a holder of financial rights does not dissolve the LLC and does not entitle or empower the transferee to become a member, to cause a dissolution, or to exercise any governance rights. Any attempt by the transferee to become a member, cause a dissolution or exercise any governance rights shall be null and void. (c) Restrictions on transfer of financial rights. (1) A restriction on the transfer of financial rights may be imposed in the LLC documents, by a written resolution adopted by all the members, or by a written agreement among, or other written action by, all the members, and, if so provided in the LLC documents, holders of financial rights. (2) A restriction on the transfer of financial rights referenced in subdivision (c)(1) is enforceable against the owner of the restricted financial rights. A written restriction on the transfer of financial rights that is set forth in the LLC documents may be enforced against a successor or transferee of the owner of the restricted financial rights, including a pledgee or a personal representative, whether or not such successor or transferee of the owner had actual notice of the restricted financial rights. Except for a written restriction in the LLC documents, a restriction, even though permitted by this section, is ineffective against a person without knowledge of the restriction. (d) Effective date of transfer. Any permissible transfer of financial rights under this section shall be effective as to and binding on the LLC, only when the transferee's name, address, taxpayer identification number and the nature and extent of the transfer are reflected in the LLC documents or the records of the LLC. Acts 2005, ch. 286, § 1.

Tenn. Code Ann. § 48-249-508 Transfer of a membership interest or governance rights.

48-249-508. Transfer of a membership interest or governance rights. (a) Transferability of governance rights. A member may transfer ownership of the member's full membership interest, only by transferring all of the member's governance rights, coupled with a transfer to the same transferee of all of the member's financial rights. A member's governance rights are transferable only as provided in this section. A member has no power to transfer all or any part of the member's membership interest, except as provided in §§ 48-249-505 — 48-249-507 and this section. (b) Consents required for transfer of governance rights. (1) A member may, without the consent of any other member, transfer governance rights to another member. (2) With respect to a single-member LLC, the single member may freely transfer governance rights or membership interests, or both, in the LLC to any other person at any time. (3) Any other transfer of any governance rights is effective only if all of the members, other than the member seeking to make the transfer, approve the transfer by unanimous consent. The consent of a member may be evidenced in any manner specified in the LLC documents, but, in the absence of such specification, consent shall be evidenced by a written instrument, dated and signed by such member. The giving of consent is at the sole discretion of the consenting party and may be unreasonably withheld. (4) If any purported or attempted transfer of governance rights is ineffective for failure to obtain the required consents, the purported or attempted transfer is ineffective in its entirety, and any transfer of financial rights that accompanied the purported or attempted transfer of governance rights is null and void. (c) Effect of transfer of governance rights. When a transfer, other than a transfer for security purposes, of governance rights is effective: (1) The transferee becomes a member, if not already a member; (2) If the transferor does not retain any governance rights, the transferor ceases to be a member; (3) A transferee that has become a member has, to the extent transferred, the rights and powers, and is subject to the restrictions and liabilities, of a member under the LLC documents and this chapter; (4) Any obligations of the transferor existing at the time of transfer to make contributions to the LLC under § 48-249-302 are not binding on a transferee without knowledge of such obligations at the time the transferee became a member; (5) Any obligations of the transferor under § 48-249-307 to return wrongful distributions are not binding on a transferee without knowledge of such obligations at the time the transferee became a member; and (6) The transferor is not released from liability to the LLC for obligations of the transferor existing at the time of transfer under §§ 48-249-302 or 48-249-307. (d) Pledges of membership interests. The pledge of, or granting of a security interest, lien or other encumbrance in or against all or any portion of the membership interest of a member, is not a transfer of ownership and shall not cause the member to cease to be a member, or to cease to have the power to exercise any rights or powers of a member. The foreclosure of such a pledge, security interest, lien or other encumbrance shall have the effect of the transfer of the financial rights derived from such membership interest and is subject to § 48-249-507(b). (e) Consensual restrictions on transfer of governance rights. In addition to restrictions set forth in this part, restrictions on the transfer of governance rights may be imposed in accordance with the procedures and under the same conditions as stated in § 48-249-507, for restricting the transfer of financial rights. (f) Effective date of transfer. Any permissible transfer of governance rights or membership interests under this section shall be effective as to and binding on the LLC, only when the transferee's name, address, taxpayer identification number and the nature and extent of the transfer are reflected in the LLC documents or the records of the LLC. Acts 2005, ch. 286, § 1; 2006, ch. 620, § 33.

Tenn. Code Ann. § 48-249-509 Rights of judgment creditor.

48-249-509. Rights of judgment creditor. On application to a court of competent jurisdiction by any judgment creditor of a member or holder of financial rights, the court may charge such person's financial rights with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of a transferee of such person's financial rights under § 48-249-507. This section does not deprive any member, holder or transferee of financial rights of the benefit of any exemption laws applicable to the membership interest or financial rights. This section is the sole and exclusive remedy of a judgment creditor with respect to the judgment debtor's membership interest or financial rights. Acts 2005, ch. 286, § 1.

Source: Tennessee Code (state release 76 via Public.Resource.Org) + public chapters (Tennessee Secretary of State)URL: https://archive.org/download/gov.tn.tca/release76.2021.05.21/gov.tn.tca.title.48.htmlFetched: 10/24/2026