§ 48-239-116 — Governor and manager conflict of interest

(a) Definition and Scope. A conflict of interest transaction is a transaction with the LLC in which a governor, manager or non-governor member of a special litigation committee of the LLC has a direct or indirect interest. A conflict of interest transaction is not voidable by the LLC solely because of the governor's or manager's interest in the transaction if any one (1) of the following is true: (1) The material facts of the transaction and the governor's or manager's interest were disclosed or known to the board of governors or a committee of the board of governors and the board of governors or committee authorized, approved, or ratified the transaction; (2) The material facts of the transaction and governor's or manager's interest were disclosed or known to the members entitled to vote and they authorized, approved, or ratified the transaction; (3) The transaction was fair to the LLC; or (4) The transaction was of a nature in which the conflict of interest is waived by the articles or operating agreement. Such waiver shall be upheld unless manifestly unreasonable under the circumstances. (b) For purposes of this section, a governor or manager of the LLC has an indirect interest in a transaction if, but not only if: (1) Another entity in which the governor or manager has a material financial interest or in which the governor or manager is a general partner is a party to the transaction; or (2) Another entity of which the governor or manager is a governor, director, manager, officer, or trustee is a party to the transaction and the transaction is or should be considered by the board of governors of the LLC. (c) Authorization, Approval and Ratification Under Subdivision (a)(1). For purposes of subdivision (a)(1), a conflict of interest transaction is authorized, approved, or ratified if it receives the affirmative vote of a majority of the governors on the board of governors (or on the committee) who have no direct or indirect interest in the transaction, but a transaction may not be authorized, approved, or ratified under this section by a single governor. If a majority of the governors who have no direct or indirect interest in the transaction vote to authorize, approve, or ratify the transaction, a quorum is present for the purpose of taking action under this section. The presence of, or a vote cast by, a governor with a direct or indirect interest in the transaction does not affect the validity of any action taken under subdivision (a)(1) if the transaction is otherwise authorized, approved, or ratified as provided in that subsection. (d) Authorization, Approval and Ratification Under Subdivision (a)(2). For purposes of subdivision (a)(2), a conflict of interest transaction is authorized, approved, or ratified if it receives the vote of a majority of the membership interests entitled to be counted under this subsection (d). Membership interests owned by or voted under the control of a governor or manager who has a direct or indirect interest in the transaction, and membership interests owned by or voted under the control of an entity described in subdivision (b)(1), may not be counted in a vote of members to determine whether to authorize, approve or ratify a conflict of interest transaction under subdivision (a)(2). The vote of those membership interests, however, shall be counted in determining whether the transaction is approved under other provisions of chapters 201-248 of this title. A majority of the membership interests, whether or not present, that are entitled to be counted in a vote on the transaction under this subsection (d) constitutes a quorum for the purpose of taking action under this section.

Legislative History

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 59.