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Securities

Chapter 1
Securities

Part 1
Tennessee Securities Act of 1980

48-1-101. Short title.

This part shall be known as the “Tennessee Securities Act of 1980.”

Acts 1980, ch. 866, § 1; T.C.A., § 48-16-101; T.C.A., § 48-2-101.

Code Commission Notes.

The section containing the statement of legislative intent on the Tennessee Securities Act of 1980 was not codified, but is still valid, and can be found at Acts 1980, ch. 866, § 25.

Former title 48, chapter 2, §§ 48-2-101 — 48-2-126, was transferred to title 48, chapter 1, §§ 48-1-101 — 48-1-126, by the code commission in 2012.

Former § 48-2-101 was transferred to § 48-1-101 by the code commission in 2012.

Compiler's Notes. The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

“(b) Prior law exclusively governs all suits, actions, prosecutions, or proceedings which are pending or may be initiated on the basis of facts or circumstances occurring before the effective date of this Act, except that no civil suit or action may be maintained to enforce any liability under prior law unless brought within any period of limitation which applied when the cause of action accrued and in any event within two years after the effective date of this Act.

“(c) All effective registrations under prior law, all administrative orders relating to such registrations, and all conditions imposed upon such registrations remain in effect so long as they would have remained in effect if this Act had not been passed. They are considered to have been filed, entered, or imposed under this Act, but are governed by prior law.

“(d) Prior law applies in respect of any sale made within one year after the effective date of this Act pursuant to an offering exempt under prior law which offering was begun in good faith before such effective date.

“(e) Judicial review of all administrative orders as to which review proceedings have not been instituted by the effective date of this Act are governed by Section 20, except that no review proceeding may be instituted unless the petition is filed within any period of limitation which applied to a review proceeding when the order was entered and in any event within 60 days after the effective date of this Act.”

The effective date of the Act was July 2, 1980.

Cross-References. Occupation tax on broker-dealers, agents and advisors, title 67, ch. 4, part 17.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Tennessee Greenmail Act, title 48, ch. 103, part 5.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 42.

Law Reviews.

19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: Setting Attorneys' Fees in Securities Class Actions: An Empirical Assessment, 66 Vand. L. Rev. 1677 (2013).

19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: Understanding Causation in Private Securities Lawsuits: Building on Amgen, 66 Vand. L. Rev. 1719 (2013).

19th Annual Institute for Law and Economic Policy Conference: The Economics of Aggregate Litigation: The Fraud-on-the-Market Tort, 66 Vand. L. Rev. 1755 (2013).

Constitutionalizing Corporate Law, 69 Vand. L. Rev. 639 (2016).

Human Equity? Regulating the New Income Share Agreements, 68 Vand. L. Rev. 681 (2015).

Is FINRA a State Actor? A Question that Exposes the Flaws of the State Action Doctrine and Suggests a Way to Redeem It, 67 Vand. L. Rev. 1173 (2014).

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

Securities Issuer Liability for Third Party Misstatements: Refining the Entanglement Standard, 53 Vand. L. Rev. 947 (2000).

The Court in Action: A summary of key cases from the U.S. Supreme Court 2000-2001 (Perry A. Craft and Arshad (Paku) Khan), 37 Tenn. B.J. 18 (2001).

The Curious Case of the Secondary Market with Respect to Investor Protection, 82 Tenn. L. Rev. 83 (2014).

The Supreme Court and the Definition of “Security”: The “Context” Clause, “Investment Contract” Analysis, and Their Ramifications (Marc I. Steinberg and William E. Kaulbach), 40 Vand. L. Rev. 489 (1987).

“Uniform” Standards for Securities Class Actions, 80 Tenn. L. Rev. 167 (2012).

NOTES TO DECISIONS

1. Arising in a Securities Context.

Trustees of retirement plans governed by ERISA, 29 U.S.C. § 1001 et seq., possess standing under the Tennessee Securities Act (TSA), T.C.A. § 48-2-101 et seq. (now T.C.A. § 48-1-101 et seq.), to pursue TSA claims. As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034, 2008 U.S. Dist. LEXIS 29365 (M.D. Tenn. Mar. 26, 2008).

48-1-102. Part definitions.

As used in this part, unless the context otherwise requires:

“Accredited investor” means accredited investor, as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933 (17 CFR 230.501), as amended;
“Affiliate” means a person who directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, another person;
“Agent” means any individual, other than a broker-dealer, who represents a broker-dealer in effecting or attempting to effect purchases or sales of securities from, in, or into this state. A partner, officer, director, or manager of a broker-dealer, or a person occupying similar status or performing similar functions, is an agent only if such person otherwise comes within this definition or receives compensation specifically related to purchases or sales of securities from, in, or into this state. “Agent” does not include such other persons not within the intent of this subdivision (3) as the commissioner may, by rule, exempt from this definition as not in the public interest and necessary for the protection of investors;
“Broker-dealer” means any person engaged in the business of effecting transactions in securities for the account of others, or any person engaged in the business of buying or selling securities issued by one (1) or more other persons for such person's own account and as part of a regular business rather than in connection with such person's investment activities. “Broker-dealer” does not include:
1. Issuers, except to the extent provided in § 48-1-110(f);
2. An agent;
3. An institutional investor;
4. A person who has no place of business in this state and who is registered as a broker-dealer with the securities and exchange commission or the Financial Industry Regulatory Authority (FINRA) or any successor regulatory entity if:
  1. The person effects transactions in this state exclusively with or through:

The issuers of the securities involved in the transactions;
Other broker-dealers; or
Institutional investors; or

During any period of twelve (12) consecutive months, the person does not effect more than fifteen (15) transactions in securities from, in, or into this state (other than to persons specified in subdivision (4)(D)(i)); or

Such other persons not within the intent of this subdivision (4) as the commissioner may by rule exempt from this definition as not in the public interest and necessary for the protection of investors;

“Canadian retirement account” means a trust or other arrangement, including, but not limited to, a “registered retirement savings plan” or “registered retirement income fund” administered under Canadian law, that is managed by the natural person who contributes to, or is or will be entitled to receive the income and assets from such account;

“Commissioner” means the commissioner of commerce and insurance;

“Control,” including “controlling,” “controlled by,” and “under common control with,” means the possession, directly or indirectly, of the power to direct or compel the direction of the management or policies of a person, whether through the ownership of voting securities, by contract, or otherwise;

“Covered security” means a security that is, or upon completion of a transaction will be, a covered security under § 18(b) of the Securities Act of 1933 (15 U.S.C. § 77r(b)), as amended, or rules or regulations adopted pursuant to that provision;

“Designated adult” means:

An individual sixty-five (65) years of age or older; or

An individual who is eighteen (18) years of age or older and who, because of mental or physical dysfunction, is unable to manage such person's own resources, carry out activities of daily living, or protect against neglect or hazardous or abusive situations, without assistance from others;

“Financial exploitation” means:

The wrongful or unauthorized taking, withholding, appropriation, or use of money, assets, or property of a designated adult; or

Any act or omission by a person, including through the use of a power of attorney, guardianship, or conservatorship of a designated adult, to:

Obtain control, through deception, intimidation, or undue influence, over the designated adult's money, assets, or property to deprive the designated adult of the ownership, use, benefit, or possession of his or her money, assets, or property; or

Convert money, assets, or property of the designated adult to deprive such designated adult of the ownership, use, benefit, or possession of his or her money, assets, or property;

“Institutional investor” means a bank (unless the bank is acting as a broker-dealer as such term is defined in § 48-1-109(a)), trust company, insurance company, investment company registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, a holding company which controls any of the foregoing, a trust or fund over which any of the foregoing has or shares investment discretion, a pension or profit-sharing plan, an institutional buyer (as the commissioner may further define by rule), or any other person engaged as a substantial part of its business in investing in securities unless such other person is within the definition of a broker-dealer in the first sentence of subdivision (4) (in which case such other person is not an institutional investor), in each case having a net worth in excess of one million dollars ($1,000,000);

“Investment adviser” means any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, buying, or selling securities, or who for compensation and as a part of a regular business issues or promulgates analyses or reports concerning securities. “Investment adviser” does not include:

A bank (unless it is acting as an investment adviser for a registered investment company), savings institution, or trust company;

A lawyer, accountant, engineer, or teacher whose performance of investment advisory services is solely incidental to the practice of such lawyer's, accountant's, engineer's, or teacher's profession;

A broker-dealer whose performance of investment advisory services is solely incidental to the conduct of such person's business as a broker-dealer and who receives no special compensation for such services;

A publisher of any bona fide newspaper, news magazine, or business or financial publication of general, regular, and paid circulation;

A person who has no place of business in this state if:

The person's only clients in this state are other investment advisers, broker-dealers, or institutional investors; or

During any period of twelve (12) consecutive months, the person does not direct business communications into this state in any manner to more than five (5) clients (other than those specified in subdivision (12)(E)(i)), whether or not such person or any of the persons to whom the communications are directed are then present in this state; or

Such other persons not within the intent of this subdivision (12) as the commissioner may by rule exempt from this definition as not in the public interest and necessary for the protection of investors;

(A) “Investment adviser representative” means any partner, officer, or director of (or person occupying a similar status or performing similar functions) an investment adviser, or other individual, except clerical or ministerial personnel, who is employed by or associated with an investment adviser and does any of the following:

Makes any recommendation or otherwise renders advice regarding securities;

Manages accounts or portfolios of clients;

Determines which recommendation or advice regarding securities should be given;

Solicits, offers, or negotiates for sale of or sells investment advisory services; or

Supervises employees who perform any such actions;

“Investment adviser representative” does not include such other persons not within the intent of this subdivision (13) as the commissioner may, by rule, exempt from this definition as not in the public interest and necessary for the protection of investors;

“Investment-related” means any activities connected to any of the following business areas:

Securities;

Commodities;

Banking;

Insurance; or

Real estate;

(A) “Issuer” means every person who issues any security, except that:

With respect to certificates of deposit, voting-trust certificates, collateral-trust certificates, certificates of interest or shares in an unincorporated investment trust which is of the fixed, restricted management or unit type or which does not have either a board of directors or persons performing similar functions, “issuer” means the person or persons performing the acts and assuming the duties of depositor or manager pursuant to the trust or other agreement under which such securities are issued;

With respect to equipment-trust certificates or like securities, “issuer” means the person by whom the property is or is to be used; and

With respect to a fractional undivided interest in oil, gas, or other mineral rights, “issuer” means the owner of such right or of an interest in such right (whether whole or fractional) who creates fractional interests therein for the purpose of sale;

Any person who acts as a promoter for or on behalf of a corporation, trust, or unincorporated association or partnership of any kind to be formed shall be deemed to be an issuer of preincorporation subscriptions or certificates;

“Person” means a natural person, a sole proprietorship, a corporation, a partnership, an association, a limited liability company, a joint-stock company, a trust, a governmental entity or agency, or any other unincorporated organization;

“Promoter” means:

Any person who, acting alone or in conjunction with one (1) or more persons, directly or indirectly takes the initiative in founding and organizing the business or enterprise of an issuer; or

Any person who, in connection with the founding or organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, ten percent (10%) or more of any class of securities of the issuer or ten percent (10%) or more of the proceeds from the sale of any class of securities; provided, that a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this subdivision (17) if such person does not otherwise take part in founding and organizing the enterprise;

“Qualified individual” means any agent, investment adviser representative, or person who serves in a supervisory, compliance, or legal capacity for a broker-dealer or investment adviser;

(A) “Sale” or “sell” includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value;

“Offer” or “offer to sell” includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value;

Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other property is considered to constitute part of the subject of the purchase and to have been offered and sold for value;

A purported gift of an assessable security is considered to involve an offer and sale;

Every sale or offer of a warrant or right to purchase or subscribe to another security of the same or another issuer, as well as every sale or offer of a security which gives the holder a present or future right or privilege to convert such security into another security of the same or another issuer, is considered to include an offer of the other security;

The terms defined in this subdivision (19) do not include any bona fide:

Gift other than as set forth in subdivision (19)(D);

Transfer by death;

Transfer by termination of a trust;

Pledge or security loan;

Stock split or reverse stock split;

Security dividend, whether the security is issued by the same or another company, if nothing of value is surrendered by security holders for the security dividend other than the right to a cash or property dividend where each security holder may elect to take the dividend in cash or property or in stock;

Act incident to a class vote by stockholders, pursuant to the charter or the applicable corporation statute, on a merger, consolidation, recapitalization, or sale of assets in exchange for securities of another corporation; or

Act incident to a judicially approved transaction in which a security is issued in exchange for one (1) or more outstanding securities, claims, or property interests, or part in such exchange and partly for cash;

(A) “Security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, a life settlement investment or any fractional or pooled interest in a life insurance policy or life settlement investment, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, certificate of interest or participation in an oil, gas, or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing;

For the purposes of this subdivision (20), “life settlement investment” means the contractual right to receive any portion of the death benefit or ownership of a life insurance policy or certificate, for consideration that is less than the expected death benefit of the life insurance policy or certificate. “Life settlement investment” also includes written agreements commonly referred to as viatical settlement investments. “Life settlement investment” does not include:

A viatical settlement contract, between a viator and a viatical settlement provider, as such terms are defined in § 56-50-102;

Any transfer of ownership or beneficial interest in a life insurance policy from a viatical settlement provider to another viatical settlement provider, as defined in § 56-50-102, or to any legal entity formed solely for the purpose of holding ownership or beneficial interest in a life insurance policy or policies;

Any agreement for the original issuance of an insurance policy or certificate of insurance from the insured or policy owner to any provider of a life insurance policy;

An assignment, transfer, sale, devise, or bequest of a death benefit under or ownership of either an insurance policy or certificate of insurance by the original owner or a person who has an insurable interest in the insured;

An assignment of an insurance policy or certificate of insurance to any bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan; or

The exercise of accelerated benefits pursuant to a life insurance policy; and

“Security” does not include:

Currency;

A check, whether or not certified; draft; bill of exchange; or bank letter of credit;

A note or other evidence of indebtedness issued in a mercantile or consumer, rather than an investment, transaction;

An interest in a deposit account with a bank or a savings and loan association; or

An insurance or endowment policy or annuity contract under which an insurance company promises to pay money either in a lump sum or periodically for life or for some other specified period;

“Senior security” means any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends; and

“Underwriter” means any person who has purchased from an issuer or an affiliate of an issuer with a view to, or who sells for an issuer or an affiliate of an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; provided, that a person shall be presumed not to be an underwriter of a security which such person has owned beneficially for two (2) years or more; and provided further, that a broker-dealer shall be presumed not to be an underwriter with respect to any security which does not represent part of an unsold allotment to or subscription by the broker-dealer as a participant in the distribution of such security; and provided further, that in the case of any security acquired on the conversion of another security without payment of additional consideration, the length of time such convertible security has been beneficially owned by such person shall include the period during which such convertible security was beneficially owned and the period during which the security acquired on conversion was beneficially owned.

Acts 1980, ch. 866, § 2; 1983, ch. 312, § 2; T.C.A., § 48-16-102; Acts 1985, ch. 26, § 1; 1994, ch. 868, § 13; 1995, ch. 477, § 2; 1996, ch. 1072, § 10; 1997, ch. 164, §§ 1, 2; 1999, ch. 74, § 1; 2000, ch. 699, § 2; 2001, ch. 80, §§ 1, 2; 2001, ch. 278, § 1; 2002, ch. 550, § 1; 2002, ch. 700, §§ 1-3; 2010, ch. 697, § 1; 2010, ch. 829, § 1; T.C.A., § 48-2-102; Acts 2017, ch. 424, § 1.

Code Commission Notes.

Former § 48-2-102 was transferred to § 48-1-101 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 1999, ch. 455, § 33 provided that any limited liability company or limited liability partnership created under title 48 shall be considered a person for the purpose of § 2-10-102(9) and (13) [now 2-10-102(10) and (1)].

Acts 2000, ch. 699, § 1 provided that that act shall be known as “The Life Settlements Act.”

Acts 2002, ch. 700, § 8 provided that the commissioner of commerce and insurance may promulgate rules and regulations, including public necessity rules (now emergency rules) and regulations, to administer the provisions of this part. Such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Provisions regarding life settlement contracts, referred to in this section, formerly compiled in title 56, ch. 50, were repealed by Acts 2009, ch. 604, § 1, effective August 17, 2009.

Cross-References. Industrial loan and thrift companies — Definitions, § 45-5-102.

Limited liability companies, title 48, chapters 201-249.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 42, 88, 97.

Law Reviews.

Bluer Skies in Tennessee—The Recent Broadening of the Definition of Investment Contract as a Security and an Argument for a Unified Federal-State Definition of Investment Contract (Gregory J. Pease), 35 U. Mem. L. Rev. 109 (2004).

NOTES TO DECISIONS

1. Jury Instructions.

Where no evidence was offered to the effect that the defendants were issuing “notes” or “evidences of indebtedness,” much less that they were issuing either “in a mercantile or consumer transaction,” the trial court had no obligation to instruct the jury concerning issues not fairly raised by the evidence presented at trial. State v. Brewer, 932 S.W.2d 1, 1996 Tenn. Crim. App. LEXIS 96 (Tenn. Crim. App. 1996).

2. Classification of Notes as Securities.

Inclusion of stock purchase warrants along with a promissory note given in consideration of a loan rendered the transaction subject to federal and Tennessee securities laws. Bass v. Janney Montgomery Scott, Inc., 210 F.3d 577, 2000 FED App. 135P, 2000 U.S. App. LEXIS 6853 (6th Cir. Tenn. 2000).

3. —Investment Contract.

Supreme court applied the Hawaii Market Test in determining that a telephone sale-leaseback program was, in actuality, the selling of securities, which were unregistered, in violation of state securities laws. King v. Pope, 91 S.W.3d 314, 2002 Tenn. LEXIS 638 (Tenn. 2002).

4. Secondary Liability.

Because a complaint filed by plaintiff receivers for two failed entities alleged defendant attorney was a well-connected “bag man” in the entities securities fraud scheme, drafted relevant documents, communicated with investors, diverted funds, and told employees of the entities how to do their jobs, general involvement and control was indicated such that an aiding and assisted claim under T.C.A. §§ 48-2-102(3), 48-2-122(g) (now T.C.A. §§ 48-1-102(3), 48-1-122(g)), had been sufficiently pleaded. Cumberland & Ohio Co. v. Coffman, 719 F. Supp. 2d 884, 2010 U.S. Dist. LEXIS 50316 (M.D. Tenn. May 21, 2010).

5. Security Definition.

There was no error in dismissing a claim for violations of the Tennessee Securities Act of 1980 because an investment was excluded from the registration requirements since it involved exchanging cash in return for obtaining a portion of cash or currency located somewhere in England. There was no investment contract shown based on the fact that reasonable reliance was not shown. Estate of Lambert v. Fitzgerald, 497 S.W.3d 425, 2016 Tenn. App. LEXIS 298 (Tenn. Ct. App. Apr. 28, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 546 (Tenn. Aug. 18, 2016).

Decisions Under Prior Law

1. Sales.

The general assembly intended that the former statute apply to all sales of securities in Tennessee unless otherwise exempt whether such securities were sold by private sale or public offering. Tucker v. McDell's, Inc., 50 Tenn. App. 62, 359 S.W.2d 597, 1961 Tenn. App. LEXIS 140 (Tenn. Ct. App. 1961).

48-1-103. Exemptions.

The following securities are exempted from § 48-1-104 and, except as the commissioner may otherwise require by rule, §§ 48-1-113 and 48-1-124(e):
1. Any security (including a revenue obligation) issued or guaranteed by the United States, any state, any political subdivision of a state, or any agency or corporate or other instrumentality of one (1) or more of the foregoing, or any certificate of deposit for any of the foregoing;
2. Any security issued or guaranteed by Canada, any Canadian province, any political subdivision of any such province, any agency or corporate or other instrumentality of one (1) or more of the foregoing, any international bank of which the United States is a member, or any other foreign government with which the United States currently maintains diplomatic relations, if the security is recognized as a valid obligation by the issuer or guarantor;
3. Any security issued by and representing an interest in or a debt of, or guaranteed by, any bank organized under the laws of the United States, or any bank, savings institution, or trust company organized and supervised under the laws of any state; or any interest or participation in any common trust fund or similar fund maintained by a bank exclusively for the collective investment or reinvestment of assets contributed thereto by such bank in its capacity as trustee, executor, administrator, guardian, or in a similar fiduciary capacity;
4. Any security issued by and representing an interest in or a debt of, or guaranteed by, any federal savings and loan association, any federally insured savings and loan or similar association organized under the laws of any state and authorized to do business in this state, or any thrift certificates which are issued and sold by an industrial bank organized and supervised under the laws of this state which is insured pursuant to the Federal Deposit Insurance Act (12 U.S.C. § 1811 et seq.), as that act may be amended from time to time;
5. Any security issued or guaranteed by any federal credit union or any credit union supervised under the laws of this state;
6. Any security issued or guaranteed by any railroad, other common carrier, public utility, or holding company which is:
  1. Subject to the jurisdiction of the interstate commerce commission;
  2. A registered holding company under the Public Utility Holding Company Act of 1935 [repealed], as amended, or a subsidiary of such a company within the meaning of that act;
  3. Regulated in respect of its rates and charges by a governmental authority of the United States or any state; or
  4. Regulated in respect of the issuance or guarantee of the security by a governmental authority of the United States, any state, Canada, or any Canadian province;
7. Any security issued by any person organized and operated not for private profit but exclusively for religious, educational, benevolent, charitable, fraternal, social, athletic, or reformatory purposes, or as a chamber of commerce or trade or professional association; provided, that at least ten (10) days prior to any sale of a security pursuant to an exemption under this subdivision (a)(7), such person has filed with the commissioner all information as the commissioner may by rule require and paid a fee of one hundred dollars ($100), and that the commissioner does not by order disallow the exemption under this subdivision (a)(7) and no sales are made until expiration of that ten (10) days; provided further, that the commissioner may restrict the availability of this exemption to any class or subclass of securities of such issuer;
8. Any security which meets all of the following conditions:
  1. If the issuer is not organized under the laws of the United States or a state, it has appointed a duly authorized agent in this state for service of process and has set forth the name and address of such agent in its prospectus or offering circular;
  2. A class of the issuer's securities is registered under § 12 of the Securities Exchange Act of 1934 (15 U.S.C. § 78l), as amended, and has been so registered for the three (3) years preceding the offering date, and the issuer has filed all reports required to be filed by § 13 or § 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. § 78m and 15 U.S.C. § 78o(d)), respectively, as amended, during the preceding twelve (12) months;
  3. Neither the issuer nor a significant subsidiary has had a material default (which was not cured within ten (10) days) during the last five (5) years in the payment of:
    1. Principal, interest, dividend or sinking fund installment on preferred stock or indebtedness for borrowed money; or
    2. Rentals under material leases with terms of three (3) years or more;
  4. The issuer has had consolidated net income (before extraordinary items and the cumulative effect of accounting changes) of at least one million dollars ($1,000,000) in four (4) of its last five (5) fiscal years including its last fiscal year and, if the offering is of interest-bearing securities, has had for its last fiscal year, such net income, but before deduction for income taxes and depreciation, of at least one and one-half (1½) times the issuer's annual interest expense, giving effect to the proposed offering and the intended use of the proceeds. “Last fiscal year” means the most recent year for which audited financial statements are available; provided, that such statements cover a fiscal period ended not more than fifteen (15) months from the commencement of the offering;
  5. If the offering is of stock or shares, other than preferred stock or shares, such securities have voting rights and such rights include:
    1. The right to have at least as many votes per share; and
    2. The right to vote on at least as many general corporate decisions, as each of the issuer's outstanding classes of stock or shares, except as otherwise required by law;
  6. If the offering is of stock or shares, other than preferred stock or shares, outstanding stock or shares of the same class are owned beneficially or of record, on any date within six (6) months prior to the commencement of the offering, by at least one thousand two hundred (1,200) persons, and on such date there are at least seven hundred fifty thousand (750,000) such shares outstanding with an aggregate market value, based on the closing bid price for that day, of at least three million seven hundred fifty thousand dollars ($3,750,000). In connection with the determination of the number of persons who are beneficial owners of the stock or shares of an issuer, the issuer or broker-dealer may rely in good faith, for the purposes of this subdivision (a)(8), upon written information furnished by the record owners; and
  7. If the offering is of interest-bearing securities of a finance company with liquid assets of at least one hundred five percent (105%) of its liabilities (other than deferred income taxes, deferred investment tax credits, capital stock and surplus) at the end of each of its last five (5) fiscal years, the applicable net income requirement of subdivision (a)(8)(D), but before deduction for interest expense, shall be one hundred twenty-five percent (125%) of the issuer's annual interest expense. “Finance company” means a company engaged, directly or through consolidated subsidiaries, primarily in the business of wholesale, retail, installment, mortgage, commercial, industrial or consumer financing, banking, or factoring. “Liquid assets” means cash receivables payable on demand or not more than twelve (12) years following the close of the company's last fiscal year, and readily marketable securities, in each case less applicable reserves and unearned income;
9. 1. Any class of securities currently listed or approved for listing upon notice of issuance on the New York Stock Exchange, the American Stock Exchange, or any other exchange which the commissioner may by order designate;
  2. Any other security of the same issuer which is of senior or substantially equal rank;
  3. Any security called for by subscription rights or warrants so listed or approved; or
  4. Any warrant or right to purchase or subscribe to any of the foregoing;
10. Any security exchanged by the issuer exclusively with its existing securities holders where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange;
11. Securities, stocks, and bonds of corporations organized pursuant to the Cooperative Marketing Law, as compiled in title 43, chapter 16, and domiciled within the state of Tennessee;
12. Any security issued by a bank holding company or a savings and loan holding company if:
  1. Such bank holding company or savings and loan holding company is registered with the federal reserve board; and
  2. At least ten (10) days prior to any sale of a security in this state pursuant to an exemption under this subdivision (a)(12), such bank holding company or savings and loan holding company has filed with the commissioner all information as the commissioner may by rule require and paid a fee of one hundred dollars ($100), and the commissioner does not by order disallow the exemption under this subdivision (a)(12) and no sales are made until expiration of that ten (10) days. The commissioner may restrict the availability of the exemption under this subdivision (a)(12) to any class or subclass of securities of such issuer; and
13. 1. Any security issued by a person that meets the following requirements:
    1. The sale of the security must meet the requirements of the federal exemption for intrastate offerings in either:
      1. Section 3(a)(11) of the Securities Act of 1933 (15 U.S.C. § 77c(a)(11)), and 17 C.F.R. 230.147 or 17 C.F.R. 230.147A; or
      2. 17 C.F.R. 230.147A;
    2. The sum of all cash and other consideration to be received for all sales of the security in reliance upon this subdivision (a)(13)(A) shall not exceed one million dollars ($1,000,000) less the aggregate amount received for all sales of securities by the issuer within the twelve (12) months before the first offer;
    3. The issuer shall not accept more than ten thousand dollars ($10,000) from an investor unless the investor is an accredited investor pursuant to 17 C.F.R. 230.501;
    4. All funds received from the sale of a security in reliance upon this subdivision (a)(13)(A) shall be deposited in a bank or depository institution authorized to do business in this state, and all funds received from buyers of a security in reliance upon this subdivision (a)(13)(A) shall be used consistent with written representations made by the issuer to investors;
    5. Before offering to sell any security, the issuer shall provide a notice to the commissioner in writing or in electronic form; the notice shall specify that the issuer will offer or has sold the security in reliance upon this subdivision (a)(13)(A) and shall include the names and addresses of the following:
      1. The issuer;
      2. All persons who will sell or offer to sell the security on behalf of the issuer; and
      3. The bank or depository institution in which proceeds from the sale of the security will be deposited;
    6. The issuer shall not be, either before or as a result of the offering, an investment company as defined in § 3, Investment Company Act of 1940 (15 U.S.C. § 80a-3) or subject to the reporting requirements of § 13, Securities Exchange Act of 1934 (15 U.S.C. § 78m) or § 15(d), Securities Exchange Act of 1934 (15 U.S.C. § 78o(d)); and
    7. The issuer shall inform all buyers prior to the sale of a security that falls within this subdivision (a)(13)(A) that the security has not been registered under this part and:
  2. 1. Subdivision (a)(13)(A) shall not be used with any other exemption under this part unless the offer or sale is to any of the following:
      1. With respect to issuers utilizing 17 C.F.R. 230.147, the issuer shall also inform all buyers that the security is subject to the limitation on resales contained in 17 C.F.R. 230.147(e); or
      2. With respect to issuers utilizing 17 C.F.R. 230.147A, the issuer shall also inform all buyers that the security is subject to the limitations on resales contained in 17 C.F.R. 230.147A(e);
      3. An officer, director, partner, or trustee of the entity offering the sale of the security, or an individual occupying similar status or performing similar functions for the entity offering the sale of the security; or
      4. A person owning ten percent (10%) or more of the outstanding shares of any class or classes of securities issued by the entity offering the sale of the security; and
    2. Offers or sales to persons listed in subdivisions (a)(13)(B)(i)(a ) and (b ) shall not count toward the monetary limit of sales set out in subdivision (a)(13)(A)(ii); and
  3. Subdivision (a)(13)(A) shall not be available to the issuer:
    1. If the person selling or offering to sell the security is subject to a disqualifying event specified in § 48-1-112(a)(2)(A)-(H);
    2. If the offering does not qualify for the exemption provided in 17 C.F.R. 230.147 or 17 C.F.R. 230.147A. The burden of proof of qualification for either exemption is on the issuer claiming the exemption. Failure to qualify for the claimed exemption will result in any offers or sales of the security to be unregistered offers to sell or sales in violation of § 48-1-104; or
    3. If the issuer, any of the issuer's predecessors, any affiliate of the issuer, any of the issuer's directors, officers, general partners, or beneficial owners of ten percent (10%) or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director, or officer of such underwriter:
      1. Within the past five (5) years, has filed a registration statement that is the subject of a currently effective registration stop order entered by any state securities administrator or the securities and exchange commission;
      2. Within the past five (5) years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;
      3. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the past five (5) years, finding fraud or deceit in connection with the purchase or sale of any security; or
      4. Is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the past five (5) years, that temporarily, preliminarily, or permanently restrains or enjoins the party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security.
        
        Any transaction by a person acting as an executor, administrator, sheriff, marshal, receiver, trustee in bankruptcy, guardian, or conservator;
        
        Any bona fide pledge transaction;
        
        Any sale to an institutional investor or to a broker-dealer;
        
        Any transaction involving the sale of securities of an issuer by or on behalf of such issuer or an affiliate of such issuer if all of the following conditions are met:
  4. The aggregate number of persons in this state purchasing such securities from the issuer and all affiliates of the issuer pursuant to this subdivision (b)(4) during the twelve-month period ending on the date of such sale shall not exceed fifteen (15) persons, exclusive of persons who acquire such securities in transactions which are not subject to this part or which are otherwise exempt from registration under this section or which have been registered pursuant to § 48-1-105 or § 48-1-106;
  5. Such securities are not offered for sale by means of publicly disseminated advertisements or sales literature; and
  6. All purchasers in this state have purchased such securities with the intent of holding such securities for investment for their own accounts and without the intent of participating directly or indirectly in a distribution of such securities. Any person who holds such securities for a period of two (2) years or more from the date such securities have been fully paid for by such person shall be presumed to have purchased such securities for investment;
    Any transaction in the outstanding securities of an issuer by an affiliate of such issuer; provided, that:
  7. Such affiliate is not acting as an underwriter with respect to the sale of such securities;
  8. Such securities are sold by the affiliate, through a broker-dealer registered under § 48-1-109, in “broker's transactions” as defined by Rule 144 of the securities and exchange commission (17 C.F.R. § 230.144);
  9. There is no solicitation, directly or indirectly, of orders to purchase any of such securities by the issuer or the affiliate; and
  10. Neither the issuer nor the affiliate makes any payments directly or indirectly in connection with the execution of such transactions other than to the broker-dealer who executes the order to sell the securities;
    Any transaction in the outstanding securities of an issuer by or on behalf of a person who is neither the issuer of such securities nor an affiliate of such issuer, at a price reasonably related to the market price and:
    
    Any offering of securities by or on behalf of an issuer organized under the laws of or domiciled in this state in which the aggregate amount sold in this state does not exceed two hundred fifty thousand dollars ($250,000) during any twelve-month period, if no commission or other remuneration is paid or given directly or indirectly for soliciting any purchaser in this state, exclusive of any amount of securities sold in exempt transactions pursuant to subdivision (b)(3); provided, that this exemption shall not be available for any offering of certificates of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease;
  11. If the issuer is required to file reports with the securities and exchange commission pursuant to § 13 or § 15 of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78m and 78o) respectively, as amended, the issuer is not delinquent in the filing of any such reports at the date of sale;
  12. In the case of issuers which are not required to file such reports, if there is publicly available the information concerning the issuer specified in Rule 15c2-11 (17 CFR 240.15c2-11), promulgated under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.); or
  13. The issuer is an investment company registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, and is not delinquent in filing any reports required pursuant to such act;
    (A) Any transaction involving the issuance of a security:
    
    Any isolated transaction in securities not involving the issuer of such securities, an underwriter of such securities, or an affiliate of the issuer of such securities;
    1. In connection with a stock bonus plan requiring payment of no consideration other than services;
    2. In connection with a stock bonus, pension, profit sharing, savings, thrift, or retirement plan for employees or self-employed individuals qualified under § 401 of the Internal Revenue Code of 1954 (26 U.S.C. § 401), as amended, or individual retirement accounts qualified under § 408 of the Internal Revenue Code of 1954 (26 U.S.C. § 408), as amended; or
    3. In connection with a transaction that meets the following requirements:
      1. The offering meets the requirements of Rule 701 of the regulations under the Securities Act of 1933 (17 CFR 230.701), as amended;
      2. The offering is exempt from § 5 of the Securities Act of 1933 (15 U.S.C. § 77e), as amended; and
      3. The issuer files with the commissioner no later than fifteen (15) days after the first sale in this state a notice of transaction, on a form adopted by the commissioner, accompanied by a consent to service of process, and a nonrefundable filing fee of five hundred dollars ($500);
  14. No commission, discount, or other remuneration is paid or given in connection with any transaction in this state under this subdivision (b)(9) unless paid or given to a broker-dealer or agent registered under this part; and
  15. The issuance of any security representing an interest in a collective investment fund is exempt only if such security is issued pursuant to a plan established and administered by a bank organized under the laws of the United States or any bank or trust company organized and supervised under the laws of any state of the United States or sponsored by any investment company registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, or sponsored by any insurance company licensed to do business in this state;
    (A) Any offer or sale of a security by an issuer in a transaction that meets the following requirements:
    
    Any transaction pursuant to an offer to existing security holders of the issuer, including the persons who at the time of the transaction are holders of convertible securities, nontransferable warrants, or transferable warrants exercisable within not more than ninety (90) days of their issuance if no commission or other remuneration (other than a standby commission) is paid or given directly or indirectly for soliciting any security holder in this state;
    
    Any transaction which the commissioner by rule or order exempts as not being in the public interest or necessary for the protection of investors. Any rule under this section may require a notice filing, and may require the payment of a filing fee not in excess of that required by § 48-1-107(b). In the event of withdrawal of a notice filing, no funds shall be returned to the applicant;
    
    Any issuance and delivery of securities of a bank holding company, as defined in § 45-2-1402, to a bank or another bank holding company or to the security holders thereof in exchange for all or substantially all of the assets or the voting securities of the bank or other bank holding company, or in connection with a consolidation or merger of the bank holding company and a bank or other bank holding company; provided, that such exchanges, consolidations or mergers are made in accordance with the applicable statutory requirements;
    1. Sales of securities are made only to persons who are, or who the issuer reasonably believes are, accredited investors. An issuer's belief under this subdivision (b)(13) shall be deemed reasonable if the issuer:
      1. Obtains from such a person a written certification certifying that the person has reviewed the definition of “accredited investor” in § 48-1-102, and certifying that such person meets the definition of “accredited investor” in § 48-1-102;
      2. Obtains from such person such other information as the commissioner may by rule require; and
      3. Maintains, for a period of not less than three (3) years from the date of sale, the written certification and other information required by the commissioner;
    2. The issuer reasonably believes that all purchasers are purchasing for investment and not with a view to or for resale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within twelve (12) months of sale shall be presumed to be with a view to distribution and not for investment, except a resale to which any of the following applies:
  16. The exemption under this subdivision (b)(13) is not available to an issuer that is in the development stage and that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entities or persons;
  17. 1. The exemption under this subdivision (b)(13) is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliate of the issuer, any of the issuer's directors, officers, general partners, or beneficial owners of ten percent (10%) or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, or any partner, director, or officer of such underwriter:
      1. The resale is pursuant to a registration statement effective under § 48-1-105 or § 48-1-106;
      2. The resale is to an accredited investor; or
      3. The resale is to an institutional investor in an exempt transaction pursuant to subdivision (b)(3);
      4. Within the past five (5) years, has filed a registration statement that is the subject of a currently effective registration stop order entered by any state securities administrator or the securities and exchange commission;
      5. Within the past five (5) years, has been convicted of any criminal offense in connection with the offer, purchase, or sale of any security, or involving fraud or deceit;
      6. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the past five (5) years, finding fraud or deceit in connection with the purchase or sale of any security; or
      7. Is currently subject to any order, judgment, or decree of any court of competent jurisdiction, entered within the past five (5) years, that temporarily, preliminarily, or permanently restrains or enjoins the party from engaging in or continuing to engage in any conduct or practice involving fraud or deceit in connection with the purchase or sale of any security;
    2. Subdivision (b)(13)(C)(i) is inapplicable if any of the following applies:
      1. The party subject to the disqualification is licensed or registered to conduct securities business in the state in which the order, judgment, or decree creating the disqualification was entered against the party described in subdivision (b)(13)(C)(i);
      2. Before the first offer is made under this exemption, the state securities administrator, the court, or regulatory authority that entered that order, judgment, or decree, waives the disqualification; or
      3. The issuer did not know and, in the exercise of reasonable care based on reasonable investigation, could not have known that a disqualification from the exemption existed under subdivision (b)(13)(C)(i);
  18. A general announcement of the proposed offering may be made by any means; provided, the general announcement shall include only the following information, unless additional information is specifically permitted by the commissioner:
    1. The name, address, and telephone number of the issuer of the securities;
    2. The name, a brief description, and price of any security to be issued;
    3. A brief description of the business of the issuer;
    4. The type, number, and aggregate amount of securities being offered;
    5. The name, address, and telephone number of the person to contact for additional information; and
    6. A statement that:
      1. Sales will be made only to accredited investors;
      2. No money or other consideration is being solicited or will be accepted by way of this general announcement; and
      3. The securities have not been registered with or approved by any state securities administrator or the securities and exchange commission and are being offered and sold pursuant to an exemption from registration;
  19. The issuer, in connection with an offer, may provide information in addition to the general announcement described in subdivision (b)(13)(D); provided, that either of the following applies:
    1. The information is delivered through an electronic database that is restricted to persons who are accredited investors; or
    2. The information is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor;
  20. No telephone solicitation shall be conducted, unless prior to placing the telephone call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor;
  21. Dissemination of the general announcement described in subdivision (13)(D) to persons who are not accredited investors does not disqualify the issuer from claiming an exemption under this subdivision (b)(13); and
  22. No later than fifteen (15) days after the first sale in this state, the issuer shall file with the commissioner a notice of transaction, on a form adopted by the commissioner, accompanied by a consent to service of process, a copy of the general announcement, if one is made regarding the proposed offering, and a nonrefundable filing fee of five hundred dollars ($500);
14. Any offer or sale of a charitable gift annuity as that term is defined in § 56-52-102;
15. An offer or sale of a security effected by a Canadian broker-dealer and its agents if, at the time of the offer or sale, the Canadian broker-dealer and its agents have qualified for exemption from registration with the commissioner of commerce and insurance pursuant to § 48-1-109;
16. A nonissuer transaction by or through a broker-dealer registered or exempt from registration under this part in a security that:
  1. Is rated at the time of the transaction by a nationally recognized statistical rating organization in one (1) of its four (4) highest rating categories; or
  2. Has a fixed maturity or a fixed interest or dividend, if:
    1. A default has not occurred during the current fiscal year or within the three (3) previous fiscal years or during the existence of the issuer and any predecessor if less than three (3) fiscal years, in the payment of principal, interest, or dividends on the security; and
    2. The issuer is engaged in business, is not in the organizational stage or in bankruptcy or receivership, and is not and has not been within the previous twelve (12) months a blank check, blind pool, or shell company that has no specific business plan or purpose or has indicated that its primary business plan is to engage in a merger or combination of the business with, or an acquisition of, an unidentified person;
17. A nonissuer transaction by or through a broker-dealer registered or exempt from registration under this part in a security of a foreign issuer:
  1. That is a margin security defined in regulations or rules adopted by the board of governors of the federal reserve system; or
  2. That relates to securities, including american depository receipts (ADRs) representing such securities, that are exempted from § 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 78l (g)), pursuant to § 12(g)(3) (15 U.S.C. § 78l (g)(3)). This subdivision (b)(17)(B) shall apply if the foreign issuer of the securities is in compliance with the conditions of Rule 12g3-2(b) (17 CFR 240.12g3-2(b)), promulgated under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), and the primary trading market of the foreign issuer:
    1. Qualifies as a primary trading market as that term is defined in Rule 12g3-2(b), note 1 to paragraph (b)(1);
    2. Maintains listing requirements;
    3. Has delisting authority; and
    4. Has disclosure requirements; or
  3. If, at the time of the transaction, the foreign issuer maintains a listing that:
    1. Includes the following:
      1. A description of the business and operations of the foreign issuer;
      2. The names of the executive officers and directors (or their corporate equivalents in the foreign issuer's country of domicile), if any;
      3. An audited balance sheet of the foreign issuer as of a date within eighteen (18) months before the date of the transaction or, in the case of a reorganization or merger, either an audited balance sheet of each party to the reorganization or merger or a pro forma balance sheet of the combined organization, in each case as of a date within eighteen (18) months before the date of the transaction; and
      4. An audited income statement for each of the foreign issuer's immediately preceding two (2) fiscal years or for the period of existence of the issuer, whichever is shorter, or, in the case of a reorganization or merger either an audited income statement of each party to the reorganization or merger or a pro forma income statement of the combined organization, in each case as of a date within eighteen (18) months before the date of the transaction; and
    2. Is published in a securities manual designated by the commissioner through rule promulgated in accordance with § 48-1-116;
18. A nonissuer transaction by an investment adviser registered pursuant to § 203 of the federal Investment Advisers Act of 1940 (15 U.S.C. § 80b-3), with investments under management in excess of one hundred million dollars ($100,000,000) acting in the exercise of discretionary authority in a signed record for the account of others; and
19. Any nonissuer transaction by or through a broker-dealer, registered or exempt from registration under this chapter, effecting an unsolicited order or offer to purchase; provided, that the broker-dealer acts solely as an agent for the purchaser, has no direct or indirect interest in the sale or distribution of the security ordered, and receives no commission, profit, or other compensation from any source other than the purchaser; and provided further, that the commissioner may by rule require that the customer acknowledge upon a specified form that the sale was unsolicited, and that a signed copy of each such form be preserved by the broker-dealer for a specified period.

The following transactions are exempted from § 48-1-104 and, except as the commissioner may otherwise require by rule, §§ 48-1-113 and 48-1-124(e):

Acts 1980, ch. 866, § 3; 1982, ch. 686, § 1; 1983, ch. 274, § 21; 1983, ch. 312, § 1; T.C.A., § 48-16-103; Acts 1986, ch. 596, § 1; 1989, ch. 207, §§ 1, 2; 1993, ch. 98, §§ 1-3; 1996, ch. 768, § 35; 2001, ch. 278, §§ 2-4; 2002, ch. 517, § 1; 2002, ch. 700, §§ 4-6; 2007, ch. 417, § 1; 2010, ch. 829, § 2; 2011, ch. 79, § 1; T.C.A., § 48-2-103; Acts 2013, ch. 261, § 1; 2014, ch. 943, § 1; 2017, ch. 424, §§ 2-10; 2020, ch. 604, §§ 1-3.

Code Commission Notes.

Former § 48-2-103 was transferred to § 48-1-103 by the code commission in 2012.

Compiler's Notes. The Public Utility Holding Company Act of 1935 referred to in this section, formerly compiled in 15 U.S.C. § 79 et seq., was repealed effective August 8, 2005.

The Securities Law of 1955, formerly codified as §§ 48-1601 — 48-1653, was repealed by Acts 1980, ch. 886, § 27. However, the section also contained a savings provision referring to former §§ 48-1601 — 48-1653 which read:

The effective date of the Act was July 2, 1980.

Acts 1996, ch. 768, which amended this section, is known and may be cited as the Bank Reform Act of 1996.

Acts 2014, ch. 943, § 2 provided that the exemption created by § 48-1-103(a)(13) shall be known and may be cited as the “Invest Tennessee Exemption.”

Amendments. The 2020 amendment rewrote (a)(13)(A)(i), which read: “The sale of the security shall meet the requirements of the federal exemption for intrastate offerings in § 3(a)(11), Securities Act of 1933 (15 U.S.C. § 77c(a)(11)), and 17 C.F.R. 230.147;”; rewrote (a)(13)(A)(vii), which read: “The issuer shall inform all buyers prior to the sale of a security that falls within this subdivision (a)(13)(A) that the security has not been registered under this part and the security is subject to the limitation on resales contained in 17 C.F.R. 230.147(e);”; and in (a)(13)(C)(ii), inserted “or 17 C.F.R. 230.147A” in the first sentence, substituted “either” for “the” in the second sentence, and inserted “claimed” in the third sentence.

Effective Dates. Acts 2020, ch. 604, § 5. March 20, 2020.

Cross-References. Public billing authorities, Tax exemption — Statute under securities law, § 12-10-113.

Share insurance corporation, Exemption from taxation, § 45-4-1114.

Solid waste disposal, Exemption from taxation, § 68-211-914.

Textbooks. Pritchard on Wills and Administration of Estates (4th ed., Phillips and Robinson), § 612.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

48-1-104. Securities registration requirement — Civil penalty.

It is unlawful for any person to sell any security in this state unless:
1. It is registered under this part;
2. The security or transaction is exempted under § 48-1-103; or
3. The security is a covered security.
The commissioner may, after notice and opportunity for a hearing under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim.

Acts 1980, ch. 866, § 4; T.C.A., § 48-16-104; Acts 1997, ch. 164, § 3; 2001, ch. 61, § 2; T.C.A., § 48-2-104; Acts 2017, ch. 424, § 11.

Code Commission Notes.

Former § 48-2-104 was transferred to § 48-1-104 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 42.

NOTES TO DECISIONS

1. Cease and Desist Order.

Where the commissioner issued a cease and desist order requiring plaintiff to refrain from engaging in business as an unregistered broker-dealer or selling unregistered securities, which purported to restrain only unlawful conduct and was accompanied by notice of opportunity for a full hearing, and there was no allegation or evidence that the commissioner had or was about to seek judicial enforcement of the cease and desist order, the issuance of the cease and desist order by an administrative official without prior notice and hearing was not so extreme and confiscatory as to invoke extraordinary judicial powers to vacate it. Wolcotts Financial Services, Inc. v. McReynolds, 807 S.W.2d 708, 1990 Tenn. App. LEXIS 908 (Tenn. Ct. App. 1990).

2. Exemptions.

Because the requirements of T.C.A. §§ 48-2-109(a) and 48-2-104(a) (now T.C.A. §§ 48-1-109(a) and 48-1-104(a)) are distinct, an exemption under one does not guarantee, or even suggest, an exemption under the other. An individual selling a security that is exempt from the registration requirements of § 48-2-104(a) (now T.C.A. § 48-1-104(a)) need not register as a broker-dealer or broker-dealer agent pursuant to T.C.A. § 48-2-109(a) (now T.C.A. § 48-1-109(a)). State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

48-1-105. Registration by coordination.

Any security for which a registration statement under the Securities Act of 1933 (15 U.S.C. § 77a et seq.), as amended, or a notification under Tier 1 of Regulation A of the Securities Act of 1933 (17 CFR 230.251 et seq.), as amended, has been filed in connection with the same offering may be registered by coordination as provided in this section.
A registration statement under this section shall contain the following information and be accompanied by the following documents in addition to the consent to service of process required by § 48-1-124(e):
1. If not included in the registration statement, one (1) copy of the latest form of prospectus or offering circular filed under the Securities Act of 1933 as amended, or Regulation A thereunder as amended, in a format approved by the commissioner;
2. If the commissioner by rule requires, a copy of the charter and bylaws (or their substantial equivalents) of the issuer, as then in effect, a copy of any agreements with or among underwriters, a copy of any indenture or other instrument governing the issuance of the security to be registered, and a specimen or copy of the security;
3. If the commissioner by rule requires, copies of any other documents filed under the Securities Act of 1933, as amended, or Regulation A, as amended, thereof;
4. An undertaking to forward promptly to the commissioner all amendments to the prospectus or offering circular; and
5. If the commissioner by rule or order requires, such other information as is necessary to determine that the registration statement does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
1. A registration statement under this section which has been filed with the securities and exchange commission (SEC) automatically becomes effective with the commissioner when it is declared effective by the SEC if all the following conditions are satisfied:
  1. No stop order is in effect and no proceeding is pending under § 48-1-108;
  2. The registration statement has been on file with the commissioner for at least twenty (20) days; and
  3. A statement of the maximum and minimum proposed offering prices and the maximum underwriting discounts and commissions has been on file for two (2) full business days or such shorter period as the commissioner permits by rule or order and the offering is made within those limitations.
2. The registrant shall promptly notify the commissioner, by telephone or other electronic means, of the date and time when the registration statement or notification filed with the SEC is declared effective by the SEC and the contents of the price amendment, if any, and shall promptly file a post-effective amendment containing the information and documents in the price amendment. “Price amendment” means the final amendment filed with the SEC, which includes a statement of the offering price, underwriting and selling discounts or commissions, amount of proceeds, conversion rates, call prices, and other matters dependent upon the offering price.
3. The commissioner may by rule or order waive either or both of the conditions specified in subdivisions (c)(1)(B) and (C). If the registration statement or notification filed with the SEC is declared effective by the SEC before all the conditions in this subsection (c) are satisfied and they are not waived, the registration statement automatically becomes effective with the commissioner as soon as all the conditions are satisfied.
4. If the registrant advises the commissioner of the date when the registration statement or notification filed with the SEC is expected to be declared effective, the commissioner shall promptly advise the registrant, by telephone or other electronic means, at the registrant's expense, whether or not all the conditions are satisfied and whether or not the commissioner then contemplates the institution of a proceeding under § 48-1-108. This notice by the commissioner does not preclude the institution of such a proceeding at any time.

Acts 1980, ch. 866, § 5; T.C.A., § 48-16-105; Acts 1986, ch. 596, § 2; 2001, ch. 61, § 3; T.C.A., § 48-2-105; Acts 2017, ch. 424, §§ 12-18.

Code Commission Notes.

Former § 48-2-105 was transferred to § 48-1-105 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-106. Registration by qualification.

Any security may be registered by qualifications as provided in this section.
A registration statement under this section shall contain the following information and be accompanied by the following documents, in addition to the consent to service of process required by § 48-1-124(e):
1. If not included in the registration statement, one (1) copy of an offering circular or prospectus in a format approved by the commissioner, containing such financial statements and such information, including information concerning the securities offered, the offering, the issuer, the issuer's promoters, directors, officers, security holders and personnel, material contracts, litigation, transactions, and remuneration, as the commissioner shall specify by rule;
2. A specimen or copy of the security being registered, a copy of the issuer's charter and bylaws (or their substantial equivalents), as then in effect, and a copy of any indenture or other instrument defining the rights of the holders of the security to be registered;
3. A signed copy of an opinion of counsel as to the legality of the security being registered, and to the effect that the security, when sold, shall be legally issued, fully paid, nonassessable and, if a debt security, a binding obligation of the issuer;
4. The written consent of any accountant, attorney, engineer, appraiser, or other person whose profession gives authority to a statement made by the accountant, attorney, engineer, appraiser, or other person, if any such person is named as having prepared or certified a report or valuation (other than a public and official document or statement) which is used in connection with the registration statement;
5. A copy of any notice, circular, advertisement, sales literature, or communication, which is to be used in connection with the offering, containing such information as the commissioner may require by rule and subject to such terms and conditions as may be prescribed therein; and
6. If the commissioner by rule or order requires such additional information or documents as are necessary to determine that the registration statement does not include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
A registration statement under this section shall become effective twenty (20) days following filing unless the commissioner by order specifies an earlier effective date, or the commissioner may by order defer the effective date for any reason shown to be in the public interest and necessary for the protection of investors.
A prospectus which is part of a registration statement effective under this section shall be delivered to any purchaser at or prior to the execution by the purchaser of a written agreement to purchase, the delivery of a confirmation of sale, or the payment for securities offered by means of such prospectus, whichever occurs first.

Acts 1980, ch. 866, § 6; T.C.A., § 48-16-106; Acts 2001, ch. 61, § 4; T.C.A., § 48-2-106; Acts 2017, ch. 424, § 19.

Code Commission Notes.

Former § 48-2-106 was transferred to § 48-1-106 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-107. Provisions applicable to registration generally.

A registration statement with respect to a security may be filed by the issuer or a broker-dealer registered under this part.
Every person filing a registration statement under §§ 48-1-105 and 48-1-106 shall pay a filing fee of one tenth of one percent (0.1%) of the maximum aggregate offering price at which the registered securities are to be offered in this state, but the fee shall in no case be more than one thousand dollars ($1,000) nor less than an amount which the commissioner shall by rule establish. When a registration statement is withdrawn before the effective date or before a preeffective stop order is entered under § 48-1-108, the commissioner shall retain the minimum filing fee established pursuant to this subsection (b) and return the remainder of the fee, if any, to the applicant.
Every registration statement shall specify:
1. The amount of securities to be offered in this state;
2. The states in which a registration statement or similar document in connection with the offering has been or is to be filed; and
3. Any adverse order, judgment, or decree entered in connection with the offering by the regulatory authorities in any state or by any court or by the securities and exchange commission.
The commissioner may by order permit the omission of any item of information or document from any registration statement if the commissioner finds that the omission of such information or document is in the public interest and inclusion of such information or document is not necessary for the protection of investors.
The commissioner may by rule declare standards of fairness and reasonableness concerning securities offerings generally and may by rule or order require as a condition of registration that:
1. Any security issued to a promoter within the past three (3) years or to be issued to a promoter for a consideration substantially different from the public offering price, or to any person for a consideration other than cash, be deposited in escrow for a reasonable period; and
2. The proceeds from the sale of the security registered in this state be held in escrow until the issuer receives a specified amount from the sale of the security either in this state or elsewhere;
  provided, that any such order be clearly shown to be in the public interest and necessary for the protection of investors. The commissioner may by rule determine the conditions of any escrow required hereunder, but the commissioner may not reject a depository solely because of its location in another state.
Every registration statement is effective for one (1) year from its effective date, unless the commissioner is sooner notified of the completion of the offering, or unless such registration is sooner terminated by order of the commissioner. Notwithstanding the foregoing, when a prospectus is used more than nine (9) months after the effective date of the registration statement, the information contained therein shall be as of a date not more than sixteen (16) months prior to such use.
Renewal registration for the succeeding one-year period may be issued upon written application and upon payment of fees as provided by this section for original registration, even though the maximum fee was paid in the preceding period, without the filing of further statements or furnishing of any further information except as the commissioner by rule requires. All applications for renewal received after the expiration of the previous registration shall be treated as original applications.
So long as a registration statement is effective, the person who filed the registration statement shall file such reports as the commissioner shall by rule require, keep reasonably current the information contained in the registration statement, and disclose the progress of the offering. For the purpose of avoiding unnecessary duplication, the commissioner, insofar as the commissioner deems it practicable in administering this subsection (h), may cooperate with the securities administrators of other jurisdictions, the securities and exchange commission, any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, and any association of securities administrators.
Any prospectus shall contain such other information as the commissioner may by rule require as being in the public interest and necessary for the protection of investors.
In the exercise of the commissioner's power under this section, § 48-1-105 or § 48-1-106, the commissioner shall have authority by rule to classify prospectuses according to the nature and circumstances of their use or the nature of the security, issue, issuer, or otherwise, and, subject to such terms and conditions as the commissioner shall specify therein, to prescribe as to each class the form and contents which the commissioner may find to be in the public interest and necessary for the protection of investors.
A registration statement may be withdrawn prior to its effectiveness or the issuance of a preeffective stop order under § 48-1-108. An effective registration statement may be withdrawn otherwise only in the discretion of the commissioner.
A registration statement relating to a security may be amended after its effective date so as to increase the securities specified as proposed to be offered. As to securities not yet sold, such an amendment becomes effective when the commissioner so orders. In the case of securities which are sold in an amount in excess of the amount or number of securities specified in an effective registration statement, as proposed to be offered, the person or persons who filed the registration statement may, in accordance with rules the commissioner shall promulgate as in the public interest and necessary for the protection of investors, elect to have the registration of those securities deemed effective as of the time of their sale, upon payment to the commissioner, within six (6) months after the sale, of a registration fee equal to the difference between the registration fee previously paid and the amount of the fee which would have otherwise been applicable to those additional securities had they been included in the registration statement, if any, plus a late registration fee of twenty-five dollars ($25.00). Upon such an election and payment, the registration statement shall be considered to have been in effect with respect to those shares. Every person filing an amendment under this subsection (m) shall pay a filing fee, calculated in the manner specified in subsection (b), with respect to the additional securities.
Any amendment to a registration statement which changes the name of the offering of securities shall pay a processing fee of fifty dollars ($50.00) payable upon the amendment's filing with the commissioner.

Acts 1980, ch. 866, § 7; 1981, ch. 459, § 1; T.C.A., § 48-16-107; Acts 1988, ch. 663, § 1; 1993, ch. 98, §§ 4-8; 1996, ch. 1072, §§ 1, 2; 2001, ch. 61, §§ 5-7; T.C.A., § 48-2-107; Acts 2017, ch. 424, §§ 20-22.

Code Commission Notes.

Former § 48-2-107 was transferred to § 48-1-107 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

Federal State Relations Under the Federal Securities Code (Jeffery B. Bartell), 32 Vand. L. Rev. 457.

48-1-108. Stop order denying, suspending, or revoking registration.

The commissioner may issue a stop order denying effectiveness to, or suspending or revoking the effectiveness of, any registration statement if the commissioner finds that:
1. The order is in the public interest; and
2. 1. The registration statement, or any amendment under § 48-1-107 (as of its effective date or as of the date of an order denying effectiveness), or any report under § 48-1-107(h) includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading;
  2. Any provision of this part or any rule, order or condition lawfully imposed under this part has been willfully violated in connection with the offering by:
    1. The person filing the registration statement;
    2. The issuer, any partner, officer, or director of the issuer, any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling, controlled by, or under common control with the issuer, but only if the person filing the registration statement is directly or indirectly controlled by or acting for the issuer; or
    3. Any underwriter;
  3. The security registered or sought to be registered is the subject of an administrative stop order or similar order or a permanent or temporary injunction of any court of competent jurisdiction entered under any other federal or state act applicable to the offering; provided, that the commissioner may not:
    1. Institute a proceeding against an effective registration statement under this subdivision (a)(2)(C) more than one (1) year from the date of the order or injunction relied on; or
    2. Enter an order under this subdivision (a)(2)(C) on the basis of an order or injunction entered under any other state act, unless that order or injunction was based on facts which would currently constitute a ground for a stop order under this section;
  4. The issuer's enterprise or method of business includes or would include activities which are illegal where performed;
  5. The offering has worked or tended to work a fraud upon purchasers or would so operate;
  6. When a security is sought to be registered by coordination, there has been a failure to comply with the undertaking required by § 48-1-105(b)(4); or
  7. The applicant or registrant has failed to pay the proper filing fee; provided, that the commissioner may enter only a denial order under this subdivision (a)(2)(G) and the commissioner shall vacate any such order when the deficiency has been corrected.
No order may be entered under any part of this section without full compliance with § 48-1-116. Upon issuance of an order under this section, the commissioner shall give notice of the issuance of such order and of the reasons therefor and opportunity for hearing by personal service or by certified mail, return receipt requested, to the addressee's last known business mailing address. The commissioner shall vacate or modify the order at any time for good cause or if such registration statement or prospectus has been filed or amended in accordance with such order.
The commissioner may not institute a stop order proceeding against an effective registration statement on the basis of a fact or transaction known to the commissioner when the registration statement became effective, unless the proceeding is instituted within the thirty (30) days immediately following the date the registration statement became effective.
In any case in which the commissioner is authorized to issue a stop order denying, suspending or revoking the effective registration of the securities of an issuer, the commissioner may impose a fine of five thousand dollars ($5,000) upon the issuer of such securities for all violations arising from any single transaction.

Acts 1980, ch. 866, § 8; T.C.A., § 48-16-108; Acts 1996, ch. 1072, §§ 6, 8; T.C.A., § 48-2-108; Acts 2017, ch. 424, § 23.

Code Commission Notes.

Former § 48-2-108 was transferred to § 48-1-108 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

48-1-109. Registration as broker-dealers, agents, investment advisers, and investment adviser representatives.

It is unlawful for any person to transact business from, in, or into this state as a broker-dealer or agent unless such person is registered as a broker-dealer or agent under this part, except that:
1. A bank shall be exempt from registration as a broker-dealer to the extent its activities are excepted under either the definition of “broker” in § 3(a)(4)(B) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(4)(B)), or the definition of “dealer” in § 3(a)(5)(C) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(5)(C));
2. A person who limits such person's activity as a broker-dealer to acting solely as a broker-dealer with regard to charitable gift annuities, as that term is defined by § 56-52-102, shall be exempt from registration as a broker-dealer;
3. A person who limits such person's activity as an agent to acting solely as an agent on behalf of a person who is eligible for the exemption from broker-dealer registration in subdivision (a)(2) shall be exempt from registration as an agent.
It is unlawful for any broker-dealer to employ an agent to transact business as an agent unless the agent is registered under this part. The registration of an agent is not effective during any period when the agent is not associated with a particular broker-dealer registered under this part. When an agent begins or terminates a connection with a broker-dealer, or begins or terminates those activities which make such person an agent, both the agent and the broker-dealer shall promptly notify the commissioner.
It is unlawful for any person to transact business from, in, or into this state as an investment adviser or investment adviser representative unless:
1. The person is registered as an investment adviser or investment adviser representative under this part;
2. The person is required to register as an investment adviser pursuant to § 203 of the Investment Advisers Act of 1940 (15 U.S.C. § 80b-3); provided, however, that an initial notice filing, consisting of any documents filed with the securities and exchange commission, a consent to service of process, and a nonrefundable fee of one hundred dollars ($100) shall be filed with the commissioner or the commissioner's designee, with payment of any reasonable costs charged by the designee for processing such filings, ten (10) days prior to the person acting as an investment adviser; and a renewal notice filing containing such information as the commissioner by rule requires and a nonrefundable fee of one hundred dollars ($100) shall be filed with the commissioner or the commissioner's designee, with payment of any reasonable costs charged by the designee for processing such filing for each successive year in which such person acts as such investment adviser; every notice filing of an investment adviser expires annually, unless timely renewed, on December 31 of each year; or
3. The person's only clients in this state are insurance companies.
1. Every registration of a broker-dealer or investment adviser expires annually, unless timely renewed, on December 31 of each year.
2. Every registration of an agent or investment adviser representative expires annually, unless timely renewed, on December 31 of each year.
3. Every notice filing of an investment adviser expires annually, unless timely renewed, on December 31 of each year.
4. A registration or notice filing is timely renewed if the renewal application, all required exhibits, and fees are on file with the commissioner by December 31 of each year.
The commissioner may, after notice and an opportunity for a hearing under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim.
It is unlawful for any investment adviser to employ an investment adviser representative unless the investment adviser representative is registered under this part. The registration of an investment adviser representative is not effective during any period when the investment adviser representative is not associated with a particular investment adviser. When an investment adviser representative begins or terminates a connection with an investment adviser, or begins or terminates those activities which make that person an investment adviser representative, both the investment adviser representative and the investment adviser shall promptly notify the commissioner.
Notwithstanding subsection (a), a Canadian broker-dealer that is resident in Canada and has no office or other physical presence in the United States and is not an office of, branch of, or a natural person associated with, a broker-dealer otherwise registered in the United States may transact business in this state without registering with the commissioner of commerce and insurance as a broker-dealer under the following conditions:
1. The business transacted in this state by the Canadian broker-dealer must be limited to the effecting of or attempt to effect transactions in securities:
  1. With or for a natural person who regularly resides in Canada and who is temporarily present in this state and with whom the Canadian broker-dealer had a bona fide customer relationship before the natural person entered the United States; or
  2. With or for a natural person who is a resident of this state, or is temporarily present in this state, and who contributes to, or is or will be entitled to receive the income and assets from, a Canadian retirement account;
2. The Canadian broker-dealer files the following with the commissioner of commerce and insurance:
  1. An annual notice in the form prescribed by the commissioner of commerce and insurance;
  2. A consent to service of process; and
  3. An annual fee of two hundred dollars ($200);
3. The Canadian broker-dealer is a member of a self-regulatory organization or stock exchange in Canada;
4. The Canadian broker-dealer maintains its provincial or territorial registration and its membership in a self-regulatory organization or stock exchange in good standing;
5. The Canadian broker-dealer discloses to its customers in this state that the Canadian broker-dealer is not subject to the full regulatory requirements of this part; and
6. The Canadian broker-dealer is not in violation of § 48-1-121 and all rules promulgated thereunder.
Notwithstanding subsection (a), a Canadian agent representing a Canadian broker-dealer transacting business in this state pursuant to this section need not register with the commissioner of commerce and insurance as an agent; provided, that such agent is registered in good standing in the appropriate Canadian jurisdiction.

Acts 1980, ch. 866, § 9; T.C.A., § 48-16-109; Acts 1985, ch. 26, § 2; 1997, ch. 164, § 4; 2001, ch. 61, §§ 8-10; 2001, ch. 80, § 3; 2002, ch. 517, §§ 2, 3; 2002, ch. 550, §§ 2-5; 2002, ch. 700, § 7; T.C.A., § 48-2-109; Acts 2017, ch. 424, §§ 24-29.

Code Commission Notes.

Former § 48-2-109 was transferred to § 48-1-109 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Cross-References. Occupation tax on broker-dealers, agents and advisors, title 67, ch. 4, part 17.

NOTES TO DECISIONS

1. Statute of Limitations.

Plaintiffs' claims against the defendants under the Tennessee Blue Sky Law, for investments made more than two years before the action was filed, were barred under the two year provision of T.C.A. § 48-2-122(h) (now T.C.A. 48-1-122(h)). Joyner v. Triple Check Financial Service, 782 F. Supp. 364, 1991 U.S. Dist. LEXIS 19144 (W.D. Tenn. 1991).

2. Registration.

Where trustees of retirement plans alleged that securities brokers were liable for their registered agent's theft of the plans' funds which were entrusted to the agent for investment, the agent could only deal in securities based on registration with the brokers under T.C.A. § 48-2-109(a), (b) (now T.C.A. 48-1-109(a), (b)), and thus the brokers could be liable for the agent's theft even though the brokers only controlled the agent indirectly. As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034, 2008 U.S. Dist. LEXIS 29365 (M.D. Tenn. Mar. 26, 2008).

3. Willfulness.

Defendant's convictions for willfully selling securities without registering with the state as a broker-dealer or agent in violation of T.C.A. § 48-2-109 (now T.C.A. 48-1-109) were reinstated because the term willfully in T.C.A. § 48-2-123(a) (now T.C.A. 48-1-123(a)) required only that defendant acted deliberately and was fully aware of his conduct and defendant was aware he was selling securities and knew that he was not registered as a broker-dealer or agent. State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

4. Exemptions.

Because the requirements of T.C.A. §§ 48-2-109(a) and 48-2-104(a) (now T.C.A. 48-1-109(a) and 48-1-104(a)) are distinct, an exemption under one does not guarantee, or even suggest, an exemption under the other. An individual selling a security that is exempt from the registration requirements of § 48-2-104(a) (now T.C.A. 48-1-104(a)) must be properly registered as a broker-dealer or broker-dealer agent pursuant to § 48-2-109(a) (now T.C.A. 48-1-109(a)). State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

48-1-110. Registration procedure.

1. A broker-dealer, agent, investment adviser, or investment adviser representative may obtain an initial or renewal registration by filing with the commissioner or the commissioner's designee an application, together with a consent to service of process pursuant to § 48-1-124(e), and by paying any reasonable costs charged by the designee for processing such filings.
2. The application shall be on such form and contain such information as the commissioner by rule requires concerning such matters as:
  1. The applicant's form and place of organization;
  2. The applicant's proposed method of doing business;
  3. The qualifications and business history of the applicant and, if appropriate, the qualifications and business history of any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions for the applicant;
  4. Any injunction or administrative order or conviction of a misdemeanor involving a security or any aspect of the securities business and any conviction of a felony; and
  5. The applicant's financial condition and history.
3. The commissioner may by rule require an applicant for initial registration to publish an announcement of the application in one (1) or more specified newspapers published in this state.
4. If no denial order is in effect and no proceeding is pending under § 48-1-112, such registration becomes effective at twelve o'clock (12:00) noon, central time, of the thirtieth day after a completed application is filed. The commissioner may by rule or order specify an earlier effective date, and may by order defer the effective date until twelve o'clock (12:00) noon, central time, of the thirtieth day after the filing of any amendment.
5. Registration of a broker-dealer automatically constitutes registration of any partner, officer, or director of the broker-dealer, or a person occupying a similar status or performing similar functions.
Every applicant for initial or renewal registration shall pay a nonrefundable filing fee of two hundred dollars ($200) in the case of a broker-dealer, fifty dollars ($50.00) in the case of an agent, two hundred dollars ($200) in the case of an investment adviser, and fifty dollars ($50.00) in the case of an investment adviser representative.
A registered broker-dealer or investment adviser may file an application for registration of a successor, whether or not the successor is then in existence, for the unexpired portion of the year. There shall be no filing fee for the registration of any successor.
The commissioner may by rule require a minimum net capital for registered broker-dealers and investment advisers.
The commissioner may by rule require registered broker-dealers, agents, investment advisers, and investment adviser representatives to post surety bonds in amounts up to ten thousand dollars ($10,000), or reasonable fidelity bonds, and may determine their conditions. Any appropriate deposit of cash or securities shall be accepted in lieu of any surety bond so required. No surety bond may be required of any registrant whose net capital, which may be defined by rule, exceeds one hundred thousand dollars ($100,000). Every surety bond shall provide coverage of any suit thereon by any person who has a cause of action under § 48-1-122 and, if the commissioner by rule requires, by any person who has a cause of action not arising under this part. No suit may be maintained to enforce any liability on any bond unless brought within two (2) years after the sale or other act upon which such suit is based.
1. Any person who is included in the definition of “issuer” by virtue of § 48-1-102(15)(A)(iii) shall register as an issuer-dealer unless either:
  1. Such person sells less than one hundred thousand dollars ($100,000) per year in undivided fractional interests in oil, gas, or other mineral interests in any twelve-month period; or
  2. Such person contributes money or services for lease acquisition and drilling or mining activities on property covered by the undivided fractional interests in proportion to the person's interest in the proceeds from such activities on the same basis as all purchasers of undivided fractional interests. For purposes of this subdivision (f)(1)(B), services shall be valued at the fair market value of similar services and at competitive rates, and such value shall be established prior to the sale of any interests.
2. An issuer-dealer is not deemed to be a “broker-dealer” and is not subject to regulation other than as provided by this subsection (f) and rules permitted hereby so long as its securities business is restricted to the sale of undivided fractional interests.
3. The commissioner shall by rule provide the forms for application and renewal as an issuer-dealer, the term of the registration, and fees for initial application and renewal which shall not exceed those provided by subsection (b) for broker-dealers.
4. Registration as an issuer-dealer shall be effective thirty (30) days after receipt of a completed application and the appropriate fee, if any, unless denial proceedings are instituted or unless an earlier effective date is granted by order of the commissioner. The registration may be denied, revoked, or suspended if such action is in the public interest and if the applicant or any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions:
  1. Has filed an application for registration which included any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
  2. Has been convicted within the past ten (10) years of any misdemeanor involving any aspect of the securities business or an investment-related business, or any felony;
  3. Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business or any investment-related business; or
  4. Is the subject of any order entered within the past ten (10) years by any agency of any jurisdiction having regulatory authority with respect to the securities business or any investment-related business, denying, revoking, or suspending a registration as a broker-dealer, agent, investment adviser, or the substantial equivalent of those terms as defined in this part, or ordering such person to cease and desist from continuing any conduct or practice involving any investment-related transaction based on fraud, deceit, or misrepresentation, or applicable law similar to § 48-1-121(a) and (b).

Acts 1980, ch. 866, § 10; 1983, ch. 312, § 3; T.C.A., § 48-16-110; Acts 1985, ch. 26, § 3; 1989, ch. 15, §§ 1, 2; 2001, ch. 61, § 11; 2002, ch. 550, §§ 6-8; T.C.A., § 48-2-110; Acts 2017, ch. 424, §§ 30-32.

Code Commission Notes.

Former § 48-2-110 was transferred to § 48-1-110 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

Selected Tennessee Legislation of 1983 (N.L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Commissioner's Discretion.

A discretionary power vested in the commissioner to issue a permit to investment company could not be considered in a collateral proceeding upon a note given for stock of a corporation holding such permit. Dixie Rubber Co. v. McBee, 148 Tenn. 168, 253 S.W. 353, 1923 Tenn. LEXIS 5 (1923), aff'd, State v. Adams, 262 S.W. 62 (Mo. Ct. App. 1924); Dixie Rubber Co. V. McBee, 150 Tenn. 53, 262 S.W. 32, 1923 Tenn. LEXIS 62 (1923).

2. Filing of Documents and Issuance of Permit.

Commissioner's issuance of a permit was conclusive that investment corporation had in all respects complied with Acts 1913 (1st .S.), ch. 31 in an action involving the validity of the contract made by the corporation, provided that the documents had been filed for the commissioner's examination, as required, but the permit is not conclusive where such documents have not been filed. Dixie Rubber Co. V. McBee, 150 Tenn. 53, 262 S.W. 32, 1923 Tenn. LEXIS 62 (1923).

3. Agent's Noncompliance.

Where the corporation complied with the provisions of Acts 1913 (1st Ex. Sess.), ch. 31, the failure of an agent to register as required did not render a note to the corporation unenforceable. McCallum v. McIsaac, 159 Tenn. 655, 21 S.W.2d 392, 1929 Tenn. LEXIS 26 (1929).

48-1-111. Records and reports — Examinations.

Every registered broker-dealer and investment adviser shall make and keep such accounts, correspondence, memoranda, papers, books, and other records as the commissioner by rule prescribes. All records so required shall be preserved for three (3) years unless the commissioner by rule prescribes otherwise for particular types of records.
Every registered broker-dealer and investment adviser shall file such financial reports and other documents as the commissioner by rule prescribes.
If the information contained in any document filed with the commissioner is or becomes inaccurate or incomplete in any material respect, the registrant shall promptly file a correcting amendment.
1. All the records referred to in subsection (a) are subject at any time and from time to time to such reasonable periodic, special, or other examinations, within or outside of this state, by representatives of the commissioner, as the commissioner deems necessary or appropriate in the public interest or for the protection of investors.
2. The cost of such examination shall be borne by the person examined and shall include the expenses of the commissioner or the commissioner's deputy and the expenses and compensation of the commissioner's assistants employed in the examination; provided, that not more than two (2) such examinations shall be charged to such person in any twelve-month period.
3. For the purpose of avoiding unnecessary duplication of examinations, the commissioner, insofar as the commissioner deems it practicable in administering this subsection (d), may cooperate with the securities administrators of other states, the securities and exchange commission, any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, or any securities administrators' association.

Acts 1980, ch. 866, § 11; T.C.A., § 48-16-111; T.C.A., § 48-2-111; Acts 2017, ch. 424, §§ 33, 34.

Code Commission Notes.

Former § 48-2-111 was transferred to § 48-1-111 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

48-1-112. Denial, revocation, suspension, cancellation, or withdrawal of registration.

The commissioner may by order deny, suspend, or revoke any registration under this part if the commissioner finds that:
1. The order is in the public interest and necessary for the protection of investors; and
2. The applicant or registrant or, in the case of a broker-dealer or investment adviser, any affiliate, partner, officer, director, or any person occupying a similar status or performing similar functions:
  1. Has filed an application for registration which as of its effective date, or as of any date after filing in the case of an order denying effectiveness, includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
  2. Has willfully violated or willfully failed to comply with any provision of this part or a predecessor chapter or any rule or order under this part or a predecessor chapter, including, without limitation, any net capital requirements;
  3. Has been convicted of any felony, or within the previous ten (10) years has been convicted of a misdemeanor involving a security or any aspect of the securities business or any investment-related business;
  4. Is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities business or any investment-related business;
  5. Is the subject of an order of the commissioner denying, suspending, or revoking any registration as a broker-dealer, agent, investment adviser, or investment adviser representative, or ordering any person to cease and desist from violating any provision of this part;
  6. 1. (a) Is the subject of any order entered within the past ten (10) years by the securities administrator of any other jurisdiction or by the securities and exchange commission or any other federal or state agency having jurisdiction over investment-related businesses:
    Denying or revoking any registration as a broker-dealer, agent, investment adviser, or investment adviser representative, or the substantial equivalent of those terms as defined in this part; or
Is the subject of an order suspending or expelling such person from a national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, or is the subject of a United States post office fraud order;
The following provisions govern the application of subdivision (a)(2)(I):
1. The commissioner may not enter an order against a broker-dealer on the basis of the lack of qualification of any person other than:
  1. The broker-dealer personally if the broker-dealer is an individual;
  2. A general partner, officer, director, or controlling person of such broker-dealer; or
  3. An agent of such broker-dealer;
2. The commissioner may not enter an order against an investment adviser on the basis of the lack of qualification of any person other than:
  1. The investment adviser personally if the investment adviser is an individual;
  2. A general partner, officer, director, or controlling person of such investment adviser; or
  3. An investment adviser representative;
3. The commissioner may not enter an order solely on the basis of lack of experience if the applicant or registrant is qualified by training or knowledge or both;
4. The commissioner shall consider that an agent who will work under the supervision of a registered broker-dealer need not have the same qualifications as such broker-dealer;
5. The commissioner shall consider that an investment adviser is not necessarily qualified solely on the basis of experience as a broker-dealer or agent. When the commissioner finds that an applicant for registration (including a renewal of an effective registration) as a broker-dealer is not qualified as an investment adviser, the commissioner may by order condition the applicant's registration as a broker-dealer upon the registrant's not transacting business in this state as an investment adviser;
6. The commissioner may by rule provide for an examination, which may be written or oral or both, to be taken by any class of or all applicants for registration as a broker-dealer or investment adviser, as well as persons who represent or will represent a broker-dealer or an investment adviser in doing any broker-dealer or investment adviser activities;
7. The commissioner shall consider that an investment adviser representative who will work under the supervision of a registered investment adviser need not have the same qualification as such investment adviser;
In any case in which the commissioner is authorized to deny, revoke, or suspend the registration of a broker-dealer, agent, investment adviser, investment adviser representative, or applicant for broker-dealer, agent, investment adviser, or investment adviser representative registration, the commissioner may, in lieu of or in addition to such disciplinary action, impose a civil penalty in an amount not to exceed five thousand dollars ($5,000) for all violations for any single transaction, or in an amount not to exceed ten thousand dollars ($10,000) per violation if an individual who is a designated adult is a victim.
Pending final determination whether or not any registration under this section shall be revoked, the commissioner may by order suspend such registration, if after notice and opportunity for hearing, the commissioner finds such suspension to be in the public interest and necessary for the protection of investors.
1. Upon such terms and conditions as the commissioner deems in the public interest and necessary for the protection of investors, any registered broker-dealer, agent, investment adviser, or investment adviser representative may withdraw from registration by filing a written notice of withdrawal with the commissioner or by filing a notice of withdrawal through a designated filing depository.
2. Withdrawal from registration as a broker-dealer, agent, investment adviser, or investment adviser representative becomes effective thirty (30) days after receipt of an application to withdraw or within such shorter period of time as the commissioner by rule or order may permit.
If the commissioner finds that any registered broker-dealer, agent, investment adviser, or investment adviser representative is no longer in existence or has ceased to do business as a broker-dealer, agent, investment adviser, or investment adviser representative, the commissioner shall by order cancel the registration of such broker-dealer, agent, investment adviser, or investment adviser representative.

Ordering such person to cease and desist from any conduct or practice involving any aspect of the securities business or any investment-related business based on findings of fraud, deceit, or misrepresentation or violations of laws similar to § 48-1-121(a) or (b); or

The commissioner may not either:

Institute a revocation or suspension proceeding under this subdivision (a)(2)(F) more than one (1) year from the date of the order relied on as long as the registrant notified the commissioner within thirty (30) days of the date of the order; or

Enter an order under this subdivision (a)(2)(F) on the basis of an order under another jurisdiction's act unless that order was based on facts which would currently constitute a ground for an order denying or revoking registration under this part, or is based on findings of fraud, deceit, misrepresentation or violations of law similar to § 48-1-121(a) and (b);

Has engaged in dishonest or unethical practices in the securities business;

Is insolvent, either in the sense that the applicant's liabilities exceed its assets or in the sense that it cannot meet its obligations as they mature; provided, that the commissioner may not enter an order against a broker-dealer or investment adviser under this subdivision (a)(2)(H) without a specific finding that the broker-dealer or investment adviser is insolvent;

Is not qualified on the basis of such factors as training, experience, and knowledge of the securities business, except as otherwise provided in subsection (c);

Has failed reasonably to supervise such person's agents if the person is a broker-dealer, or such person's investment adviser representatives if the person is an investment adviser; or

Has failed to pay any required fee; provided, that the commissioner shall vacate any such order when the deficiency has been corrected.

The commissioner may not institute a revocation or suspension proceeding under subsection (a) based solely on material facts actually known by the commissioner unless an investigation or the revocation or suspension proceeding is instituted within one (1) year after the commissioner actually acquires knowledge of the material facts.

Acts 1980, ch. 866, § 12; 1983, ch. 312, §§ 4, 5; T.C.A., § 48-16-112; Acts 1986, ch. 596, § 3; 2001, ch. 61, §§ 12, 13; 2002, ch. 550, §§ 9-17; 2007, ch. 272, §§ 1, 2; 2010, ch. 697, § 2; 2010, ch. 829, § 3; T.C.A., § 48-2-112; Acts 2017, ch. 424, §§ 35, 36.

Code Commission Notes.

Former § 48-2-112 was transferred to § 48-1-112 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

48-1-113. Filing of sales and advertising literature.

The commissioner may by rule require the filing of any prospectus, pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed or intended for distribution to prospective investors, including clients or prospective clients of an investment adviser.

Acts 1980, ch. 866, § 13; T.C.A., § 48-16-113; T.C.A. § 48-2-113; Acts 2017, ch. 424, § 37.

Code Commission Notes.

Former § 48-2-113 was transferred to § 48-1-113 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

48-1-114. Unlawful representation concerning registration or exemption.

Neither the fact that an application for registration or notice filing under §§ 48-1-109 - 48-1-112 or a registration statement or notice filing under §§ 48-1-104 - 48-1-108 or § 48-1-125 has been filed, nor the fact that a person or security is effectively registered, constitutes a finding by the commissioner that any document filed under this part is true, complete, and not misleading.
Neither any such fact nor the fact that an exemption or exception is available for a security or transaction means that the commissioner has passed in any way upon the merits or qualifications of, or that the commissioner has recommended or given approval to, any person, security, or transaction.
Any representation to the contrary is unlawful.

Acts 1980, ch. 866, § 14; T.C.A., § 48-16-114; Acts 1997, ch. 164, § 5; T.C.A. § 48-2-114; Acts 2017, ch. 424, § 38.

Code Commission Notes.

Former § 48-2-114 was transferred to § 48-1-114 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-115. Administration.

The administration of this part shall be vested in the commissioner. The commissioner, as authorized by the governor, shall appoint a director or assistant commissioner of securities and may delegate to such director or assistant commissioner of securities, by rule, such of the commissioner's powers and duties hereunder as are appropriate for the protection of investors and the efficient administration of this part.
The commissioner has the authority to employ attorneys, auditors, examiners, investigative agents, clerks and stenographers and other professional and clerical employees as the proper administration of this part may require.
The commissioner, or any persons employed by the commissioner, shall be paid, in addition to their regular compensation, the transportation fare, board, lodging, and other traveling expenses necessary and actually incurred by each of them in the performance of their duties under this part.
The revenues collected by the commissioner under this part are for the purpose of defraying a portion of the expenses incurred by the commissioner in the administration of this part. Such fees shall be payable in addition to other fees and taxes now required by law and shall be expendable receipts for the use of the commissioner in defraying a portion of the cost of the administration of this part.
1. It is unlawful for the commissioner or any of the commissioner's officers or employees to use for personal benefit any information which is filed with or obtained by the commissioner and which is not made public. No provision of this part authorizes the commissioner or any of the commissioner's officers or employees to disclose any such information except among themselves or when necessary or appropriate in a proceeding or investigation under this part.
2. No provision of this part either creates or derogates from any privilege which exists at common law or otherwise when documentary or other evidence is sought under a subpoena directed to the commissioner or any of the commissioner's officers or employees.
1. The commissioner may designate filing depositories for all records required to be filed and maintained under this part. These records may be maintained in original form or by means of microfilm, microfiche, microphotographic reproduction, photographic reproduction, word processing, computerization, or other acceptable reproductive methods.
2. The commissioner is further authorized to participate, in whole or in part, in the Central Registration Depository systems Web Central Registration Depository (Web CRD) and Web Investment Advisers Registration Depository (IARD), in cooperation with the Financial Industry Regulatory Authority (FINRA) or any successor regulatory entity, the North American Securities Administrators Association (NASAA), other states, the United States, and other entities, to the extent the commissioner deems participation as being in the public interest and necessary for the protection of investors.
3. The commissioner is further authorized to participate, in whole or in part, in securities registration depository systems, in cooperation with NASAA, other states, the United States, and other entities, to the extent the commissioner deems participation as being in the public interest and necessary for the protection of investors.

Acts 1980, ch. 866, § 15; T.C.A., § 48-16-115; Acts 1985, ch. 26, § 4; 1996, ch. 1072, § 7; 2001, ch. 61, § 14; 2010, ch. 697, §§ 1, 3; T.C.A. § 48-2-115; Acts 2017, ch. 424, § 39.

Code Commission Notes.

Former § 48-2-115 was transferred to § 48-1-115 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

Cross-References. Appointment of personnel by commissioner, § 4-4-106.

Reorganization of divisions, § 4-4-101.

48-1-116. Rules, forms, orders, and hearings.

The commissioner may from time to time make, promulgate, amend, and rescind such rules, forms, and orders as are necessary to carry out this part, including rules, forms, and orders governing registration statements, applications, reports, and filing fees, and defining any terms, whether or not used in this part, insofar as the definitions are not inconsistent with this part. For the purpose of rules and forms, the commissioner may classify securities, persons, and matters within the commissioner's jurisdiction, and prescribe different requirements for different classes.
No rule, form, or order may be made, promulgated, amended, or rescinded unless the commissioner finds that the action is in the public interest, necessary for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of this part. In prescribing rules and forms, the commissioner may cooperate with the securities administrators of other jurisdictions, the securities and exchange commission, or any national securities exchange or national securities association registered under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended, with a view to effectuating the policy of this part to achieve maximum uniformity in the form and content of registration statements, applications, and reports wherever practicable.
1. The commissioner may by rule prescribe:
  1. The form and content of financial statements required under this part;
  2. The circumstances under which consolidated financial statements shall be filed; and
  3. Whether or not any required financial statements shall be certified by independent or certified public accountants.
2. All financial statements shall be prepared in accordance with generally accepted accounting principles or the rules adopted by the securities and exchange commission.
No provision of this part imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, order, or interpretive opinion under § 48-1-117(e), of the commissioner, notwithstanding that the rule, form, or order may later be amended or rescinded or be determined by judicial or other authority to be invalid for any reason.
1. All rules and forms provided for in this part shall be adopted, promulgated, and contested as provided in the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
2. No order may be entered under this part (except routine orders of effective registration, registration termination by operation of law, or registration abandonment) without:
  1. Notice to the affected parties (which shall be prior notice unless the commissioner determines that prior notice would not be in the public interest and would be detrimental to the protection of investors);
  2. Opportunity for a hearing before the commissioner; and
  3. Written findings of fact and conclusions of law.
3. Every investigation, hearing or other proceeding (other than private investigations under § 48-1-118(a)) held under this part which determines or affects the legal rights, duties, or privileges of particular specified parties shall be deemed to be a “contested case” under the Uniform Administrative Procedures Act, and shall be conducted as required by that act.

Acts 1980, ch. 866, § 16; T.C.A., § 48-16-116; T.C.A. § 48-2-116; Acts 2017, ch. 424, § 40.

Code Commission Notes.

Former § 48-2-116 was transferred to § 48-1-116 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

NOTES TO DECISIONS

1. Cease and Desist Order.

Where the commissioner issued a cease and desist order, requiring plaintiff to refrain from engaging in business as an unregistered broker-dealer or selling unregistered securities, which purported to restrain only unlawful conduct and was accompanied by notice of opportunity for a full hearing, and there was no allegation or evidence that the commissioner had or was about to seek judicial enforcement of the cease and desist order, the issuance of the cease and desist order by an administrative official without prior notice and hearing was not so extreme and confiscatory as to invoke extraordinary judicial powers to vacate it. Wolcotts Financial Services, Inc. v. McReynolds, 807 S.W.2d 708, 1990 Tenn. App. LEXIS 908 (Tenn. Ct. App. 1990).

48-1-117. Administrative files and opinions.

A document is filed when it is received by the commissioner.
The commissioner shall keep a register of all applications for registration and registration statements which are or have ever been declared effective under this part and all denial, suspension, or revocation orders which have ever been entered under this part. The register shall be open for public inspection during the commissioner's normal business hours.
The information contained in or filed with any registration statement, application, notice filing, or report may be made available to the public under such rules as the commissioner prescribes.
Upon request and upon payment of such reasonable charges as the commissioner by rule prescribes, the commissioner shall furnish to any person copies (certified under the commissioner's seal of office if requested) of any entry in the register or any document which is a matter of public record. In any proceeding or prosecution under this part, any copy so certified is prima facie evidence of the contents of the entry or document certified.
The commissioner, in the commissioner's discretion, may honor requests from interested persons for interpretative opinions pertaining to this part.

Acts 1980, ch. 866, § 17; T.C.A., § 48-16-117; Acts 1997, ch. 164, § 6; T.C.A., § 48-2-117; Acts 2017, ch. 424, § 41.

Code Commission Notes.

Former § 48-2-117 was transferred to § 48-1-117 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

48-1-118. Investigations and subpoenas.

1. The commissioner, in the commissioner's discretion, may:
  1. Make such public or private investigations within or outside of this state as the commissioner deems necessary to determine whether or not any person has violated or is about to violate any provision of this part or any rule, regulation, or order hereunder, or to aid in the enforcement of this part, or in the prescribing of rules hereunder;
  2. Require or permit any person to file a statement in writing, under oath or otherwise as the commissioner determines, as to all the facts and circumstances concerning the matter to be investigated; and
  3. Publish information concerning any violation of this part or any rule or order hereunder.
2. All investigations conducted under this subsection (a) shall be commenced by an order of the commissioner, specifying the specific provision or provisions of this part which may have been or may be about to be violated and the basis for such investigation. Upon request, such order shall be made available to any person named in such order as being investigated.
1. For the purpose of conducting any investigation as provided in this section, the commissioner has the power to administer oaths, to call any party to testify under oath at such investigations, to require the attendance of witnesses, the production of books, records, and papers, and to take the depositions of witnesses.
2. For such purposes, the commissioner is authorized to issue a subpoena for any witness or a subpoena duces tecum to compel the production of any books, records or papers. These subpoenas may be served by registered mail, return receipt requested, to the addressee's business mailing address, or by such personnel of the department of commerce and insurance as the commissioner may designate, or shall be directed for service to the sheriff of the county where such witness resides or is found or where such person in custody of any books, records, or papers resides or is found.
In case of a refusal to obey a subpoena issued to any person under subsection (b), any circuit or chancery court of this state within the jurisdiction in which the person refusing to obey the subpoena is found or resides may issue to such person, upon application by the commissioner, an order requiring such person to appear before the court to show cause why the person should not be held in contempt for refusal to obey the subpoena. Failure to obey a subpoena may be punished by the court as a contempt of court.
1. The commissioner may, with the written approval of the attorney general and reporter, issue to any person who has been or may be called to a hearing or other proceeding under this part, a written order requiring the individual to give testimony or provide other information which the person refuses to give or provide on the basis of the person's privilege against self-incrimination. Such order shall be issued only if the commissioner finds that:
  1. The testimony or other information from such individual may be in the public interest; and
  2. Such individual has refused or is likely to refuse to testify or provide other information on the basis of the individual's privilege against self-incrimination.
2. Whenever any witness refuses, on the basis of the witness's privilege against self-incrimination, to testify or provide other information at any hearing or other proceeding under this part, and the person presiding over the proceeding delivers to the witness a written order issued under subdivision (d)(1), the witness may not refuse to comply with the order on the basis of the witness's privilege against self-incrimination; but no testimony or other information compelled under the order as to which the witness could validly assert the privilege against self-incrimination (or any information directly or indirectly derived from such testimony or other information) may be used against the witness in any criminal case, except a prosecution for perjury, false swearing, giving a false statement to the commissioner pursuant to this part, or otherwise failing to comply with the order.
1. In the case of any investigation conducted under this section, the commissioner may hold hearings, or may appoint an investigative agent to conduct such hearings who shall have the same powers and authority in conducting such hearings as are in this section granted to the commissioner. The agent shall be possessed of such qualifications as the commissioner may require.
2. A transcript of the testimony and evidence and objections resulting from such hearings shall be taken, unless waived in writing by all parties present at such hearings. Copies of such transcript shall be available to all parties present at the hearing (to the extent of their testimony if a private hearing) upon payment of a reasonable fee for reproducing such transcript.
3. All recommendations of the investigative agent shall be advisory only and shall not have the effect of an order of the commissioner.
In any case where hearings are conducted by an investigative agent, such agent shall submit to the commissioner a written report which shall include a transcript of the testimony in evidence (if requested by the commissioner), findings of fact, and a recommendation of the action to be taken by the commissioner with reasons therefor. The recommendation of such agent shall be approved, modified, or disapproved by the commissioner. The commissioner may direct an investigative agent to take additional testimony or permit the introduction of further documentary evidence.
In addition to any other hearings and investigations which the commissioner is authorized or required by this part to conduct, the commissioner is also authorized to hold general investigative hearings on the commissioner's own motion with respect to any matter under this part. A general investigative hearing as provided for herein may be conducted by any person designated by the commissioner for that purpose and may, but need not be, transcribed by the commissioner or by any other interested party. No formal action may be taken as a result of such investigative hearing, but the commissioner may take such action as the commissioner deems appropriate, based on the information developed in the hearing and on any other information which the commissioner may have.

Acts 1980, ch. 866, § 18; 1981, ch. 459, § 2; T.C.A., § 48-16-118; T.C.A., § 48-2-118.

Code Commission Notes.

Former § 48-2-118 was transferred to § 48-1-118 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-1-119. Injunctions.

Whenever it appears to the commissioner that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this part or any rule or order hereunder, the commissioner may, in the commissioner's discretion, bring an action in the chancery court of any county in this state to enjoin the acts or practices and to enforce compliance with this part or any rule or order hereunder.
Upon a proper showing, a permanent or temporary injunction, restraining order, writ of mandamus, disgorgement, or other proper equitable relief shall be granted and a receiver or conservator may be appointed for the defendant or the defendant's assets.
The court may not require the commissioner to post a bond.

Acts 1980, ch. 866, § 19; T.C.A., § 48-16-119; T.C.A., § 48-2-119.

Code Commission Notes.

Former § 48-2-119 was transferred to § 48-1-119 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

48-1-120. Judicial review.

Any person aggrieved by a final order of the commissioner under this part may obtain judicial review of the order in the chancery court of Davidson County by proceedings in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1980, ch. 866, § 20; T.C.A., § 48-16-120; T.C.A., § 48-2-120.

Code Commission Notes.

Former § 48-2-120 was transferred to § 48-1-120 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

NOTES TO DECISIONS

1. Order Not Subject to Judicial Review.

An order approving the issuance of a subpoena in connection with the investigation of financial institutions was not a final order subject to judicial review. State v. First Trust Money Servs., 931 S.W.2d 226, 1996 Tenn. App. LEXIS 225 (Tenn. Ct. App. 1996).

48-1-121. Fraudulent acts or devices.

It is unlawful for any person, in connection with the offer, sale or purchase of any security in this state, directly or indirectly, to:
1. Employ any device, scheme, or artifice to defraud;
2. Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
3. Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
It is unlawful for any person who receives any consideration from another person primarily for advising the other person as to the value of securities or their purchase or sale, whether through the issuance of analyses or reports or otherwise, in this state, to:
1. Employ any device, scheme, or artifice to defraud the other person;
2. Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the other person; or
3. Take or have custody of any securities or funds of any client except as the commissioner may by rule permit or unless the person is licensed as a broker-dealer under this part.
It is unlawful for any person to make or cause to be made, in any document filed with the commissioner or in any proceeding under this part, any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading.
The commissioner may, after notice and opportunity for a hearing under the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, impose a civil penalty against any person found to be in violation of this section, or any rule or order adopted or issued under this section, in an amount not to exceed ten thousand dollars ($10,000) per violation, or in an amount not to exceed twenty thousand dollars ($20,000) per violation if an individual who is a designated adult is a victim.

Acts 1980, ch. 866, § 21; T.C.A., § 48-16-121; Acts 1996, ch. 1072, § 9; 1997, ch. 164, § 7; 2010, ch. 829, § 4; T.C.A., § 48-2-121; Acts 2017, ch. 424, § 42.

Code Commission Notes.

Former § 48-2-121 was transferred to § 48-1-121 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Law Reviews.

SEC Injunctions, 68 Tenn. L. Rev. 427 (2001).

NOTES TO DECISIONS

1. Elements of Offense.

Reliance by victims is not an element to the offense of omitting or misrepresenting a material fact in connection with the sale or purchase of securities. State v. Brewer, 932 S.W.2d 1, 1996 Tenn. Crim. App. LEXIS 96 (Tenn. Crim. App. 1996).

The burdens are different for a private cause of action using § 48-2-122 (now T.C.A. § 48-1-122), and for a criminal enforcement action under § 48-2-121 (now T.C.A. § 48-1-121) by law enforcement authorities. Constantine v. Miller Indus., Inc., 33 S.W.3d 809, 2000 Tenn. App. LEXIS 202 (Tenn. Ct. App. 2000), review or rehearing denied, — S.W.3d —, 2000 Tenn. LEXIS 666 (Tenn. 2000), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Actual reliance is a requirement for maintaining a private cause of action under § 48-2-122(c) (now T.C.A. § 48-1-122(c)) for a violation of § 48-2-121 (now T.C.A. § 48-1-121). Constantine v. Miller Indus., Inc., 33 S.W.3d 809, 2000 Tenn. App. LEXIS 202 (Tenn. Ct. App. 2000), review or rehearing denied, — S.W.3d —, 2000 Tenn. LEXIS 666 (Tenn. 2000), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Trial court erred in dismissing investors' claims of common-law fraud and misrepresentation, negligence, and breach of fiduciary duty claims made against their investment advisor, at the summary judgment stage, because, the investors claimed that the advisor recommended that they made investments he knew were risky despite the fact that they told him they wanted to make safe, conservative investments and the advisor received a larger commission on those investments while the investors sustained significant financial losses as a result of his representations that their investments were safe. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

While providing a prospectus may satisfy the disclosure requirements in SEC Rule 10b-5(b), it does not necessarily foreclose other federal claims; and by the same token, the court declined to find that providing a client with a prospectus is a complete defense, as a matter of law, to state claims that the stock broker or investment advisor misrepresented facts or failed to disclose facts material to his or her client's investment decisions. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

Although appellate court improperly made reliance an element of a claim under T.C.A. § 48-2-122(b)(1) (now T.C.A. § 48-1-122(b)(1)), order granting summary judgment was properly reversed because the record contained genuine disputes regarding the material facts relating to the substance of the purchaser's statements to the seller regarding a bank line of credit and the materiality of such statements. Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Lawyer who pleaded guilty to facilitation of a felony violation of T.C.A. § 48-2-121 (now T.C.A. § 48-1-121) was guilty of a serious crime within the meaning of American Bar Association Standards for Imposing Lawyer Sanctions § 5.11. Given aggravating factors of his prior discipline, his experience practicing law, and his lack of remorse, disbarment was appropriate. Talley v. Bd. of Prof'l Responsibility, 358 S.W.3d 185, 2011 Tenn. LEXIS 971 (Tenn. Oct. 26, 2011).

2. Federal Law.

The language of Tennessee's Securities Act closely follows Rule 10b-5 of the securities and exchange commission, omitting only the jurisdictional requirement of the federal act that an instrumentality of interstate commerce be used. Ockerman v. May Zima & Co., 27 F.3d 1151, 1994 FED App. 0230P, 1994 U.S. App. LEXIS 16109 (6th Cir. Tenn. 1994).

Where the district court properly dismissed investors' claims against a brokerage under 15 U.S.C. § 78j(b) for failure to meet the heightened pleading requirements of 15 U.S.C. § 78u-4(b)(2), the court did not abuse its discretion in declining to exercise 28 U.S.C. § 1367 supplemental jurisdiction over the investors' claims under T.C.A. § 48-2-121(a) (now T.C.A. § 48-1-121(a)) and Ala. Code § 8-6-19. Robert N. Clemens Trust v. Morgan Stanley DW, Inc., 485 F.3d 840, 2007 U.S. App. LEXIS 10111, 2007 FED App. 153P (6th Cir. May 2, 2007).

3. Limitation of Actions.

Two-year statute of limitations in § 48-2-122 (now T.C.A. § 48-1-122) rather than three-year statute of limitations for Tennessee common-law fraud and deceit claims applies to claims under Rule 10b-5 of the securities and exchange commission. Ockerman v. May Zima & Co., 694 F. Supp. 414, 1988 U.S. Dist. LEXIS 15329, 1988 U.S. Dist. LEXIS 18368 (M.D. Tenn. 1988).

4. —When Convictions Not Multiplicitous.

Where the various counts on which the defendant was convicted required proof of facts which were unnecessary for conviction under other counts of the indictment, the convictions were not multiplicitous. State v. Brewer, 932 S.W.2d 1, 1996 Tenn. Crim. App. LEXIS 96 (Tenn. Crim. App. 1996).

5. Claim Sufficient.

Company's claims under the Tennessee Securities Act were sufficient to survive a motion to dismiss because it alleged that a collateralized debt obligation (CDO) was marketed from Memphis, Tennessee and that a Tennessee corporation was intricately involved in the marketing and sale of the CDO; the company alleged that misrepresentations and omissions were made in connection with the sale of a security in Tennessee, and a Tennessee corporation was intricately involved in the marketing and sale. First Cmty. Bank, N.A. v. First Tenn. Bank, N.A., — S.W.3d —, 2014 Tenn. App. LEXIS 498 (Tenn. Ct. App. Aug. 20, 2014), aff'd in part and vacated in part, First Cmty. Bank, N.A. v. First Tenn. Bank, 489 S.W.3d 369, 2015 Tenn. LEXIS 1005 (Tenn. Dec. 14, 2015).

48-1-122. Civil liabilities.

1. Any person who:
  1. Sells a security in violation of §§ 48-1-104 — 48-1-109, 48-1-110(f), or of any condition imposed under § 48-1-107(e), or any rule, or order under this part of which the person has notice; or
  2. Sells a security in violation of § 48-1-121(a) (the purchaser not knowing of the violation of § 48-1-121(a), and who does not carry the burden of proof of showing that the person did not know and in the exercise of reasonable care could not have known of the violation of § 48-1-121(a));
    shall be liable to the person purchasing the security from the seller to recover the consideration paid for the security, together with interest at the legal rate from the date of payment, less the amount of any income received on the security, upon the tender of the security, or, if the purchaser no longer owns the security, the amount that would be recoverable upon a tender, less the value of the security when the purchaser disposed of it and interest at the legal rate from the date of disposition.
2. Tender shall require only notice of willingness to exchange the security for the amount specified.
3. Any notice may be given by service as in civil actions or by certified mail addressed to the last known address of the person liable.
1. Any person who purchases a security in violation of § 48-1-121(a) (the seller not knowing of the violation of § 48-1-121(a), and who does not carry the burden of proof of showing that the purchaser did not know and in the exercise of reasonable care could not have known of the violation of § 48-1-121(a)) shall be liable to the person selling the security to the purchaser to return the security, plus any income received by the purchaser thereon, upon tender of the consideration received, or, if the purchaser no longer owns the security, the excess of the value of the security when the purchaser no longer owns the security, the excess of the value of the security when the purchaser disposed of it, plus interest at the legal rate from the date of disposition, over the consideration paid for the security.
2. Tender requires only notice of willingness to pay the amount specified in exchange for the security.
3. Any notice may be given by service as in civil actions or by certified mail to the last known address of the person liable.
1. Any person who willfully engages in any act or conduct which violates § 48-1-121 shall be liable to any other person (not knowing that any such conduct constituted a violation of § 48-1-121) who purchases or sells any security at a price which was affected by the act or conduct for the damages sustained as a result of such act or conduct unless the person sued shall prove that the person sued acted in good faith and did not know, and in the exercise of reasonable care could not have known, that such act or conduct violated § 48-1-121.
2. Damages shall be the difference between the price at which the other person purchased or sold securities and the market value which the securities would have had at the time of the other person's purchase or sale in the absence of the act or conduct plus interest at the legal rate.
Any person who shall make or cause to be made any statement in any application, report, or document filed pursuant to this part or any rule or order hereunder or any undertaking contained in a registration statement hereunder, or in any advice given in such person's capacity as an investment adviser, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person (not knowing that any such statement was false or misleading) who, in reliance upon such statement, shall have purchased or sold a security at a price which was affected by such statement, for damages (calculated as provided in subsections (a) and (b)) caused by such reliance, unless the person sued shall prove that the person sued acted in good faith and had no knowledge that such statement was false or misleading and in the exercise of reasonable care could not have known that such statement was false or misleading.
A person seeking to enforce any liability under this section may sue either at law or in equity in any court of competent jurisdiction.
In any such suit under this section, the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys' fees, against either party litigant.
Every person who directly or indirectly controls a person liable under this section, every partner, principal executive officer, or director of such person, every person occupying a similar status or performing similar functions, every employee of such person who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, are also liable jointly and severally with and to the same extent as such person, unless the person who would be liable under this subsection (g) proves that the person who would be liable did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.
No action shall be maintained under this section unless commenced before the expiration of five (5) years after the act or transaction constituting the violation or the expiration of two (2) years after the discovery of the facts constituting the violation, or after such discovery should have been made by the exercise of reasonable diligence, whichever first expires.
Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this part or any rule or order hereunder is void.
The rights and remedies under this part are in addition to any other rights or remedies that may exist at law or in equity.
The legal rate of interest shall be that as provided by § 47-14-121.

Acts 1980, ch. 866, § 22; 1981, ch. 459, §§ 3, 4; T.C.A., § 48-16-122; Acts 1996, ch. 1072, §§ 4, 5; 2003, ch. 100, §§ 1, 2; T.C.A., § 48-2-122.

Code Commission Notes.

Former § 48-2-122 was transferred to § 48-1-122 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2003, ch. 100, § 3 provided that the amendment to subsection (h) shall apply to all proceedings addressed by this part that are commenced on or after May 7, 2003.

Law Reviews.

Securities Issuer Liability for Third Party Misstatements: Refining the Entanglement Standard see 53 Vand. L. Rev. 947 (2000).

NOTES TO DECISIONS

1. Reliance Upon Misrepresentations.

Actual reliance continues to be a requirement for maintaining a private cause of action under T.C.A. § 48-2-122(c) (now T.C.A. § 48-1-122(c)) for a violation of T.C.A. § 48-2-121 (now T.C.A. § 48-1-121). Constantine v. Miller Indus., Inc., 33 S.W.3d 809, 2000 Tenn. App. LEXIS 202 (Tenn. Ct. App. 2000), review or rehearing denied, — S.W.3d —, 2000 Tenn. LEXIS 666 (Tenn. 2000), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

Trial court erred in dismissing investors' claims of common-law fraud and misrepresentation, negligence, and breach of fiduciary duty claims made against their investment advisor, at the summary judgment stage, because, the investors claimed that the advisor recommended that they made investments he knew to be risky despite the fact that they told him they wanted to make safe, conservative investments and the advisor received a larger commission on those investments while the investors sustained significant financial losses as a result of his representations that their investments were safe. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

While providing a prospectus may satisfy the disclosure requirements in SEC Rule 10b-5(b), codified in 17 CFR 240.10b-5(b), it does not necessarily foreclose other federal claims; and by the same token, the court declined to find that providing a client with a prospectus is a complete defense, as a matter of law, to state claims that the stock broker or investment advisor misrepresented facts or failed to disclose facts material to his or her client's investment decisions. Johnson v. John Hancock Funds, 217 S.W.3d 414, 2006 Tenn. App. LEXIS 447 (Tenn. Ct. App. 2006), appeal denied, Johnson v. John Hancock Funds, LLC, — S.W.3d —, 2006 Tenn. LEXIS 1114 (Tenn. Nov. 20, 2006).

Where trustees of retirement plans alleged that securities brokers were liable for their registered agent's theft of plans' funds which were entrusted to the agent for investment, the agent could only deal in securities based on registration with the brokers, and thus the brokers could be liable for the agent's theft under T.C.A. § 48-2-122(g) (now T.C.A. § 48-1-122(g)) even though the brokers only controlled the agent indirectly. As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034, 2008 U.S. Dist. LEXIS 29365 (M.D. Tenn. Mar. 26, 2008).

2. Limitation of Actions.

Statute of limitations applicable to actions under Tennessee's Blue Sky Law is not applicable to federal securities claims. Media General, Inc. v. Tanner, 625 F. Supp. 237, 1985 U.S. Dist. LEXIS 13970 (W.D. Tenn. 1985).

Two-year statute of limitations in this section rather than three-year statute of limitations for Tennessee common-law fraud and deceit claims applies to claims under Rule 10b-5 of the securities and exchange commission. Ockerman v. May Zima & Co., 694 F. Supp. 414, 1988 U.S. Dist. LEXIS 15329, 1988 U.S. Dist. LEXIS 18368 (M.D. Tenn. 1988).

Federal securities claims are subject to the statute of limitations applicable to actions under Tennessee's Blue Sky laws, and not to the statute of limitations applicable to Tennessee common law fraud and deceit claims. Logan v. Ledford, 699 F. Supp. 141, 1988 U.S. Dist. LEXIS 12469 (M.D. Tenn. 1988).

With respect to federal securities act claims, the appropriate statute of limitations is this section, rather than T.C.A. § 28-3-105. Montcastle v. American Health Sys., 702 F. Supp. 1369, 1988 U.S. Dist. LEXIS 16419 (E.D. Tenn. 1988).

In a securities and exchange commission Rule 10b-5 action, federal courts in this state should borrow the three-year statute of limitations governing actions for common-law fraud. Nichols v. Merrill Lynch, Pierce, Fenner & Smith, 706 F. Supp. 1309, 1989 U.S. Dist. LEXIS 1182 (M.D. Tenn. 1989).

The Tennessee Securities Act of 1980 with its two-year statute of repose, subsection (h) of this section, is the most analogous statute to SEC Rule 10b-5, codified in 17 CFR 240.10b-5, and thus this section, and not T.C.A. § 28-3-105, the three-year statute of limitations for common law fraud, applies to 10b-5 cases in Tennessee. Ockerman v. May Zima & Co., 27 F.3d 1151, 1994 FED App. 0230P, 1994 U.S. App. LEXIS 16109 (6th Cir. Tenn. 1994).

Investors' claims to recover monetary damages against investment firm are based solely on common law breach of fiduciary duty and do not fall within the ambit of subsection (h) of this section. Instead, breach of fiduciary duty claims are quasi-contractual in nature and the applicable statute of limitations is six years pursuant to T.C.A. § 28-3-109(a)(3). Dean Witter Reynolds v. McCoy, 853 F. Supp. 1023, 1994 U.S. Dist. LEXIS 7685 (E.D. Tenn. 1994), aff'd without opinion, Dean Witter Reynolds, Inc. v. McCoy, 70 F.3d 1271, 1995 U.S. App. LEXIS 39272 (6th Cir. Tenn. 1995).

Where a seller gave repeated assurances to purchasers of unregistered securities that civil claims were being filed on their behalf and persuaded the purchasers not to file individual actions, equitable estoppel was properly applied to allow amendment of a complaint in order to add a cause of action under the Tennessee Securities Act. Hardcastle v. Harris, 170 S.W.3d 67, 2004 Tenn. App. LEXIS 827 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 500 (Tenn. May 23, 2005).

3. Tolling of Limitations.

Subsection (h) places an absolute two-year cap on the bringing of actions which cannot be tolled merely by a plaintiff's failure to discover a cause of action. Montcastle v. American Health Sys., 702 F. Supp. 1369, 1988 U.S. Dist. LEXIS 16419 (E.D. Tenn. 1988).

The two-year limitations period in subsection (h) may, in certain circumstances, be tolled by fraudulent concealment. Montcastle v. American Health Sys., 702 F. Supp. 1369, 1988 U.S. Dist. LEXIS 16419 (E.D. Tenn. 1988).

Plaintiffs' claims against the defendants under the Tennessee Blue Sky Law, for investments made more than two years before the action was filed, were barred under the two year provision of T.C.A. § 48-2-122(h) (now T.C.A. § 48-1-122(h)). Joyner v. Triple Check Financial Service, 782 F. Supp. 364, 1991 U.S. Dist. LEXIS 19144 (W.D. Tenn. 1991).

4. Notice Requirement.

T.C.A. § 48-2-122(a)(1)(A) (now T.C.A. § 48-1-122(a)(1)(H)) phrase “of which the person has notice” applies only to that statute's internal reference to “any condition imposed under T.C.A. § 48-2-107(f) (now T.C.A. § 48-1-107(f)), or any rule, or order under this part” because: (1) The Tennessee general assembly's repetitive use of the preposition “of” reflects an intention to distinguish between violations of T.C.A. §§ 48-2-104, 48-2-109, and 48-2-110(f) (now T.C.A. §§ 48-1-104, 48-2-109, and 48-1-110(f)), and violations of any condition imposed under T.C.A. § 48-2-107(f) (now T.C.A. § 48-1-107(f)), or any rule, or order; and (2) Since the former violations are statutory and the latter involve violations of a rule or order issued by the Tennessee division of securities, the general assembly could reasonably have decided to apply the notice requirement to administrative actions by the division, but not to violations of the Tennessee securities act of 1980. Hardcastle v. Harris, 170 S.W.3d 67, 2004 Tenn. App. LEXIS 827 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 500 (Tenn. May 23, 2005).

Because the notice requirement of T.C.A. § 48-2-122 (now T.C.A. § 48-1-122) does not apply to the entire statute, a seller's defense regarding a lack of notice that certain contracts constituted unregistered securities was rejected. Hardcastle v. Harris, 170 S.W.3d 67, 2004 Tenn. App. LEXIS 827 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 500 (Tenn. May 23, 2005).

5. Misrepresentation.

6. Secondary Liability.

Because a complaint filed by plaintiff receivers for two failed entities alleged defendant attorney was a well-connected “bag man” in the entities securities fraud scheme, drafted relevant documents, communicated with investors, diverted funds, and told employees of the entities how to do their jobs, general involvement and control was indicated such that an aiding and assisted claim under T.C.A. §§ 48-2-102(3), 48-5-122(g) (now T.C.A. §§ 48-1-102(3), 48-1-122(g)), had been sufficiently pleaded. Cumberland & Ohio Co. v. Coffman, 719 F. Supp. 2d 884, 2010 U.S. Dist. LEXIS 50316 (M.D. Tenn. May 21, 2010).

Decisions Under Prior Law

1. Reliance Upon Misrepresentations.

When a material misrepresentation is made, reliance upon that misrepresentation must be proven to recover. Diversified Equities, Inc. v. Warren, 567 S.W.2d 171, 1976 Tenn. App. LEXIS 271 (Tenn. Ct. App. 1976), overruled, V. L. Nicholson Co. v. Transcon Inv. & Financial, Ltd., 595 S.W.2d 474, 1980 Tenn. LEXIS 406 (Tenn. 1980), overruled in part, Green v. Green, 293 S.W.3d 493, 2009 Tenn. LEXIS 518 (Tenn. Aug. 26, 2009).

2. Estoppel.

Where investor took an active part in the management of a corporation in which the investor had purchased stock and generally participated in its management, the investor's conduct estopped the investor from rescinding the investor's stock purchase. Tucker v. McDell's, Inc., 50 Tenn. App. 62, 359 S.W.2d 597, 1961 Tenn. App. LEXIS 140 (Tenn. Ct. App. 1961).

48-1-123. Criminal prosecution.

Any person who willfully violates any provision of this part or who willfully violates any rule or order under this part commits a Class D felony. No person may be imprisoned for the violation of any rule or order if the person proves that the person had no actual knowledge of the rule or order.
The commissioner may refer such evidence as is available concerning violations of this part or of any rule or order hereunder to the attorney general and reporter, or the district attorney general in the county where the violation was committed, either of whom may, with or without such a reference, institute the appropriate criminal proceedings under this part.
Nothing in this part limits the power of this state to punish any person for any conduct which constitutes a crime by statute or at common law.

Acts 1980, ch. 866, § 23; T.C.A., § 48-16-123; Acts 1989, ch. 591, § 42; 1996, ch. 1072, § 3; T.C.A., § 48-2-123.

Code Commission Notes.

Former § 48-2-123 was transferred to § 48-1-123 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Cross-References. Penalty for Class D felony, § 40-35-111.

NOTES TO DECISIONS

1. Willfully.

Defendant's convictions for willfully selling securities without registering with the state as a broker-dealer or agent in violation of T.C.A. § 48-2-109 (now T.C.A. § 48-1-109) were reinstated because the term willfully in T.C.A. § 48-2-123(a) (now T.C.A. § 48-1-123(a)) required only that defendant acted deliberately and was fully aware of his conduct and defendant was aware he was selling securities and knew that he was not registered as a broker-dealer or agent. State v. Casper, 297 S.W.3d 676, 2009 Tenn. LEXIS 719 (Tenn. Nov. 6, 2009).

48-1-124. Scope of law — Service of process.

This part applies to persons who buy or sell securities from, in, or into this state, or who give or receive advice concerning the purchase or sale of securities from, in, or into this state.
For the purpose of this section, a purchase or sale is made in this state, whether or not either party is then present in this state, when:
1. An offer that results in a sale originates from this state;
2. An offer to purchase or sell a security is accepted in this state; or
3. An offer that results in a sale is directed by the offeror to this state and received at the place to which it is directed or at any post office in this state in the case of a mailed offer.
For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance is communicated to the offeror in this state and:
1. Has not previously been communicated to the offeror, orally or in writing, outside this state; and
2. Whether or not either party is then present in this state, when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed (or at any post office in this state in the case of a mailed acceptance).
Sections 48-1-109(a) and (c) and 48-1-121 apply when any act instrumental in effecting prohibited conduct is done in this state, whether or not either party is then present in this state.
Every applicant for registration and renewal under this part, every person making a notice filing, and every issuer for whom a registration, exemption from registration, or notice filing or renewal is required under this part, shall file with the commissioner, in such form as the commissioner by rule prescribes, an irrevocable consent appointing the commissioner or the commissioner's successor in office to be the applicant's or issuer's attorney-in-fact to receive service of any lawful process in any noncriminal suit, action, or proceeding against the applicant or issuer or the applicant's or issuer's successor, executor, or administrator, which arises under this part or any rule or order hereunder after the consent has been filed, with the same force and validity as if served personally on the person filing the consent. Service may be made by leaving a copy of the process in the office of the commissioner, but it is not effective unless:
1. The plaintiff, who may be the commissioner in a suit, action, or proceeding instituted by the commissioner, forthwith sends notice of the service and a copy of the process by registered mail to the defendant or respondent at the defendant's or respondent's last address on file with the commissioner; and
2. The plaintiff's affidavit of compliance with this subsection (e) is filed in the case on or before the return day of the process, if any, or within such further time as the court allows.
When any person, including any nonresident of this state, engages in conduct prohibited or made actionable by this part or any rule or order hereunder, and has not filed a consent to service of process under subsection (e) and personal jurisdiction over the person cannot otherwise be obtained in this state, the conduct shall be considered equivalent to the appointment of the commissioner or the commissioner's successor in office to be such person's attorney-in-fact to receive service of any lawful process to the same extent as if such person had filed a consent to service of process under subsection (e).
When process is served under this section, the court, or the commissioner in a proceeding before the commissioner, shall order such continuance as may be necessary to afford the defendant or respondent reasonable opportunity to defend.
Pursuant to Section 6(c) of the federal Philanthropy Protection Act of 1995, Public Law 104-62 (15 U.S.C. § 80a-3a(c)), this part shall not be preempted.

Acts 1980, ch. 866, § 24; T.C.A., § 48-16-124; Acts 1997, ch. 61, § 2; T.C.A., § 48-2-124; Acts 2017, ch. 424, §§ 43-45.

Code Commission Notes.

Former § 48-2-124 was transferred to § 48-1-124 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-1-125. Notice filing and fee requirements for covered securities.

1. 1. Any issuer, except an issuer of any security that is a covered security under subdivisions (a)(1)(B)-(D), which proposes to sell any security which is a covered security shall file with the commissioner, prior to a sale of such security in this state, a notice consisting of all documents filed with the securities and exchange commission, together with:
    1. A consent to service of process as required under § 48-1-124(e), unless built into the notice filing form; and
    2. A nonrefundable filing fee of five hundred dollars ($500).
  2. An issuer planning to offer and sell securities in this state in an offering pursuant to Tier 2 of Regulation A shall submit the following at least twenty-one (21) days prior to the initial sale in this state:
    1. A completed Regulation A-Tier 2 notice filing form or copies of all documents filed with the securities and exchange commission;
    2. A consent to service of process as required under § 48-1-124(e), if not filing on the Regulation A-Tier 2 notice filing form; and
    3. A nonrefundable filing fee of five hundred dollars ($500).
  3. 1. With respect to any security that is a covered security under § 18(b)(4)(C) of the Securities Act of 1933 (15 U.S.C. § 77r(b)(4)(C)), the issuer shall file with the commissioner a notice consisting of:
      1. A completed Uniform Notice of Federal Crowdfunding Offering form or copies of all documents filed with the securities and exchange commission;
      2. A consent to service of process as required under § 48-1-124(e), if not filing on the Uniform Notice of Federal Crowdfunding Offering form; and
      3. A nonrefundable filing fee of five hundred dollars ($500).
    2. If the issuer has its principal place of business in this state, the filing required under subdivision (a)(1)(C)(i) shall be filed with the commissioner concurrently when the issuer files its initial Form C with the securities and exchange commission.
    3. If the issuer does not have its principal place of business in this state but residents of this state have purchased fifty percent (50%) or greater of the aggregate amount of the offering, the filing required under subdivision (a)(1)(C)(i) shall be filed when the issuer becomes aware that such purchases have met that threshold and, in any event, no later than thirty (30) days from the date of completion of the offering.
  4. With respect to any security that is a covered security under § 18(b)(4)(E) of the Securities Act of 1933, the issuer shall file with the commissioner, no later than fifteen (15) days after the first sale of such covered security in this state, a notice consisting of:
    1. Form D signed by the issuer; and
    2. A nonrefundable filing fee of five hundred dollars ($500).
2. After the initial offer of a covered security in this state, all documents that are part of an amendment to a federal registration statement or Form D filed with the securities and exchange commission under the Securities Act of 1933 (15 U.S.C. § 77a et seq.), shall be filed concurrently with the commissioner.
3. All documents referred to in subdivisions (a)(1) and (a)(2) that have been filed and recorded on the Electronic Data Gathering Access and Retrieval (EDGAR) system, the Interactive Data Electronic Applications (IDEA) system, the Electronic Filing Depository (EFD), or any other electronic data gathering system either maintained by the securities and exchange commission or approved by the commissioner, may be utilized in lieu of filing such documents in paper form with the commissioner or the commissioner's designee; provided, that the person making the notice filing provides an accurate filing number or other identifying designation issued by the securities and exchange commission, and that a printed or electronically stored copy is immediately accessible to the commissioner or the commissioner's designee.
1. Notice filings made pursuant to subdivision (a)(1)(A) are effective for one (1) year commencing on the later of the notice filing date or the securities and exchange commission effective date. Notice filings may be renewed by making a filing and paying a fee as provided under subdivision (a)(1)(A) no later than the close of business on the tenth business day prior to the date of expiration.
2. Notice filings made pursuant to subdivision (a)(1)(B) are effective for one (1) year from the date of filing and may be renewed by making a filing as required by subdivision (a)(1)(B) and paying a nonrefundable renewal fee of one hundred dollars ($100).
3. Notice filings made pursuant to subdivision (a)(1)(C) are effective for one (1) year from the date of filing and may be renewed by making a filing as required by subdivision (a)(1)(C) and paying a nonrefundable renewal fee of one hundred dollars ($100).
4. Notice filings made pursuant to subdivision (a)(1)(D) are effective for one (1) year from the date of filing unless the issuer conducts a continuous offering and files concurrent amendments as required by subdivision (a)(2) and pays a nonrefundable renewal fee of one hundred dollars ($100).
1. The commissioner may issue a stop order suspending the offer and sale of a covered security, except a covered security under § 18(b)(1) of the Securities Act of 1933 (15 U.S.C. § 77r(b)(1)), upon a finding that:
  1. The order is in the public interest; and
  2. There is a failure to comply with any filing or fee required under this part.
2. Any issuer of a covered security that does not promptly remedy a delay in payment of any fee or promptly remedy a delay in making any filing required under this part shall be deemed not to have complied with such filing or fee requirements. For purposes of this subdivision (c)(2), an issuer will have promptly remedied a delay in payment or filing if the issuer remits the required fee or filing within ten (10) business days of receipt of notification of the delay or underpayment.
When any amendment to a notice filing filed under this section changes the name of the offering of securities, the issuer shall pay a processing fee of fifty dollars ($50.00), payable upon filing the amendment with the commissioner.

Acts 1997, ch. 164, § 8; 2001, ch. 61, §§ 15-17; 2010, ch. 697, § 4; T.C.A., § 48-2-125; Acts 2017, ch. 424, § 46.

Code Commission Notes.

Former § 48-2-125 was transferred to § 48-1-125 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Acts 2001, ch. 61, § 1 provided that the act shall be cited as “The Securities Omnibus Act of 2001.”

48-1-126. Exemptions from notice filing and fee requirements.

Notwithstanding § 48-1-125(a)(1)(A)(i) and (ii), the following covered securities are exempt from the notice filing and fee requirements set forth in § 48-1-125:

Any covered security sold to an institutional investor, as defined under § 48-1-102;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(2) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(3) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(5) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(6) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal securities registration pursuant to § 3(a)(7) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is sold in a transaction exempt from federal registration pursuant to § 3(a)(9) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is sold in a transaction exempt from federal registration pursuant to § 3(a)(10) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal registration pursuant to § 3(a)(12) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is exempt from federal registration pursuant to § 3(a)(13) of the Securities Act of 1933;
Any security that is defined to be a covered security pursuant to § 48-1-102 and is determined, by rule or order of the commissioner, that such notice filing is not necessary for the protection of investors;
Any security issued by a unit investment trust that is registered under the federal Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.), as amended, if:
1. The units have been the subject of a previous notice filing and fee under this part and have been sold;
2. The units are offered or sold by a broker-dealer registered under this part; and
3. The units are sold by or on behalf of a sponsor or depositor of the unit investment trust or affiliate of the sponsor or depositor; and
Any security that is defined to be a covered security pursuant to § 18(b)(1) of the Securities Act of 1933, or will be such a covered security upon completion of the transaction.

Acts 1999, ch. 74, § 2; 2010, ch. 697, § 5; T.C.A., § 48-2-126; Acts 2017, ch. 424, § 47.

Code Commission Notes.

Former § 48-2-126 was transferred to § 48-1-126 by the code commission in 2012.

The effective date of the Act was July 2, 1980.

Section 3 of the Securities Act of 1933, referred to in this section, is codified in 15 U.S.C. § 77c.

48-1-127. Senior exploitation reporting and records.

1. If a qualified individual reasonably believes that financial exploitation of a designated adult has occurred, has been attempted or may have been attempted, or is being attempted, the qualified individual, in cooperation with the qualified individual's broker-dealer or investment adviser, may notify the commissioner.
2. Subsequent to notifying the commissioner, a qualified individual may, to the extent permitted under federal law, notify any of the following concerning the qualified individual's belief that financial exploitation may have occurred:
  1. A relative of the designated adult as defined in § 71-6-102;
  2. A legal guardian of the designated adult;
  3. A trustee, co-trustee, or successor trustee of the account of the designated adult;
  4. An agent under a power of attorney of the designated adult; or
  5. Any other person permitted under existing laws, rules, regulations, or customer agreement.
1. A broker-dealer or investment adviser may delay a disbursement from an account of a designated adult or an account on which a designated adult is a beneficiary if:
  1. The broker-dealer, investment adviser, or qualified individual reasonably believes, after initiating an internal review of the requested disbursement and the suspected financial exploitation, that the requested disbursement may result in financial exploitation of a designated adult; and
  2. The broker-dealer or investment adviser:
    1. Immediately, but in no event more than two (2) business days after the requested disbursement, provides written notification of the delay and the reason for the delay to all parties authorized to transact business on the account, unless any such party is reasonably believed to have engaged in or attempted financial exploitation of the designated adult;
    2. Immediately, but in no event more than two (2) business days after the requested disbursement, notifies the commissioner; and
    3. Continues its internal review of the suspected or attempted financial exploitation of the designated adult, as necessary, and reports any additional results to the commissioner within seven (7) business days after the requested disbursement.
2. The commissioner is authorized to establish additional disbursement-delay guidelines by rules promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
3. Any delay of a disbursement as authorized by this section shall expire upon the sooner of:
  1. A determination by the broker-dealer or investment adviser that the disbursement will not result in financial exploitation of the designated adult; or
  2. Fifteen (15) business days after the date on which the broker-dealer or investment adviser first delayed disbursement of the funds, unless the commissioner requests that the broker-dealer or investment adviser extends the delay, in which case the delay shall expire no more than twenty-five (25) business days after the date on which the broker-dealer or investment adviser first delayed disbursement of the funds unless otherwise terminated or extended by the commissioner or an order of a court of competent jurisdiction.
4. A court of competent jurisdiction may enter an order extending the delay of the disbursement of funds or an order granting other protective relief based on the petition of the commissioner, the broker-dealer or investment adviser that initiated the delay under this section, or any other interested party.
A broker-dealer, investment adviser, or qualified individual that, in good faith and exercising reasonable care, complies with subsections (a) and (b) is immune from liability for such conduct.
A broker-dealer or investment adviser shall provide access to or copies of records that are relevant to the suspected financial exploitation of a designated adult to the commissioner. The records may include historical records or records relating to the most recent disbursement as well as disbursements that comprise the suspected financial exploitation of a designated adult. All records made available to the commissioner under this section shall not be open to inspection by members of the public under § 10-7-503.

Acts 2017, ch. 242, § 48.

Part 2
Miscellaneous Provisions

48-1-201. Participation certificates in bonds or notes secured by mortgages on realty.

Persons issuing and selling participation certificates in bonds or notes secured by mortgages or deeds of trust on land wherever located shall hold legal title to such bonds or notes in trust for the use and benefit of bona fide purchasers of such certificates to the extent of the interests sold to such purchasers, and such certificates and the interests represented thereby shall not be subject to the claims of creditors of the trustee holding legal title.

Acts 1980, ch. 599, § 1; T.C.A., § 48-16-201; Acts 1985, ch. 110, § 1; T.C.A., § 48-2-201.

Code Commission Notes.

Former § 48-2-201 was transferred to § 48-1-201 by the code commission in 2012.

Law Reviews.

The Federal Income Tax Considerations Involved in Forming and Operating a Bank Holding Company (Clayton D. Smith), 11 Mem. St. U.L. Rev. 453 (1981).

Chapters 2-10
[Reserved]

For-Profit Business Corporations

Chapter 11
General Provisions

Part 1
Short Title and Reservation of Power

48-11-101. Short title.

Chapters 11-27 of this title shall be known and may be cited as the “Tennessee Business Corporation Act.”

Acts 1986, ch. 887, § 1.01.

Cross-References. Acts of incorporation left unrepealed, § 1-2-105.

Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Cemetery companies, title 46, ch. 2.

Chancery jurisdiction of controversies, § 16-11-105.

Corporations created by general law, Tenn. Const., art. XI, § 8.

Nonprofit corporations, general provisions, title 48, ch. 51.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-104, 5-203.

Law Reviews.

Aligning Law and Forum: The Home Court Advantage, 81 Tenn. L. Rev. 1 (2013).

The Supercharged IPO, 67 Vand. L. Rev. 307 (2014).

Dual Identities and Dueling Obligations: Preserving Independence in Corporate Representation, 68 Tenn. L. Rev. 179 (2001).

Punitive Damages and Business Organizations: A Pathetic Fallacy, 67 Tenn. L. Rev. 971 (2000).

The Debt-Equity Distinction in a Second-Best World, 53 Vand. L. Rev. 1055 (2000).

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

Attorney General Opinions. Provision of physical therapy services by a non-professional corporation. OAG 94-131, 1994 Tenn. AG LEXIS 144 (11/8/94).

48-11-102. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of chapters 11-27 of this title at any time, and all domestic and foreign corporations subject to chapters 11-27 of this title shall be governed by the amendment or repeal.

Acts 1986, ch. 887, § 1.02.

Cross-References. General assembly's power to amend or repeal laws regarding domestic and foreign limited liability corporations, § 48-201-102.

General assembly's power to amend or repeal laws regarding domestic and foreign nonprofit corporations, § 48-51-102.

General assembly's power to amend or repeal laws regarding domestic and foreign professional corporations, § 48-101-634.

General assembly's power to amend or repeal laws regarding domestic and foreign professional limited liability corporations, § 48-248-606.

48-11-103. Eminent domain.

Chapters 11-27 of this title do not repeal or affect the right or power of eminent domain under other existing laws, and any corporation which shall have the power of eminent domain under existing laws shall have the power to the same extent and in the same manner as if organized under chapters 11-27 of this title, and all statutes of this state granting the power of eminent domain and making compensation shall remain in force and effect and applicable to the appropriate existing corporations and to the appropriate corporations organized under chapters 11-27 of this title.

Acts 1986, ch. 887, § 1.03.

Cross-References. Nonprofit corporations — Eminent domain, § 48-51-103.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Internal Improvements.

Corporation incorporated for the purpose of building, buying, maintaining, leasing, owning and/or operating pipelines or water mains, etc., and which engaged in the installation of a pipeline from the city water main to a subdivision was engaged in a work of internal improvement so as to have the right of eminent domain under § 29-16-101. Shinkle v. Nashville Improv. Co., 172 Tenn. 555, 113 S.W.2d 404, 1937 Tenn. LEXIS 97 (1938).

48-11-104. Applicability.

Chapters 11-27 of this title shall apply to every corporation for profit now existing or hereafter formed, and to the outstanding and future securities thereof; provided, that, if there are other specific statutory provisions which govern the formation of, impose restrictions or requirements on, confer special powers, privileges or authorities on, or fix special procedures or methods for, special categories of corporations, then to the extent such provisions are inconsistent with or different from chapters 11-27 of this title, such provisions shall prevail.

Acts 1987, ch. 273, § 2.

Part 2
Definitions and Notice

48-11-201. Definitions for chapters 11 through 27.

As used in chapters 11-27 of this title, unless the context otherwise requires (or the term is otherwise defined in another chapter of the Tennessee Business Corporation Act, in which event the term shall have such other meaning for that chapter):

“Affiliate” of a specific person means a person that directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, the person specified;
“Authorized shares” means the shares of all classes a domestic or foreign corporation is authorized to issue;
“Business” means any activity or function;
“Charter” includes amended and restated charters and articles of merger;
“Confirmation of good standing” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that at the time such confirmation is issued a domestic or foreign corporation is current on all taxes and penalties to the satisfaction of the commissioner;
“Conspicuous” means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlined, is conspicuous;
“Corporation,” “domestic corporation” or “domestic business corporation” means a corporation for profit, which is not a foreign corporation, incorporated under or subject to chapters 11-27 of this title;
“Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, and, if authorized in accordance with § 48-11-202, by electronic transmission;
“Distribution” means a direct or indirect transfer of money or other property (except its own shares) or incurrence of indebtedness (whether directly or indirectly, including through a guaranty) by a corporation to or for the benefit of its shareholders in respect of any of its shares. A distribution may be in the form of a declaration or payment of a dividend; a purchase, redemption, or other acquisition of shares; a distribution of indebtedness (which includes the incurrence of indebtedness for the benefit of the shareholders); or otherwise;
“Document” means:
1. Any tangible medium on which information is inscribed, and includes any writing or written instrument; or
2. An electronic record;
“Effective date of notice,” as defined in § 48-11-202(i);
“Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities;
“Electronic record” means information that is stored in an electronic or other medium and is retrievable in paper form through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with § 48-11-202;
“Electronic transmission” or “electronically transmitted” means any form or process of communication not directly involving the physical transfer of paper or another tangible medium, which is:
1. Suitable for the retention, retrieval, and reproduction of information by the recipient; and
2. Is retrievable in paper form by the recipient through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with § 48-11-202(j);
“Emergency” exists when a quorum of the corporate directors cannot readily be assembled because of some catastrophic event;
“Employee” includes an officer but not a director. A director may accept duties that make the director also an employee;
“Entity” includes domestic and foreign business corporation; domestic and foreign nonprofit corporation; estate; trust; domestic and foreign unincorporated entity and state, United States, and foreign government. The term includes two (2) or more persons having a joint or common economic interest;
“Filing entity” means an unincorporated entity that is of a type that is created by filing a public organic document;
“Foreign corporation” means a corporation for profit incorporated under a law other than the laws of this state;
“Foreign nonprofit corporation” means a corporation incorporated under a law other than the law of this state, which would be a nonprofit corporation if incorporated under the laws of this state;
“Foreign unincorporated entity” means an unincorporated entity whose internal affairs are governed by an organic law of a jurisdiction other than this state;
“Governmental subdivision” includes authority, county, district, and municipality;
“Includes” denotes a partial definition;
“Individual” includes the estate of an incompetent or deceased individual;
“Interest” means either or both of the following rights under the organic law of an unincorporated entity:
1. The right to receive distributions from the entity either in the ordinary course or upon liquidation; or
2. The right to receive notice or vote on issues involving its internal affairs, other than as an agent, assignee, proxy, or person responsible for managing its business and affairs;
“Means” denotes an exhaustive definition;
“Month” means the time from any day of any month to the corresponding day of the succeeding month, if any, and if none, the last day of the succeeding month. “A period of two (2) or more months” means the time from any day of the first month in such period to the corresponding day of the last month in such period, if any, and if none, the last day of the last month in such period;
“Nonfiling entity” means an unincorporated entity that is of a type that is not created by filing a public organic document;
“Nonprofit corporation” or “domestic nonprofit corporation” means a corporation incorporated under the laws of this state and subject to the Tennessee Nonprofit Corporation Act, compiled in chapters 51-68 of this title;
“Notice,” as defined in § 48-11-202;
“Organic document” means a public organic document or a private organic document;
“Organic law” means the statute governing the internal affairs of a domestic or foreign business or nonprofit corporation or unincorporated entity;
“Person” includes individual and entity;
“Principal office” means the office (in or out of this state) so designated in the annual report where the principal executive offices of a domestic or foreign corporation are located;
“Private organic document” means any document (other than the public organic document, if any) that determines the internal governance of an unincorporated entity. Where a private organic document has been amended or restated, the term means the private organic document as last amended or restated;
“Proceeding” includes civil suit and criminal, administrative, and investigatory action;
“Public organic document” means the document, if any, that is filed of public record to create an unincorporated entity. Where a public organic document has been amended or restated, the term means the public organic document as last amended or restated;
“Record date” means the date established under chapter 16 or 17 on which a corporation determines the identity of its shareholders for purposes of chapters 11-27 of this title;
“Secretary” means the corporate officer to whom the bylaws or the board of directors has delegated responsibility under § 48-18-401(c) for custody of the minutes of the meetings of the board of directors and of the shareholders and for authenticating records of the corporation;
“Share” means the unit into which the proprietary interests in a corporation are divided;
“Shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation;
“Sign” or “signature” means, with present intent to authenticate or adopt a document:
1. To execute or adopt a tangible symbol to a document, and includes any manual, facsimile, or conformed signature; or
2. To attach to or logically associate with an electronic transmission an electronic sound, symbol, or process, and includes an electronic signature in an electronic transmission;
“State,” when referring to a part of the United States, includes a state and commonwealth (and their agencies and governmental subdivisions) and a territory and insular possession (and their agencies and governmental subdivisions) of the United States;
“Subscriber” means a person who subscribes for shares in a corporation, whether before or after incorporation;
“Subsidiary” means a corporation more than fifty percent (50%) of whose outstanding voting shares are owned by its parent and/or the parent's other wholly-owned subsidiaries;
“Tax clearance for termination or withdrawal” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that a domestic or foreign corporation has filed all applicable reports, including, but not limited to, a final report, and has paid all fees, penalties and taxes as required by the revenue laws of this state;
“Unincorporated entity” means an organization or artificial legal person that either has a separate legal existence or has the power to acquire an estate in real property in its own name and that is not any of the following: a domestic or foreign business or nonprofit corporation, an estate, a trust, a state, the United States, or a foreign government. The term includes a general partnership, limited liability company, limited partnership, business trust, joint stock association, and unincorporated nonprofit association;
“United States” includes district, authority, bureau, commission, department, and any other agency of the United States;
“Voting group” means all shares of one (1) or more classes or series that under the charter or chapters 11-27 of this title are entitled to vote and be counted together collectively on a matter at a meeting of shareholders. All shares entitled by the charter or chapters 11-27 of this title to vote generally on the matter are for that purpose a single voting group; and
“Writing” or “written” means any information in the form of a document.

Acts 1986, ch. 887, § 1.20; 1987, ch. 273, §§ 3, 4; 1989, ch. 451, § 1; 1994, ch. 776, §§ 1, 2; 2010, ch. 741, § 1; 2012, ch. 1051, §§ 1-6.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1114.

Law Reviews.

Some Whys and Wherefores in Drafting Shareholder Agreements (Robert L. McMurray), 23 Tenn. B.J. 19 (1987).

NOTES TO DECISIONS

1. Conspicuous.

Security agreement did not in any way make proxy appointment conspicuous. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

2. Subsidiary.

While the Tennessee Court of Appeals addressed the concept of reverse piercing in the corporation/shareholder context, it never adopted it, and T.C.A. § 48-11-201 defined a subsidiary as a corporation more than 50 percent of whose outstanding voting shares were owned by its parent and/or the parent's other wholly-owned subsidiaries. However, the alleged parent, the insurance agency, never owned any shares of the company, and therefore, because the company was not a subsidiary of the insurance agency, the plaintiff's reverse piercing claim failed. Nippert v. Jackson, 860 F. Supp. 2d 554, 2012 U.S. Dist. LEXIS 35109 (M.D. Tenn. Mar. 15, 2012).

48-11-202. General notice requirements.

Notice under chapters 11-27 of this title must be in writing unless oral notice is reasonable in the circumstances and not prohibited by the charter or bylaws. Unless otherwise agreed between the sender and the recipient, words in a notice or other communication under chapters 11-27 of this title must be in English.
A notice or other communication may be given or sent by any method of delivery, except that electronic transmissions must be in accordance with this section. If these methods of delivery are impracticable, a notice or other communication may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication.
Notice or other communication to a domestic or foreign corporation (authorized to transact business in this state) may be delivered to its registered agent at its registered office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the registered agent's registered office) or to the secretary of the corporation at its principal office shown in its most recent annual report (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the corporation's principal office) or, in the case of a foreign corporation that has not yet delivered an annual report, in its application for a certificate of authority.
Notice or other communications may be delivered by electronic transmission if consented to by the recipient or if authorized by subsection (j).
1. Any consent under subsection (d) may be revoked by the person who consented by written or electronic notice to the person to whom the consent was delivered. Any such consent is deemed revoked if:
  1. The corporation is unable to deliver two (2) consecutive electronic transmissions given by the corporation in accordance with such consent; and
  2. Such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice or other communication.
2. The inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Unless otherwise agreed between the sender and the recipient, an electronic transmission is received when:
1. It enters an information processing system that the recipient has designated or uses for the purposes of receiving electronic transmissions or information of the type sent, and from which the recipient is able to retrieve the electronic transmission; and
2. It is in a form capable of being processed by that system.
Receipt of an electronic acknowledgement from an information processing system described in subdivision (f)(1) establishes that an electronic transmission was received but, by itself, does not establish that the content sent corresponds to the content received.
An electronic transmission is received under this section even if no individual is aware of its receipt.
Notice or other communication, if in a comprehensible form or manner, is effective at the earliest of the following:
1. If in a physical form, the earliest of when it is actually received, or when it is left at:
  1. A shareholder's address shown on the corporation's record of shareholders maintained by the corporation under § 48-26-101(c);
  2. A director's residence or usual place of business; or
  3. The corporation's principal place of business;
2. If mailed first class postage prepaid and correctly addressed to a shareholder, upon deposit in the United States mail;
3. If mailed by United States mail postage prepaid and correctly addressed to a recipient other than a shareholder, the earliest of when it is actually received, or:
  1. If sent by registered or certified mail, return receipt requested, the date shown on the return receipt signed by or on behalf of the addressee; or
  2. Five (5) days after it is deposited in the United States mail;
4. If an electronic transmission, when it is received as provided in subsection (f); or
5. If oral, when communicated, if communicated in a comprehensible manner.
A notice or other communication may be in the form of an electronic transmission that cannot be directly reproduced in paper form by the recipient through an automated process used in conventional commercial practice only if:
1. The electronic transmission is otherwise retrievable in perceivable form; and
2. The sender and the recipient have consented in writing to the use of such form of electronic transmission.
If chapters 11-27 of this title prescribe requirements for notices or other communications in particular circumstances, those requirements govern. If the charter or bylaws prescribe requirements for notices or other communications, not inconsistent with this section or other provisions of chapters 11-27 of this title, those requirements govern. The charter or bylaws may authorize or require delivery of notices of meetings of directors by electronic transmission.

Acts 1986, ch. 887, § 1.21; 1987, ch. 273, §§ 5, 6; 1994, ch. 776, § 3; 2012, ch. 1051, § 7.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-811, 5-1107, 5-1108, 5-1301.

48-11-203. Number of shareholders.

For purposes of chapters 11-27 of this title, the following identified as a shareholder in a corporation's current record of shareholders constitutes one (1) shareholder:
1. Three (3) or fewer co-owners;
2. A corporation, partnership, trust, estate, or other entity; and
3. The trustees, guardians, custodians, or other fiduciaries of a single trust, estate, or account.
For purposes of chapters 11-27 of this title, shareholdings registered in substantially similar names constitute one (1) shareholder if it is reasonable to believe that the names represent the same person.

Acts 1986, ch. 887, § 1.22.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1301.

Part 3
Filing Documents

48-11-301. Filing requirements.

The form and filing of a document must satisfy the requirements of this section, and of all other applicable sections or rules that add to these requirements, to be entitled to filing by the secretary of state.
Chapters 11-27 of this title must require or permit filing the document in the office of the secretary of state.
The document must contain the information required by chapters 11-27 of this title and other information as may be required by the secretary of state. It may contain other information as well.
The secretary of state may prescribe, and shall furnish upon request, forms for documents required or permitted to be filed by all chapters of this title. If the secretary of state has prescribed a mandatory form for the document, then the document must be in or on the prescribed form or a conformed copy thereof. In the absence of a specific rule, the document must be capable of being printed in ink in a clear and legible fashion on one (1) side of letter size paper.
The document must be in the English language. A corporate name need not be in English if written in English letters, or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
The document must be executed:
1. By the chair of the board of directors of a domestic or foreign corporation, by its president, or by another of its authorized officers;
2. If directors have not been selected or the corporation has not been formed, by an incorporator; or
3. If the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
The person executing the document must sign it and state beneath or opposite the person's signature the person's name and the capacity in which the person signs. The document may, but need not, contain:
1. The corporate seal;
2. An attestation by the secretary or an assistant secretary;
3. An acknowledgement, verification, or proof; or
4. The date the document is signed, except that the date is required for the annual report for the secretary of state.
If the secretary of state has prescribed a mandatory form and filing method for any filing required or authorized by this chapter, then the document must be in or on the prescribed form.
The document must be delivered to the office of the secretary of state for filing in the manner and form prescribed by the secretary of state and must be accompanied by the correct filing fee, and any corporate tax, license fee, interest, or penalty required by chapters 11-27 of this title.
Whenever this title permits any of the terms of a plan or a filed document to be dependent on facts objectively ascertainable outside the plan or filed document, the following apply:
1. The manner in which the facts will operate upon the terms of the plan or filed document must be set forth in the plan or filed document;
2. The facts may include, but are not limited to:
  1. Any of the following that is available in a nationally recognized news or information medium either in print or electronically: statistical or market indices, market prices of any security or group of securities, interest rates, currency exchange rates, or similar economic or financial data;
  2. A determination or action by any person or body, including the corporation or any other party to a plan or filed document; or
  3. The terms of, or actions taken under, an agreement to which the corporation is a party, or any other agreement or document;
3. As used in this subsection (j):
  1. “Filed document” means a document filed with the secretary of state under chapters 11-27 of this title, except chapter 25 or § 48-26-203; and
  2. “Plan” means a plan of domestication, nonprofit conversion, entity conversion, merger, or share exchange;
4. None of the following provisions of a plan or filed document are made dependent on facts outside the plan or filed document:
  1. The name and address of any person required in a filed document;
  2. The registered office of any entity required in a filed document;
  3. The registered agent of any entity required in a filed document;
  4. The number of authorized shares and designation of each class or series of shares;
  5. The effective date of a filed document; or
  6. Any required statement in a filed document of the date on which the underlying transaction was approved or the manner in which that approval was given; and
5. If a provision of a filed document is made dependent on a fact ascertainable outside of the filed document, and that fact is not ascertainable by reference to a source described in subdivision (j)(2)(A) or a document that is a matter of public record, or the affected shareholders have not received notice of the fact from the corporation, then the corporation shall file with the secretary of state articles of amendment setting forth the fact promptly after the time when the fact referred to is first ascertainable or thereafter changes. Articles of amendment under this subdivision (j)(5) are deemed to be authorized by the authorization of the original filed document or plan to which they relate and may be filed by the corporation without further action by the board of directors or the shareholders.
The secretary of state may promulgate appropriate rules establishing acceptable methods for execution of any document to be filed with the secretary of state.
All documents submitted to the secretary of state for filing shall contain a statement that makes it clear that the documents are being filed pursuant to the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title.
The secretary of state may establish procedures for the filing of documents with the secretary of state by means of electronic transmission.
Notwithstanding any other law to the contrary, whenever this title requires that an application or other document submitted to the secretary of state for filing be accompanied by a confirmation of good standing, tax clearance for termination or withdrawal, or other similar communication of taxpayer status by the commissioner of revenue, then that requirement is met, and a paper certificate need not accompany the application or other document, if the commissioner provides to the secretary of state electronic verification of the required information. Upon request of the person seeking certificate information, the commissioner shall provide to the secretary of state electronic verification in lieu of a paper certificate.

Acts 1986, ch. 887, § 1.30; 1987, ch. 273, § 7; 1989, ch. 451, § 2; 1991, ch. 188, § 1; 1994, ch. 776, § 4; 1999, ch. 80, § 1; 2010, ch. 741, § 2; 2011, ch. 99, §§ 23, 24; 2012, ch. 1051, §§ 8, 9; 2020, ch. 719, § 4.

Amendments. The 2020 amendment rewrote this section, which read: “(a)A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the secretary of state.“(b)Chapters 11-27 of this title must require or permit filing the document in the office of the secretary of state.“(c)The document must contain the information required by chapters 11-27 of this title. It may contain other information as well.“(d)The document must be typewritten or printed in ink in a clear and legible fashion on one (1) side of letter size paper.“(e)The document must be in the English language. A corporate name need not be in English if written in English letters or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.“(f)The document must be executed:“(1)By the chair of the board of directors of a domestic or foreign corporation, by its president, or by another of its authorized officers“(2)If directors have not been selected or the corporation has not been formed, by an incorporator; or“(3)If the corporation is in the hands of a receiver, trustee or other court-appointed fiduciary, by that fiduciary.“(g)The person executing the document shall sign it and state beneath or opposite such person’s signature such person’s name and the capacity in which such person signs. The document may but need not contain:“(1)The corporate seal;“(2)An attestation by the secretary or an assistant secretary;“(3)An acknowledgement, verification or proof; or“(4)The date the document is signed, except that such date shall be required for the annual report for the secretary of state.“(h)If the secretary of state has prescribed a mandatory form for the document under § 48-11-302, the document must be in or on the prescribed form.“(i)The document must be delivered to the office of the secretary of state for filing and must be accompanied by the correct filing fee, and any corporate tax, license fee, interest or penalty required by chapters 11-27 of this title.“(j)Whenever this title permits any of the terms of a plan or a filed document to be dependent on facts objectively ascertainable outside the plan or filed document, the following apply:“(1)The manner in which the facts will operate upon the terms of the plan or filed document shall be set forth in the plan or filed document;“(2)The facts may include, but are not limited to:“(A)Any of the following that is available in a nationally recognized news or information medium either in print or electronically: statistical or market indices, market prices of any security or group of securities, interest rates, currency exchange rates, or similar economic or financial data;“(B)A determination or action by any person or body, including the corporation or any other party to a plan or filed document; or“(C)The terms of, or actions taken under, an agreement to which the corporation is a party, or any other agreement or document;“(3)As used in this subsection (j):“(A)“Filed document” means a document filed with the secretary of state under any provision of chapters 11-27 of this title, except chapter 25 or § 48-26-203; and“(B)“Plan” means a plan of domestication, nonprofit conversion, entity conversion, merger, or share exchange;“(4)None of the following provisions of a plan or filed document shall be made dependent on facts outside the plan or filed document:“(A)The name and address of any person required in a filed document;“(B)The registered office of any entity required in a filed document;“(C)The registered agent of any entity required in a filed document;“(D)The number of authorized shares and designation of each class or series of shares;“(E)The effective date of a filed document;“(F)Any required statement in a filed document of the date on which the underlying transaction was approved or the manner in which that approval was given; and“(5)If a provision of a filed document is made dependent on a fact ascertainable outside of the filed document, and that fact is not ascertainable by reference to a source described in subdivision (j)(2)(A) or a document that is a matter of public record, or the affected shareholders have not received notice of the fact from the corporation, then the corporation shall file with the secretary of state articles of amendment setting forth the fact promptly after the time when the fact referred to is first ascertainable or thereafter changes. Articles of amendment under this subdivision (j)(5) are deemed to be authorized by the authorization of the original filed document or plan to which they relate and may be filed by the corporation without further action by the board of directors or the shareholders.“(k)The secretary of state has the power to promulgate appropriate rules and regulations establishing acceptable methods for execution of any document to be filed with the secretary of state.“(l )All documents submitted to the secretary of state for filing should contain a statement which makes it clear that they are being filed pursuant to the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title.“(m)The secretary of state has the power to establish procedures for the filing of documents with the secretary of state by means of electronic transmission.“(n)Notwithstanding any other law to the contrary, whenever this title requires that an application or other document submitted to the secretary of state for filing be accompanied by a confirmation of good standing, tax clearance for termination or withdrawal, or other similar communication of taxpayer status by the commissioner of revenue, then such requirement shall be met, and a paper certificate need not accompany the application or other document, if the commissioner provides to the secretary of state electronic verification of the required information. Upon request of the person seeking certificate information, the commissioner shall provide to the secretary of state electronic verification in lieu of a paper certificate.”

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Filing requirements, §§ 48-51-301 and 48-247-101.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

48-11-302. Forms and filing methods.

The secretary of state may prescribe and furnish forms and filing methods for all filings required by this title.
If the secretary of state so requires, then use of these forms and filing methods is mandatory.

Acts 1986, ch. 887, § 1.31; 1987, ch. 273, § 8; 2012, ch. 1051, § 10; 2020, ch. 719, § 5.

Amendments. The 2020 amendment rewrote this section, which read: “(a) (1) The secretary of state may prescribe and furnish on request forms for: “(A) An application for a certificate of existence; “(B) A foreign corporation's application for a certificate of authority to transact business in this state;“(C) A foreign corporation's application for a certificate of withdrawal; and“(D) The annual report.“(2) If the secretary of state so requires, use of these forms is mandatory. “(b) The secretary of state may prescribe and shall furnish on request forms for other documents required or permitted to be filed by chapters 11-27 of this title. If the secretary of state has prescribed a mandatory form for the document, the document must be in or on the prescribed form or a conformed copy thereof.”

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-11-303. Filing, service, and copying fees.

The secretary of state shall collect the following fees when the documents described in this subsection (a) are delivered to the secretary of state for filing:
Document Fee
1. Charter (including designation of initial registered office and agent) $100.00
2. Application for use of indistinguishable name 20.00
3. Application for reserved name 20.00
4. Notice of transfer or cancellation of reserved name 20.00
5. Application for registered name 20.00
6. Application for renewal for registered name 20.00
7. Application for or change, cancellation, or renewal of assumed name 20.00
8. Corporation's statement of change of registered agent or registered office, or both 20.00
9. Agent's statement of change of registered office 5.00 per corporation, but not less than 20.00
10. Agent's statement of resignation 20.00
11. Charter amendment 20.00
12. Restatement of charter 20.00
13. Amended and restated charter 20.00
14. Articles of entity conversion 100.00
15. Articles of charter surrender 20.00
16. Statement of abandonment of merger, conversion or share exchange 20.00
17. Articles of merger or share exchange 100.00
18. Articles of dissolution and termination by incorporators or directors 20.00
19. Articles of dissolution 20.00
20. Articles of revocation of dissolution 20.00
21. Articles of termination of corporate existence 20.00
22. Certificate of administrative dissolution No fee
23. Application for reinstatement following administrative dissolution 70.00
24. Articles of termination following administrative dissolution or revocation 100.00
25. Certificate of reinstatement No fee
26. Certificate of judicial dissolution No fee
27. Application for certificate of authority (including designation of initial registered office and agent) 600.00
28. Application for amended certificate of authority 20.00
29. Application for certificate of withdrawal 20.00
30. Certificate of revocation of authority to transact business No fee
31. Application for certificate of withdrawal following administrative revocation 100.00
32. Application for reinstatement following administrative revocation 70.00
33. Annual report 20.00
34. Articles of correction 20.00
35. Application for certificate of existence or authorization 20.00
36. Any other document required or permitted to be filed by chapters 11-27 of this title 20.00
The secretary of state shall collect a fee of twenty dollars ($20.00) each time process is served on the secretary of state under chapters 11-27 of this title. The party to a proceeding causing service of process is entitled to recover this fee as costs if such party prevails in the proceeding.
The secretary of state shall collect a fee of twenty dollars ($20.00) for copying all filed documents relating to a domestic or foreign corporation. All such copies will be certified or validated by the secretary of state.
In addition to the other filing requirements of chapters 11-27 of this title, a copy of all documents specified in subdivisions (a)(1) and (11)-(20) shall also be filed in the office of the register of deeds in the county wherein a corporation has its principal office, if such principal office is in Tennessee, and in the case of a merger, in the county in which the new or surviving corporation shall have its principal office if such principal office is in Tennessee. The register of deeds may charge five dollars ($5.00) plus fifty cents (50¢) per page in excess of five (5) pages for such filing.

Acts 1986, ch. 887, § 1.32; 1987, ch. 273, § 9; 1989, ch. 451, §§ 3, 33; 1991, ch. 188, § 6; 1998, ch. 784, § 1; 1998, ch. 890, § 1; 2000, ch. 568, § 1; 2012, ch. 1051, §§ 11, 12.

Cross-References. Business corporations, fees for filing with the secretary of state, § 48-51-303.

48-11-304. Effective time and date of document.

Except as provided in subsection (b) and § 48-11-305(c), a document accepted for filing is effective:
1. At the time of filing on the date it is filed by the secretary of state, as evidenced by the secretary of state's date and time endorsement on the original document; and
2. At the time specified in the document as its effective time on the date it is filed.
A document may specify a delayed effective time and date, and if it does so the document becomes effective at the time and date specified. If a delayed effective date but not time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed by the secretary of state. Notwithstanding the foregoing, documents specified in § 48-11-303(a)(3)-(7), (15), (16), (20), (21), (25), (31), (33) and (34) may not specify a delayed effective time and date.
The secretary of state shall not file any charter or application for a certificate of authority unless that document designates the registered agent and registered office of such domestic or foreign corporation in accordance with chapters 15 and 25 of this title. The secretary of state shall not file any other document under chapters 11-27 of this title if at the time of filing the domestic or foreign corporation does not have a registered agent or registered office designated at such time, unless at the time such document is received for filing the secretary of state also receives for filing a statement designating such registered agent or registered office, or both.

Acts 1986, ch. 887, § 1.33; 1987, ch. 273, §§ 10-13; 1991, ch. 188, § 13; 2012, ch. 1051, § 13.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-401.

48-11-305. Correcting filed document.

A domestic or foreign corporation may correct a document filed by the secretary of state if the document:
1. Contains an incorrect statement; or
2. Was defectively executed, attested, sealed, verified, or acknowledged.
A document is corrected by:
1. Preparing articles of correction that:
  1. Describe the document (including its filing date) or attach a copy of it to the articles;
  2. Specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
  3. Correct the incorrect statement or defective execution; and
2. Delivering the articles to the secretary of state for filing.
Articles of correction are effective on the effective time and date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

Acts 1986, ch. 887, § 1.34; 1987, ch. 273, § 14.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-701.

48-11-306. Filing duty of secretary of state.

If the form and filing of a document delivered to the office of the secretary of state for filing satisfies the requirements of this section, and of all other applicable sections or rules that add to these requirements, then the secretary of state must file it.
The secretary of state files a document by stamping or otherwise endorsing “Filed”, together with the secretary of state's name and official title and the date and time of receipt, on the document. After filing a document, except for filings pursuant to §§ 48-15-103, 48-25-109, and 48-26-203, the secretary of state shall deliver the document, with the filing fee receipt (or acknowledgment of receipt if no fee is required) attached, to the domestic or foreign corporation or its representative in due course. A domestic or foreign corporation or its representative may present to the secretary of state an exact or conformed copy of the document presented for filing together with the document, and, in that event, the secretary of state shall stamp or otherwise endorse the exact or conformed copy “Filed”, together with the secretary of state's name and official title and the date and time of receipt, and immediately return the exact or conformed copy to the party filing the original of the document.
If the secretary of state refuses to file a document, then the secretary of state must return it to the domestic or foreign corporation or its representative within a reasonable time after the document was received for filing, together with a brief, written explanation of the reason for the secretary of state's refusal.
The secretary of state's duty to file documents under this section is ministerial. The secretary of state's filing or refusing to file a document does not:
1. Affect the validity or invalidity of the document in whole or part;
2. Relate to the correctness or incorrectness of information contained in the document;
3. Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect; or
4. Establish that a document purporting to be an exact or conformed copy is in fact an exact or conformed copy.
Any corporate document that meets the requirements of chapters 11-27 of this title and any applicable rules for filing and recording must be received, filed, and recorded by the appropriate office, notwithstanding any contrary requirements found in any other laws of this state.

Acts 1986, ch. 887, § 1.35; 1987, ch. 273, §§ 15, 16; 2012, ch. 1051, § 14; 2020, ch. 719, § 6.

Amendments. The 2020 amendment, in (a), inserted “the form and filing of”, substituted “this section, and of all other applicable sections or rules that add to these requirements, then” for “§ 48-11-301,” and substituted “must” for “shall”; in (b), substituted “the document” for “such document” three times and “conformed copy ‘Filed’,” for “conformed copy filed,” in the third sentence; substituted “then the secretary of state must” for “the secretary of state shall” near the beginning of (c); and, in (e), substituted “that meets” for “which meets”, inserted “and any applicable rules”, substituted “must be received, filed,” for “shall be received, filed”, and deleted “provision of the” preceding “laws of this state” at the end.

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Filing duty, §§ 48-51-306, 48-247-105.

48-11-307. Appeal from secretary of state's refusal to file document.

If the secretary of state refuses to file a document delivered to the secretary of state's office for filing, the domestic or foreign corporation may appeal the refusal to the chancery court of Davidson County. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the secretary of state's explanation of the secretary of state's refusal to file.
The court may summarily order the secretary of state to file the document or take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.
Any judicial review of the secretary of state's refusal to file a document shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1986, ch. 887, § 1.36.

48-11-308. Evidentiary effect of copy of filed document.

A certificate attached or certification affixed to a copy of a document filed by the secretary of state, bearing the secretary of state’s signature (which may be in facsimile or other electronic format) and the seal of this state, is conclusive evidence that the original document is on file with the secretary of state.

Acts 1986, ch. 887, § 1.37; 1987, ch. 273, § 17; 2012, ch. 1051, § 15.

48-11-309. Certificate of existence or authorization.

Any person may apply to the secretary of state to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation authorized to transact business in this state.
A certificate of existence or authorization sets forth:
1. The domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
2. That:
  1. The domestic corporation is duly incorporated under the laws of this state, the effective date of its incorporation, and the period of its duration if less than perpetual; or
  2. The foreign corporation is authorized to transact business in this state;
3. That all fees, taxes and penalties owed to this state have been paid, if:
  1. Payment is reflected in the records of the secretary of state or the department of revenue; and
  2. Nonpayment allows:
    1. Administrative dissolution of a domestic corporation; or
    2. Administrative revocation of the certificate of authority of a foreign corporation;
4. That its most recent annual report required by § 48-26-203 has been filed with the secretary of state;
5. 1. For a domestic corporation:
    1. That articles of termination of existence have not been filed;
    2. Whether or not articles of dissolution have been filed and remain effective;
    3. Whether or not a certificate of dissolution has been filed and remains effective; and
    4. That a decree of judicial dissolution has not been filed;
  2. For a foreign corporation:
    1. That a certificate of withdrawal has not been filed; and
    2. Whether or not a certificate of revocation of certificate of authority has been filed and remains effective;
6. That the certificate is effective as of the date of the issuance of the certificate; and
7. Other facts of record in the office of the secretary of state that may be requested by the applicant.
Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the secretary of state is effective as of the date on the certificate and may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this state and is in good standing.

Acts 1986, ch. 887, § 1.38; 1987, ch. 273, § 18; 1991, ch. 188, § 12; 1994, ch. 776, § 5; 2010, ch. 742, § 1; 2011, ch. 99, § 25.

48-11-310. Penalty for signing false document.

A person who signs a document, knowing it to be false in any material respect, with intent that the document be delivered to the secretary of state for filing, commits a Class A misdemeanor.

Acts 1986, ch. 887, § 1.39; 1989, ch. 591, §§ 1, 6.

Code Commission Notes.

The misdemeanor in this section has been designated as a Class A misdemeanor by authority of § 40-35-110, which provides that an offense designated a misdemeanor without specification as to category is a Class A misdemeanor. See also § 39-11-114.

Cross-References. Forgery, false entries on books, penalty, § 39-14-114.

Penalty for Class A misdemeanor, § 40-35-111.

Part 4
Secretary of State

48-11-401. Powers.

The secretary of state has the power reasonably necessary to perform the duties required of the secretary of state by chapters 11-27 of this title, including, without limitation, the power to promulgate necessary and appropriate rules and regulations consistent with chapters 11-27 of this title, and the power to destroy any records in the secretary of state's office concerning the domestic or foreign corporation ten (10) years after such corporation has dissolved, withdrawn from the state, or has had its certificate of authority revoked.

Acts 1986, ch. 887, § 1.40; 1987, ch. 273, § 19.

Cross-References. Monthly list of newly licensed corporations, § 8-3-104.

48-11-402. Deputies of secretary of state.

An act of a duly authorized deputy of the secretary of state in the secretary of state's behalf under chapters 11-27 of this title is the equivalent of the act of the secretary of state; provided, that the name of the secretary of state is signed by such deputy as deputy.

Acts 1986, ch. 887, § 1.41.

Chapter 12
Incorporation

48-12-101. Incorporators.

One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering a charter to the secretary of state for filing. If any incorporator dies or is for any reason unable to act, the other incorporators, if any, may act. If there is no incorporator able to act, any person for whom an incorporator was acting as agent may act in the incorporator's stead or, if such other person also dies or is for any reason unable to act, or the incorporator was not acting as agent, the incorporator's legal representative may act.

Acts 1986, ch. 887, § 2.01.

Cross-References. Business and industrial development corporations, title 45, ch. 8, part 2.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Nonprofit corporations, incorporation, title 48, ch. 52.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Industrial Loan and Thrift Corporations.

Industrial loan and thrift corporations are chartered under the general corporation laws applicable to private corporations except to the extent that title 45, ch. 5 provides to the contrary. Williams v. American Plan Corp., 216 Tenn. 435, 392 S.W.2d 920, 1965 Tenn. LEXIS 589 (1965).

48-12-102. Charter.

The charter must set forth:
1. A corporate name for the corporation that satisfies the requirements of § 48-14-101;
2. The number of shares the corporation is authorized to issue;
3. The street address and zip code of the corporation's initial registered office (and a mailing address such as a post office box if the United States postal service does not deliver to the registered agent's registered office), the county in which the office is located, and the name of its initial registered agent at that office;
4. The name and address and zip code of each incorporator;
5. The street address and zip code of the initial principal office of the corporation (and a mailing address such as a post office box if the United States postal service does not deliver to the principal office);
6. Information required by chapter 16 of this title; and
7. A statement that the corporation is for profit.
The charter may set forth:
1. The names and addresses of the individuals who are to serve as the initial directors;
2. Provisions not inconsistent with law:
  1. Stating the purpose or purposes for which the corporation is organized;
  2. Regarding the management of the business and regulating the affairs of the corporation; or
  3. Defining, limiting and regulating the powers and rights of the corporation, its board of directors and shareholders;
3. 1. A provision eliminating or limiting the personal liability of a director to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director:
    1. For any breach of the director's duty of loyalty to the corporation or its shareholders;
    2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
    3. Under § 48-18-302;
  2. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provisions become effective. All references in this subdivision (b)(3) to a “director” are also deemed to refer to a member of the governing body of a corporation which dispenses with or limits the authority of the board of directors pursuant to § 48-18-101(c); and
4. Any provision that under chapters 11-27 of this title is required or permitted to be set forth in the bylaws.
The charter need not set forth any of the corporate powers enumerated in chapters 11-27 of this title.

Acts 1986, ch. 887, § 2.02; 1987, ch. 273, §§ 20, 21, 48; 1991, ch. 188, § 2; 1994, ch. 776, §§ 6-8; 2012, ch. 1051, §§ 16-18; 2014, ch. 783, §§ 1, 2.

Cross-References. Applicability to charter of corporation existing on January 1, 1988, § 48-27-101.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201, 5-706, 5-707.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

48-12-103. Incorporation.

Unless a delayed effective date is specified, the corporate existence begins when the charter is filed by the secretary of state.
The secretary of state's filing of the charter is conclusive proof that the incorporators satisfied all conditions precedent to incorporation except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

Acts 1986, ch. 887, § 2.03; 1987, ch. 273, § 22.

Cross-References. Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Proof of incorporation in criminal cases, § 40-17-117.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Requirements Mandatory.

The statutory requirements for the completion of the organization of a corporation were mandatory, and, unless they were all substantially done, the charter was void and the incorporation was incomplete. Collier v. Union R. Co., 113 Tenn. 96, 83 S.W. 155, 1904 Tenn. LEXIS 9 (1904).

2. Proof of Existence.

Evidence of user under a legislative charter was prima facie evidence that the conditions which the charter required to be performed, precedent to the time that the corporation was to go into operation, had been performed. Williams v. Union Bank, 21 Tenn. 339, 1841 Tenn. LEXIS 14 (1841); Gleaves v. Brick Church Tpk. Co., 33 Tenn. 491, 1853 Tenn. LEXIS 78 (1853); Merriman v. Magiveny, 59 Tenn. 494, 1873 Tenn. LEXIS 98 (1873); Augusta Mfg. Co. v. Vertrees, 72 Tenn. 75, 1879 Tenn. LEXIS 7 (1879).

Where a corporation had been organized and existed under a general statute, its existence could not be proved by parol evidence, if objected to, but must be proved by the production of the charter, or a certified copy thereof. Trice v. State, 39 Tenn. 591, 1859 Tenn. LEXIS 284 (1859); Bond v. State, 129 Tenn. 75, 165 S.W. 229, 1913 Tenn. LEXIS 95 (1913).

3. Foreign Corporations.

Where proof of the charter of a corporation of another state is required, it must be by the production of the charter, or an authenticated copy thereof, or the statute granting the charter, or a book purporting to be the public statute book of the state, in which the charter is printed. Jones v. State, 37 Tenn. 346, 1858 Tenn. LEXIS 12 (1858); Owen v. State, 37 Tenn. 493, 1858 Tenn. LEXIS 46 (1858); Augusta Mfg. Co. v. Vertrees, 72 Tenn. 75, 1879 Tenn. LEXIS 7 (1879); Bank of Jamaica v. Jefferson, 92 Tenn. 537, 22 S.W. 211, 1893 Tenn. LEXIS 10, 36 Am. St. Rep. 100 (1893); State v. Missio, 105 Tenn. 218, 58 S.W. 216, 1900 Tenn. LEXIS 66 (1900).

A complainant in chancery, suing as a foreign corporation, must prove the corporate existence, if it was not admitted in the answer, whether denied or not. Bank of Jamaica v. Jefferson, 92 Tenn. 537, 22 S.W. 211, 1893 Tenn. LEXIS 10, 36 Am. St. Rep. 100 (1893).

4. Right to Question Existence.

The legality or validity of the charter of a de facto corporation was a question for the state, to be raised by a proceeding in the nature of a quo warranto or similar proceeding, and could not ordinarily be made in a collateral proceeding. La Grange & M. R. R. Co. v. Rainey, 47 Tenn. 420, 1870 Tenn. LEXIS 163 (1870); Merriman v. Magiveny, 59 Tenn. 494, 1873 Tenn. LEXIS 98 (1873); State v. Butler, 83 Tenn. 104, 1885 Tenn. LEXIS 27 (1885); Miller v. American Mut. Accident Ins. Co., 92 Tenn. 167, 21 S.W. 39, 1892 Tenn. LEXIS 63, 20 L.R.A. 765 (1892).

Only the state, by proceedings in the nature of quo warranto, can attack the validity of a de facto corporation. Lee v. Harrison, 196 Tenn. 603, 270 S.W.2d 173, 1954 Tenn. LEXIS 427 (1954).

Only the state can raise the question of corporate existence. Springfield Tobacco Redryers Corp. v. Springfield, 41 Tenn. App. 254, 293 S.W.2d 189, 1956 Tenn. App. LEXIS 166 (Tenn. Ct. App. 1956).

The provisions of former section precluding attack upon a defectively organized corporation did not apply to a situation wherein the termination of forfeiture of the charter of a properly organized corporation was involved. Jesse A. Bland Co. v. Knox Concrete Products, Inc., 207 Tenn. 206, 338 S.W.2d 605, 1960 Tenn. LEXIS 448 (1960).

5. Corporations De Facto or by Estoppel.

For cases discussing de facto corporations under prior corporation laws, see Merriman v. Magiveny, 59 Tenn. 494, 1873 Tenn. LEXIS 98 (1873); Miller v. American Mut. Accident Ins. Co., 92 Tenn. 167, 21 S.W. 39, 1892 Tenn. LEXIS 63, 20 L.R.A. 765 (1892); Tennessee Automatic Lighting Co. v. Massey, 56 S.W. 35, 1899 Tenn. Ch. App. LEXIS 144 (1899). But see Hunter v. Swadley, 141 Tenn. 156, 207 S.W. 730, 1918 Tenn. LEXIS 77 (1918); Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

For cases discussing estoppel to deny corporate existence, see Tennessee Automatic Lighting Co. v. Massey, 56 S.W. 35, 1899 Tenn. Ch. App. LEXIS 144 (1899); Union Bank & Trust Co. v. Wright, 58 S.W. 755, 1900 Tenn. Ch. App. LEXIS 50 (1900); Ingle Sys. Co. v. Norris & Hall, 132 Tenn. 472, 178 S.W. 1113, 1915 Tenn. LEXIS 36, 5 A.L.R. 1578 (1915), questioned, Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984); Hunter v. Swadley, 141 Tenn. 156, 207 S.W. 730, 1918 Tenn. LEXIS 77 (1918); Hawkins v. Lane, 3 Tenn. App. 221, 1926 Tenn. App. LEXIS 94 (1926); Cope v. Wilkinson, 166 Tenn. 63, 59 S.W.2d 528, 1932 Tenn. LEXIS 113 (1932); Citizen's Bank & Trust Co. v. Scott & Sanders, 18 Tenn. App. 89, 72 S.W.2d 1064, 1933 Tenn. App. LEXIS 104 (1933). But see Springfield Tobacco Redryers Corp. v. Springfield, 41 Tenn. App. 254, 293 S.W.2d 189, 1956 Tenn. App. LEXIS 166 (Tenn. Ct. App. 1956); Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

Neither the doctrine of de facto corporation nor corporation by estoppel were viable in Tennessee after the passage of the Tennessee General Corporations Act (Acts 1968, ch. 523). Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

48-12-104. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under chapters 11-27 of this title, are jointly and severally liable for all liabilities created while so acting except for any liability to any person who knew or reasonably should have known that there was no incorporation.

Acts 1986, ch. 887, § 2.04.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Exceptions.

There was no good faith exception in former similar section. Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

Former similar section did not contain an exception that one who assumes to act as a corporation without authority shall be jointly and severally liable for debts and liabilities except when the plaintiff thereafter dealt with the corporation as a corporation or when the plaintiff did not intend to bind one who assumed to act personally. Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

2. Corporations De Facto or by Estoppel.

Neither the doctrine of de facto corporation nor corporation by estoppel were viable in Tennessee since the passage of the Tennessee General Corporations Act. Thompson & Green Machinery Co. v. Music City Lumber Co., 683 S.W.2d 340, 1984 Tenn. App. LEXIS 3232 (Tenn. Ct. App. 1984).

3. Preincorporation Contracts.

The former section did not address promoter liability on preincorporation contracts where no misrepresentation that there was an existing corporation had been made and where the contracts were made solely in the name and credit of a future corporation. Company Stores Dev. Corp. v. Pottery Warehouse, Inc., 733 S.W.2d 886, 1987 Tenn. App. LEXIS 2680 (Tenn. Ct. App. 1987).

48-12-105. Organization of corporation.

After incorporation:
1. If initial directors are named in the charter, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
2. If initial directors are not named in the charter, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators and upon at least two (2) days' notice of the date, time, and place of the meeting to:
  1. Elect directors and complete the organization of the corporation; or
  2. Elect a board of directors who shall complete the organization of the corporation.
Action required or permitted by chapters 11-27 of this title to be taken by incorporators at an organizational meeting may be taken without a meeting. If all incorporators consent to taking such action without a meeting, the affirmative vote of the number of incorporators that would be necessary to authorize or take such action at a meeting is the act of the incorporators. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each incorporator in one (1) or more counterparts, indicating each signing incorporator's vote or abstention on the action, and shall be included in the minutes or filed with the corporate records reflecting the action taken.
An organizational meeting may be held in or out of this state.
If the corporate existence of a corporation has begun pursuant to § 48-12-103, no action of such corporation shall be invalid solely as a result of the failure to hold an organizational meeting or otherwise complete the organization of the corporation as contemplated in subsection (a).

Acts 1986, ch. 887, § 2.05; 1994, ch. 776, § 9.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-102, 5-202.

48-12-106. Bylaws.

The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.
The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the charter.

Acts 1986, ch. 887, § 2.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-103, 5-104, 5-202, 5-203.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Void Bylaws.

The charter was the fundamental law of the corporation, and in its terms and spirit was a constitution of the body acting under it; all bylaws inconsistent with the charter, or in contravention thereof, were void. Martin v. Nashville Bldg. Asso., 42 Tenn. 418, 1865 Tenn. LEXIS 84 (1865).

A bylaw prohibiting transfers of shares of stock except to the corporation, though endorsed on the certificates, was void and imposed no legal liability on the corporation to purchase its stock. Herring v. Ruskin Co-op. Ass'n, 52 S.W. 327, 1899 Tenn. Ch. App. LEXIS 7 (1899).

A bylaw granting directors of the corporation an option to purchase stock of a stockholder desiring to dispose of shares, and restricting transfers on the books for any reason, was invalid as being in restraint of trade. Petre v. Bruce, 157 Tenn. 131, 7 S.W.2d 43, 1927 Tenn. LEXIS 57 (1928).

48-12-107. Emergency bylaws.

Unless the charter provides otherwise, the board of directors or the incorporators of a corporation may adopt bylaws to be effective only in an emergency. The emergency bylaws, which are subject to amendment or repeal by the shareholders, may make all provisions necessary for managing the corporation during the emergency, including:
1. Procedures for calling a meeting of the board of directors;
2. Quorum requirements for the meeting; and
3. Designation of additional or substitute directors.
All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
Corporate action taken in good faith in accordance with the emergency bylaws:
1. Binds the corporation; and
2. May not be used to impose liability on a corporate director, officer, employee, or agent.
An emergency exists for purposes of this section if a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event.

Acts 1986, ch. 887, § 2.07; 1987, ch. 273, § 23; 2012, ch. 1051, § 19.

Chapter 13
Purposes and Powers

48-13-101. Purposes.

Every corporation incorporated under chapters 11-27 of this title has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the charter.
A corporation engaging in a business that is subject to regulation under another statute of this state may incorporate under chapters 11-27 of this title only if permitted by, and subject to all limitations of, the other statute.

Acts 1986, ch. 887, § 3.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Nonprofit corporations, purposes and powers, title 48, ch. 53.

48-13-102. General powers.

Unless its charter provides otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including, without limitation, power to:

Sue and be sued, complain and defend in its corporate name;
Have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it;
Make and amend bylaws, not inconsistent with its charter or with the laws of this state, for managing the business and regulating the affairs of the corporation;
Purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
Sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of, or grant a security interest in, all or any part of its property;
Purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, or grant a security interest in; and deal in and with shares or other interests in, or obligations of, any other entity;
Make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations or those of any other person by mortgage, pledge of, or security interest in, any of its property, franchises, or income;
Lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
Be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
Conduct its business, locate offices, and exercise the powers granted by chapters 11-27 of this title within or without this state;
Elect directors and appoint officers, employees, and agents of the corporation, define their duties, fix their compensation, and lend them money and credit;
Pay pensions and establish pension plans, pension trusts, profit sharing plans, share bonus plans, share option plans, and benefit or incentive plans for any or all of the current or former directors, officers, employees, and agents of the corporation or any of its subsidiaries;
Make donations for the public welfare or for charitable, scientific, or educational purposes;
Make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the corporation;
Procure for its benefit insurance on the life of any of its directors, officers or employees, to insure the life of any shareholder for the purpose of acquiring at the shareholder's death shares owned by such shareholder and to continue such insurance after the relationship terminates; and
Accept gifts, devises, and bequests subject to any conditions or limitations contained in such gift, devise, or bequest, so long as such conditions or limitations are not contrary to chapters 11-27 of this title or the purposes for which the corporation is organized.

Acts 1986, ch. 887, § 3.02.

Cross-References. Authentication of corporate instruments, § 66-22-108.

NOTES TO DECISIONS

1. Standing.

Three individual siblings lacked standing to recover on a theory that they lost the benefit of their bargain where after winning a bid to purchase a grease business assets from the estate, they assigned the right to purchase to a new corporation, that corporation was a distinct legal entity responsible for pursuing its own legal actions, and even though the siblings were directly affected and were the only shareholders, that fact did not entitle them to bring a cause of action to recover damages sustained by the corporation. In re Estate of McRedmond, — S.W.3d —, 2014 Tenn. App. LEXIS 743 (Tenn. Ct. App. Nov. 14, 2014), aff'd in part, rev'd in part, Keller v. Estate of McRedmond, 2016 Tenn. LEXIS 506, 495 S.W.3d 852 (2016).

48-13-103. Emergency powers.

In anticipation of or during an emergency, the board of directors of a corporation may:
1. Modify lines of succession to accommodate the incapacity of any director, officer, employee, or agent; and
2. Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, unless emergency bylaws provide otherwise:
1. Notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
2. One (1) or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
Corporate action taken in good faith during an emergency under this section to further the ordinary business affairs of the corporation:
1. Binds the corporation; and
2. May not be used to impose liability on a corporate director, officer, employee, or agent.

Acts 1986, ch. 887, § 3.03; 1987, ch. 273, § 24.

48-13-104. Ultra vires actions.

Except as provided in subsection (b), the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
A corporation's power to act may be challenged in a proceeding by:
1. A shareholder against the corporation to enjoin the act;
2. The corporation, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former director, officer, employee, or agent of the corporation; or
3. The attorney general and reporter under § 48-24-301.
In a shareholder's proceeding under subdivision (b)(1) to enjoin an unauthorized corporate act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss (other than anticipated profits) suffered by the corporation or another party because of enjoining the unauthorized act.

Acts 1986, ch. 887, § 3.04.

Cross-References. Limited liability companies, Ultra vires actions, § 48-213-101.

Nonprofit corporations, Ultra vires actions, § 48-53-104.

NOTES TO DECISIONS

Decisions Under Prior Law

1. In General.

Corporate action taken without the requisite number of officers and directors may be ultra vires; but such action is not invalid and such lack of capacity may be asserted only by certain parties in specific situations. United States v. Daugherty, 599 F. Supp. 671, 1984 U.S. Dist. LEXIS 21576 (E.D. Tenn. 1984).

2. Within Corporate Powers.

Where officer of cement company who undertook low-cost building project and houses were to be constructed from cement blocks, undertaking was not ultra vires, but incidental to business of corporation. Nashville Breeko Block & Tile Co. v. Hopton, 29 Tenn. App. 394, 196 S.W.2d 1010, 1946 Tenn. App. LEXIS 76 (Tenn. Ct. App. 1946).

3. Leases.

Where an amusement company empowered to hold real estate for amusement purposes only leased property not suitable for such purposes without alterations and where the lease prohibited alterations except by consent of the lessor, the lease was ultra vires on its face. Hedges v. Signal Amusement Co., 16 Tenn. App. 361, 64 S.W.2d 534, 1933 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1933).

Where a lease was ultra vires on its face, the corporation could set up this defense in an action for rents. Hedges v. Signal Amusement Co., 16 Tenn. App. 361, 64 S.W.2d 534, 1933 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1933).

4. Gift of Bonds.

The stipulation in a contract of subscription to the original capital stock of a manufacturing corporation was without consideration, ultra vires, and void, where it provided that the subscriber should receive, upon consideration of the subscription, the bonds of the corporation to the full amount of the subscription, secured by a first mortgage “upon the company's plant,” in addition to the subscriber's stock for the like amount; the corporation might repudiate such illegal stipulation, without releasing the subscriber from liability for the subscription, or subjecting itself to an action by the subscriber. Such stipulation was regarded as an independent covenant, and not a condition precedent to the payment of the subscription. Morrow v. Nashville Iron, & Steel Co., 87 Tenn. 262, 10 S.W. 495, 1888 Tenn. LEXIS 59, 10 Am. St. Rep. 658, 3 L.R.A. 37 (1889); Street R.R. v. Morrow, 87 Tenn. 406, 11 S.W. 348, 1888 Tenn. LEXIS 73, 2 L.R.A. 853 (1888).

5. Pledge of Bonds.

Where the bonds of a corporation were issued under a resolution of the stockholders for the purpose of paying the existing indebtedness of the corporation and securing future loans, for the retirement of an existing bond issue, and for additional improvements, with authority vested in the directors by the resolution of the stockholders to sell the bonds for cash or to use the bonds for the aforementioned purposes in such manner as they might, in their judgment and discretion, deem best, a pledge of the bonds to secure the debts of the corporation instead of a sale of them for cash in accordance with the resolution was not void as ultra vires, although a portion of the indebtedness was due to directors, where all reasonable endeavors to make sales were used, but failed, and the pledge was necessary to quiet creditors. Hunt v. Memphis Gaslight Co., 95 Tenn. 136, 31 S.W. 1006, 1895 Tenn. LEXIS 72 (1895); Rawlings v. New Memphis Gaslight Co., 105 Tenn. 268, 60 S.W. 206, 1900 Tenn. LEXIS 76, 80 Am. St. Rep. 880 (1900).

6. Note to Purchase Stock.

Where charter authorized corporation to make bills and notes in the course of its business, a note executed by corporation to purchase stock in another corporation was ultra vires since note was executed beyond the scope of the business, but in the hands of an innocent purchaser for value the note was valid. Jefferson Bank of St. Louis v. Chapman-White-Lyons Co., 122 Tenn. 415, 123 S.W. 641, 1909 Tenn. LEXIS 28 (1909).

7. Laches.

In equity suit by minority of stockholders to set aside, as ultra vires, corporation's deed, executed nine years before, laches precludes relief. Cullen v. Coal Creek Min. & Mfg. Co., 42 S.W. 693, 1897 Tenn. Ch. App. LEXIS 72 (1897).

Chapter 14
Name

48-14-101. Corporate name.

A corporate name:
1. Must contain the word “corporation,” “incorporated,” “company,” or the abbreviation “corp.,” “inc.,” “co.,” or words or abbreviations of like import in another language (provided they are written in roman characters or letters); provided, that, if such corporation is formed for the purpose of an insurance or banking business, the name of such corporation need not contain any of the aforementioned words or abbreviations. A corporation using the corporate designations “limited” or “ltd.,” with such having been filed in the secretary of state's office prior to May 29, 1989, may continue to use that corporate designation until such time as it files an amendment which in any way changes its corporate name; and
2. May not contain language stating or implying that the corporation:
  1. Transacts or has power to transact any business for which authorization in whatever form and however denominated is required under the laws of this state, unless the appropriate commission or officer has granted such authorization and certifies that fact in writing;
  2. Is organized as, affiliated with, or sponsored by, any fraternal, veterans', service, religious, charitable, or professional organization, unless that fact is certified in writing by the organization with which affiliation or sponsorship is claimed;
  3. Is an agency or instrumentality of, affiliated with or sponsored by the United States or the state of Tennessee or a subdivision or agency thereof, unless such fact is certified in writing by the appropriate official of the United States or the state of Tennessee or subdivision or agency thereof; or
  4. Is organized for a purpose other than that permitted by § 48-13-101 and its charter.
Except as authorized by subsection (c), the name of a domestic corporation, and the name of a foreign corporation that is authorized to transact business in this state or is applying for a certificate of authority to transact business in this state, shall be distinguishable upon the records of the secretary of state from the respective names of or for every other entity, whether true, assumed, reserved or registered, to the extent the use or reservation of such names is evidenced by a filing with the secretary of state under applicable law.
A domestic or foreign corporation, or person acting on behalf of a corporation not yet formed, may apply to the secretary of state for authorization to use a name that is not distinguishable upon the secretary of state's records from one (1) or more of the names described in subsection (b). The secretary of state shall authorize use of the indistinguishable name applied for, if:
1. The person holding the right to use the previously filed name described in subsection (b) consents to the use in writing and submits an undertaking, in a form satisfactory to the secretary of state, to cancel its reservation of such name or change such name to a name that is distinguishable upon the records of the secretary of state from the name of the applicant;
2. The applicant delivers to the secretary of state a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state; or
3. The person holding the right to use the previously filed name described in subsection (b) consents in writing to the use of such name by the applicant, and both the other person and the applicant consent in a form satisfactory to the secretary of state to use the same registered agent.
1. A domestic corporation or a foreign corporation authorized to transact business or applying for a certificate of authority to transact business may elect to adopt an assumed corporate name that complies with the requirements of subsections (a)-(c), except that such name need not contain the corporate designations contained in subdivision (a)(1).
2. As used in chapters 11-27 of this title, “assumed corporate name” means any name used by the corporation other than its true corporate name, except that the following shall not constitute the use of an assumed corporate name under chapters 11-27 of this title:
  1. The identification by a corporation of its business with a trademark or service mark of which it is the owner or licensed user; and
  2. The use of a name of a division, not separately incorporated and not containing the word “corporation,” “incorporated,” or “limited” or an abbreviation of one (1) of such words; provided, that the corporation also clearly discloses its corporate name.
3. Before transacting any business in this state under an assumed corporate name or names, the corporation shall, for each assumed corporate name, pursuant to resolution by its board of directors, execute and file in accordance with chapter 11, part 3 of this title, an application setting forth:
  1. The true corporate name;
  2. The state or country under the laws of which it is organized;
  3. That it intends to transact business under an assumed corporate name; and
  4. The assumed corporate name which it proposes to use.
4. The right to use an assumed corporate name shall be effective for five (5) years from the date of filing with the secretary of state.
5. A corporation shall renew the right to use its assumed corporate name or names, if any, within the two (2) months preceding the expiration of such right, for a period of five (5) years, by filing an application to renew each assumed name and paying the renewal fee as prescribed by § 48-11-303(a).
Any domestic or foreign corporation may, pursuant to resolution by its board of directors, change or cancel any or all of its assumed corporate names by executing and filing, in accordance with chapter 11, part 3 of this title, an application setting forth:
1. The true corporate name;
2. The state or country under the laws of which it is organized;
3. That it intends to cease transacting business under an assumed corporate name by changing or cancelling it;
4. The assumed corporate name to be changed from or cancelled; and
5. If the assumed corporate name is to be changed, the assumed corporate name which the corporation proposes to use.
Upon the filing of an application to change an assumed corporate name, the corporation shall have the right to use such assumed corporate name for the period authorized by subsection (d).
The right to use an assumed corporate name shall be cancelled by the secretary of state:
1. If the corporation fails to renew an assumed corporate name;
2. If the corporation has filed an application to change or cancel an assumed corporate name;
3. If a domestic corporation has been dissolved; or
4. If a foreign corporation has had its certificate of authority to transact business in this state revoked.
Nothing in this section, or in § 48-14-102, § 48-14-103 or § 48-25-106, shall abrogate or limit the law as to unfair competition or unfair trade practice, or derogate from the common law, the principles of equity, or the statutes of this state or of the United States with respect to the right to acquire and protect trade names and trademarks.

Acts 1986, ch. 887, § 4.01; 1987, ch. 273, §§ 25, 26; 1989, ch. 451, § 4; 1994, ch. 868, §§ 2-5; 1997, ch. 224, § 1; 2010, ch. 743, §§ 1, 2.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Foreign limited liability companies, title 48, chapter 246, part 2.

Nonprofit corporations, name, title 48, ch. 54.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-504 — 5-506, 5-905.

Law Reviews.

Bad Faith in Cyberspace: Trademark Rights on the World Wide Web (Chad Denver Emerson), 36 Tenn. B.J. 14 (2000).

NOTES TO DECISIONS

1. Capacity.

Company operating under assumed name had capacity to sue in Tennessee on contract governed by Texas law even though corporation had not filed assumed name certificates with the secretary of state of Texas, and Texas law provided that failing to do so barred an action or proceeding in any court of that state. Kemmons Wilson, Inc. v. Allied Bank of Texas, 836 S.W.2d 104, 1992 Tenn. App. LEXIS 10 (Tenn. Ct. App. 1992).

2. Agent Liability.

Trial court properly found a managing member of a limited liability company (LLC) was personally liable as an agent for the LLC because the agent failed to disclose the identity of his principal when conducting business with a website development company; the agent conducted business under the name of another entity, which had been administratively dissolved in 2004, not the LLC, and the agent failed to list any assumed names or “d/b/a” names in the LLC's registration with the Secretary of State, in accordance with T.C.A. §§ 48-14-101(d)(2) (now § 48-14-101(d)(3)) and 48-249-106(d). ICG Link, Inc. v. Steen, 363 S.W.3d 533, 2011 Tenn. App. LEXIS 597 (Tenn. Ct. App. Oct. 31, 2011).

Decisions Under Prior Law

1. Wrongful Use of Name.

A corporation taking or using the name of a preexisting corporation, or one so nearly the same as to lead to interminable confusion and strife, would be enjoined from doing so, or would be required to make a modification of its name sufficient to obviate the objection. Ex parte Walker, 1 Cooper's Tenn. Ch. 97 (1873); Benevolent & Protective Order of Elks v. Improved Benevolent & Protective Order of Elks, 122 Tenn. 141, 118 S.W. 389, 1909 Tenn. LEXIS 9 (1909).

2. Right to Name.

Industrial loan and thrift company operating under title 45, ch. 5 which had been originally granted a charter with the term “savings and loan” in corporate name did not thereby acquire a contractual right from the state to use such term without more in their name. Peoples Sav. & Loan of Nashville Co. v. Pack, 225 Tenn. 296, 467 S.W.2d 578, 1971 Tenn. LEXIS 345 (1971).

48-14-102. Reserved name.

A person may reserve the exclusive use of a corporate name, including an assumed corporate name, by delivering an application to the secretary of state for filing. The application must set forth the name and address of the applicant and the name proposed to be reserved. If the secretary of state finds that the corporate name applied for meets the requirements of § 48-14-101 and is available, the secretary of state shall reserve the name for the applicant's exclusive use for a four-month period. Upon the expiration of the four-month period, the same or any other party may apply to reserve the same name.
The owner of a reserved corporate name, including an assumed corporate name, may transfer the reservation to another person by delivering to the secretary of state a notice of the transfer signed by the owner that states the name and address of the transferee.
The reservation of a specific name may be cancelled by filing with the secretary of state a notice, executed by the applicant or transferee, specifying the name reservation to be cancelled and the name and address of the applicant or transferee.

Acts 1986, ch. 887, § 4.02; 1987, ch. 273, § 27; 1989, ch. 451, § 5.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-501 — 5-503.

48-14-103. Registered name.

A foreign corporation may register its corporate name, or an assumed corporate name under which it transacts business, or its corporate name with any addition pursuant to § 48-25-106, if the name is distinguishable upon the records of the secretary of state from the corporate names that are not available under § 48-14-101(b).
A foreign corporation registers its corporate name, or its assumed corporate name, or its corporate name with any addition pursuant to § 48-25-106, by delivering to the secretary of state for filing an application:
1. Setting forth its corporate name, its assumed corporate name, or its corporate name with any addition pursuant to § 48-25-106, the state or country and date of its incorporation, and a brief description of the nature of the business in which it is engaged; and
2. Accompanied by a certificate of existence (or a document of similar import) from the state or country of incorporation, which certificate shall bear a date of not more than one (1) month prior to the date the application is filed in this state.
The name is registered for the applicant's exclusive use upon the effective date of the application and until the end of the calendar year in which such registration occurs.
A foreign corporation whose registration is effective may renew it for successive years by delivering to the secretary of state for filing a renewal application, which complies with the requirements of subsection (b), between October 1 and December 31 of the preceding year. The renewal application renews the registration for the following calendar year.
A foreign corporation whose registration is effective may thereafter qualify as a foreign corporation under that name or consent in writing to the use of that name by a corporation thereafter incorporated under chapters 11-27 of this title or by another foreign corporation thereafter authorized to transact business in this state. The registration terminates when the domestic corporation is incorporated or the foreign corporation qualifies or consents to the qualification of another foreign corporation under the registered name.

Acts 1986, ch. 887, § 4.03; 1987, ch. 273, § 28.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-507, 5-508.

Chapter 15
Office and Agent

48-15-101. Registered office and registered agent.

Each corporation must continuously maintain in this state:
1. A registered office that may be the same as any of its places of business; and
2. A registered agent, who may be:
  1. An individual who resides in this state and whose business office is identical with the registered office;
  2. A domestic corporation or not for profit domestic corporation whose business office is identical with the registered office; or
  3. A foreign corporation or not for profit foreign corporation authorized to transact business in this state whose business office is identical with the registered office.
If a registered agent resigns or is unable to perform the registered agent's duties, the designating corporation shall promptly designate another registered agent to the end that it shall at all times have a registered agent in this state.

Acts 1986, ch. 887, § 5.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, office and agent, title 48, ch. 55.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-604.

Law Reviews.

The Future of General Jurisdiction in Tennessee, 27 U. Mem. L. Rev. 559 (1997).

NOTES TO DECISIONS

1. Service on a Subagent.

Trial court's judgment against a company was affirmed, as under T.C.A. § 48-15-101, the company's registered agent could designate a subagent to accept service, and none of the allegations in the process server's affidavit about service on the subagent was refuted. Thus, service on the company, and the subsequent judgment, were valid. Rubio v. Precision Aerodynamics, Inc., 232 S.W.3d 738, 2006 Tenn. App. LEXIS 650 (Tenn. Ct. App. Oct. 5, 2006).

48-15-102. Change of registered office or registered agent.

A corporation may change its registered office or registered agent by delivering to the secretary of state for filing a statement of change that sets forth:
1. The name of the corporation;
2. If the current registered office is to be changed, the street address of the new registered office and the zip code for such office (and a mailing address such as a post office box if the United States postal service does not deliver to the registered agent’s registered office), and the county in which the office is located;
3. If the current registered agent is to be changed, the name of the new registered agent; and
4. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
If a registered agent changes the street address of such registered agent's business office, such registered agent may change the street address of the registered office of any corporation for which such registered agent is the registered agent by notifying the corporation in writing of the change and signing (either manually or in facsimile) and delivering to the secretary of state for filing a statement that complies with the requirements of subsection (a) and recites that the corporation has been notified of the change.

Acts 1986, ch. 887, § 5.02; 1987, ch. 273, §§ 29, 48; 1991, ch. 188, § 11; 2012, ch. 1051, § 20; 2014, ch. 783, § 3.

Amendments. The 2012 amendment, effective January 1, 2013, inserted “(or a mailing address such as a post office box if the United States postal service does not deliver to the registered agent’s registered office)” in (a)(2).

The 2014 amendment substituted “and a mailing address” for “or a mailing address” in (a)(2).

Effective Dates. Acts 2012, ch. 1051, § 62. January 1, 2013; provided, that, for the purpose of the secretary of state taking necessary actions for the implementation of the act, the act shall take effect May 21, 2012.

Acts 2014, ch. 783, § 24. July 1, 2014.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-601, 5-602.

48-15-103. Resignation of registered agent.

A registered agent may resign the registered agent's agency appointment by signing and filing with the secretary of state an original statement of resignation accompanied by the registered agent's certification that the registered agent has mailed a copy thereof to the principal office of the corporation by certified mail. The statement may include a statement that the registered office is also discontinued.
The agency appointment is terminated, and the registered office discontinued if so provided, on the date on which the statement is filed by the secretary of state.

Acts 1986, ch. 887, § 5.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-603.

48-15-104. Service on corporation.

A corporation's registered agent is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the corporation.
Whenever a domestic or foreign corporation authorized to do business in this state fails to appoint or maintain a registered agent in this state, whenever its registered agent cannot be found with reasonable diligence, whenever a foreign corporation shall transact business or conduct affairs in this state without first procuring a certificate of authority to do so from the secretary of state, or whenever the certificate of authority of a foreign corporation shall have been withdrawn or revoked, then the secretary of state shall be an agent of such corporation upon whom any such process, notice or demand may be served.
Whenever a domestic or foreign corporation authorized to do business in this state is an employer within the meaning of the Workers' Compensation Law and such corporation is, for the purpose of such Workers' Compensation Law, self insured or a part of a self-insurance pool as provided in title 50, chapter 6, part 4, such corporation shall, for workers' compensation actions only, be required to appoint the commissioner of commerce and insurance and the commissioner's chief deputy, or their successors, as its true and lawful attorneys upon either of whom all lawful process in any such action or legal proceeding against it may be served as is required of insurance companies by § 56-2-103.
This section does not prescribe the only means, or necessarily the required means, of serving a corporation.

Acts 1986, ch. 887, § 5.04; 1987, ch. 273, §§ 30, 47.

Cross-References. Foreign corporations subject to actions, § 20-2-201.

Workers' compensation insurance, title 50, ch. 6, part 4.

NOTES TO DECISIONS

1. Construction.

Trial court's judgment against a company was affirmed, as under T.C.A. § 48-15-104, the company's registered agent could designate a subagent to accept service, and none of the allegations in the process server's affidavit about service on the subagent was refuted. Thus, service on the company, and the subsequent judgment, were valid. Rubio v. Precision Aerodynamics, Inc., 232 S.W.3d 738, 2006 Tenn. App. LEXIS 650 (Tenn. Ct. App. Oct. 5, 2006).

2. Doing Business.

Venue was proper in the county in which a restaurant filed suit because the Secretary of State's office was in that county; a refuse company transacted business in Tennessee, and thus, T.C.A. § 20-4-104(3)(B), read in conjunction with T.C.A. § 48-15-104(b), operated to make the Secretary of State the registered agent for the company because it did not have a registered agent in the State. J. Alexander's Holdings, LLC v. Republic Servs., — S.W.3d —, 2017 Tenn. App. LEXIS 307 (Tenn. Ct. App. May 12, 2017).

Decisions Under Prior Law

1. Construction.

The statutes providing for service of process on corporations are to be read in pari materia. De Laney Furniture Co. v. Magnavox Co. of Tennessee, 222 Tenn. 329, 435 S.W.2d 828, 1968 Tenn. LEXIS 511 (1968), overruled in part, Davenport v. State Farm Mut. Auto. Ins. Co., 756 S.W.2d 678, 1988 Tenn. LEXIS 160 (Tenn. 1988).

Former similar section along with § 20-2-201 were not the exclusive methods of acquiring jurisdiction of a foreign corporation, but former Tenn. R. Civ. P. 4.04(4) provided an additional means. Gallaher v. Chemical Leaman Tank Lines, Inc., 367 F. Supp. 1063, 1973 U.S. Dist. LEXIS 10476 (E.D. Tenn. 1973).

2. Doing Business.

Foreign corporation was subject to process served upon the secretary of state under the former section in a civil suit for personal injuries from a defect in its product, where it had agents in the state selling to distributors and consumers, settling claims, servicing delinquent accounts, briefing product's use and investigating uses, since it was substantially carrying on a business. Radford v. Minnesota Mining & Mfg. Co., 128 F. Supp. 775, 1955 U.S. Dist. LEXIS 3712 (D. Tenn. 1955).

Where out-of-state corporation furnished materials for construction in Tennessee and also took the contract for the erection of such installation, such corporation was doing business in Tennessee and subject to service. Shuler v. Wood, 198 F. Supp. 801, 1961 U.S. Dist. LEXIS 3446 (E.D. Tenn. 1961).

If a foreign corporation which has no physical facilities in this state has not designated an agent upon whom process against it may be served but has made use of the privilege extended by law to foreign corporations to do business within Tennessee after proper domestication, it is deemed to have constituted Tennessee secretary of state its agent for the service of process in actions arising out of unauthorized business done by it within Tennessee; however, any such transactions complained of must have arisen in this state and attendant circumstances localized its activities and evidenced its “presence” in some sense. Trussell v. Bear Mfg. Co., 215 F. Supp. 802, 1963 U.S. Dist. LEXIS 6381 (E.D. Tenn. 1963).

Substituted service of process through Tennessee secretary of state was properly had on a foreign corporation in action against the corporation for injuries sustained by the buyer of an allegedly defective second-hand wheel balancer manufactured by the corporation, the corporation having sold the balancer to a Tennessee jobber and supplied a representative who conducted meetings with the jobber's salesmen and supervised installation of any such equipment, as such activity constituted “doing business” in Tennessee. Trussell v. Bear Mfg. Co., 215 F. Supp. 802, 1963 U.S. Dist. LEXIS 6381 (E.D. Tenn. 1963).

Defendant foreign corporation was “doing business within” Tennessee by transacting in a continuous manner a substantial part of its ordinary business, and must be deemed to have constituted the Tennessee secretary of state its agent to receive process in a civil action arising from unauthorized business, wherein the buyer of a defective second-hand wheel balancer, manufactured by corporation, brought action for injury; sale of the balancer and other equipment to Tennessee jobber and sending a representative to meet with jobber's salesmen and supervise installation of the equipment constituted “doing business.” Trussell v. Bear Mfg. Co., 215 F. Supp. 802, 1963 U.S. Dist. LEXIS 6381 (E.D. Tenn. 1963).

Where uncontroverted affidavits as well as deposition of the plaintiff established that no new facts had been developed with respect to defendant doing business in Tennessee since dismissal of former action on ground that defendant was not doing business in Tennessee so as to be subject to service of process, action would be dismissed for lack of jurisdiction. Smartt v. Coca-Cola Bottling Corp., 337 F.2d 950, 1964 U.S. App. LEXIS 4056 (6th Cir. Tenn. 1964), cert. denied, Chambliss v. Coca-Cola Bottling Corp., 380 U.S. 934, 85 S. Ct. 941, 13 L. Ed. 2d 822, 1965 U.S. LEXIS 1698 (1965), cert. denied, Chambliss v. Coca-Cola Bottling Corp., 380 U.S. 934, 85 S. Ct. 941, 13 L. Ed. 2d 822, 1965 U.S. LEXIS 1698 (1965).

A foreign manufacturer selling automobiles accompanied by a written warranty to an American subsidiary, who in turn sold them to regional distributors, who in turn sold them to distributors, who in turn sold them to dealers, one of which, located in Tennessee, sold one of such automobiles to a plaintiff, did not maintain the minimal contacts within the state necessary to authorize service in an action for damages caused by a defect in such automobile. Fayette v. Volkswagen of America, Inc., 273 F. Supp. 323, 1967 U.S. Dist. LEXIS 8184 (W.D. Tenn. 1967).

The American subsidiary of a foreign automobile manufacturer whose employees occasionally came into Tennessee on company business and who advertised in magazines distributed in Tennessee, appeared on the air in the state, and was authorized by the manufacturer to exercise certain supervision of Tennessee dealers selling the product of such manufacturer was not subject to service in an action for damages by a purchaser of one of such automobiles. Fayette v. Volkswagen of America, Inc., 273 F. Supp. 323, 1967 U.S. Dist. LEXIS 8184 (W.D. Tenn. 1967).

3. Conflict of Laws.

Question of whether business activities make a nonresident corporation amenable to process is controlled by the Tennessee statutes and court decisions unless the business is in interstate commerce, in which event the federal decisions will control. Radford v. Minnesota Mining & Mfg. Co., 128 F. Supp. 775, 1955 U.S. Dist. LEXIS 3712 (D. Tenn. 1955).

4. Death of Agent.

Fact that defendant's agent for service of process died before the period of limitations for bringing action against defendant had run would not toll the statute since, in such case, service could be made on the secretary of state. Sigler v. Youngblood Truck Lines, Inc., 149 F. Supp. 61, 1957 U.S. Dist. LEXIS 3823 (D. Tenn. 1957).

5. Withdrawal from Business in State.

Jurisdiction over a foreign corporation as to transaction before its withdrawal from business in the state could not be acquired by service of process upon a resident person who had been its local agent at the time of the transaction. Guthrie v. Connecticut Indem. Ass'n, 101 Tenn. 643, 49 S.W. 829, 1898 Tenn. LEXIS 115 (1898), superseded by statute as stated in, Algee v. State Farm Gen. Ins. Co., 890 S.W.2d 445, 1994 Tenn. App. LEXIS 373 (Tenn. Ct. App. 1994).

48-15-105. Procedure for service on domestic or foreign corporation by service on secretary of state.

Service on the secretary of state, when the secretary of state is an agent for a domestic or foreign corporation as provided in § 48-15-104(b), of any process, notice, or demand shall be made by delivering to the secretary of state the original and one (1) copy of such process, notice, or demand, duly certified by the clerk of the court in which the suit or action is pending or brought, together with the proper fee. A statement which identifies which of the grounds, as listed in § 48-15-104(b), for service on the secretary of state is applicable, must be included. The secretary of state shall endorse the time of receipt upon the original and copy and immediately shall send the copy, along with a written notice that service of the original was also made, by registered or certified mail, with return receipt requested, addressed to such corporation at its registered office (or designated alternative mailing address) or principal office (or designated alternative mailing address) as shown in the records on file in the secretary of state's office or as shown in the official registry of the state or country in which such corporation is incorporated. If none of the previously mentioned addresses are available to the secretary of state, service may be made on any one (1) of the incorporators at the address set forth in the charter. The secretary of state may require the plaintiff (or complainant as the case may be) or the plaintiff's (or complainant's) attorney to furnish the latter address.
The refusal or failure of such corporation to accept delivery of the registered or certified mail provided for in subsection (a), or the refusal or failure to sign the return receipt, shall not affect the validity of such service; and any such corporation refusing or failing to accept delivery of such registered or certified mail shall be charged with knowledge of the contents of any process, notice, or demand contained therein.
When the registered or certified mail return receipt is received by the secretary of state or when a corporation refuses or fails to accept delivery of the registered or certified mail and it is returned to the secretary of state, the secretary of state shall forward the receipt or such refused or undelivered mail to the clerk of the court in which the suit or action is pending, together with the original process, notice, or demand, a copy of the notice the secretary of state sent to the defendant corporation and the secretary of state's affidavit setting forth the secretary of state's compliance with this section. Upon receipt thereof, the clerk shall copy the affidavit on the rule docket of the court and shall mark it, the receipt or refused or undelivered mail, and the copy of notice as of the day received and place them in the file of the suit or action where the process and pleadings are kept, and such receipt or refused or undelivered mail, affidavit, and copy of notice shall be and become a part of the technical record in the suit or action and thereupon service on the defendant shall be complete. Service made under this section shall have the same legal force and validity as if the service had been made personally in this state.
Subsequent pleadings or papers permitted or required to be served on such defendant domestic or foreign corporation may be served on the secretary of state as agent for such defendant corporation in the same manner, at the same cost and with the same effect as process, notice, or demand are served on the secretary of state as agent for such defendant corporation under this section.
No appearance shall be required in the suit or action by the defendant domestic or foreign corporation nor shall any judgment be taken against the defendant domestic or foreign corporation in less than one (1) month after the date service is completed under this section.
The secretary of state shall keep a record of all processes, notices, and demands served upon the secretary of state under this section, which record shall include the time of such service and the secretary of state's action with reference thereto.

Acts 1986, ch. 887, § 5.05; 1989, ch. 451, § 6; 2012, ch. 1051, § 21.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Products Liability Cases.

In products liability action brought by buyer of French automobile to recover from out-of-state importer for damages suffered in a traffic accident in Tennessee as a result of alleged defects in the automobile, federal district court had jurisdiction under §§ 20-2-214 and 20-2-215 of importer which sold automobile through regional distributor and local retail dealer after purchasing it from parent French corporation which had manufactured it. Tate v. Renault, Inc., 278 F. Supp. 457, 1967 U.S. Dist. LEXIS 7423 (E.D. Tenn. 1967), aff'd, 402 F.2d 795, 1968 U.S. App. LEXIS 5055 (6th Cir. 1968), aff'd, Tate v. Renault, Inc., 402 F.2d 795, 1968 U.S. App. LEXIS 5055 (6th Cir. 1968).

Chapter 16
Shares and Distributions

Part 1
Shares

48-16-101. Authorized shares.

The charter must prescribe the number of shares of each class that the corporation is authorized to issue. If more than one (1) class of shares is authorized, the charter must prescribe a distinguishing designation for each class, and prior to the issuance of shares of a class, the preferences, limitations, and relative rights of that class must be described in the charter. All shares of a class must have preferences, limitations, and relative rights identical with those of other shares of the same class except to the extent otherwise permitted by § 48-16-102.
The charter must authorize:
1. One (1) or more classes of shares that together have unlimited voting rights; and
2. One (1) or more classes of shares (which may be the same class or classes as those with voting rights) that together are entitled to receive the net assets of the corporation upon dissolution.
The charter may authorize one (1) or more classes of shares that:
1. Have special, conditional, or limited voting rights, or no right to vote, except to the extent prohibited by chapters 11-27 of this title;
2. Are redeemable or convertible as specified in the charter:
  1. At the option of the corporation, the shareholder, or another person or upon the occurrence of a designated event;
  2. For cash, indebtedness, securities, or other property;
  3. In a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;
3. Entitle the holders to distributions calculated in any manner, including dividends that may be cumulative, noncumulative, or partially cumulative;
4. Have preference over any other class of shares with respect to distributions, including dividends and distributions upon the dissolution of the corporation; or
5. Have a par value; provided, that the mere recitation of a par value for shares shall not create a requirement for a minimum consideration for the issuance of any such shares or impose any other restriction on their issuance or create any other right or liability with respect thereto.
The description of the designations, preferences, limitations, and relative rights of share classes in subsection (c) is not exhaustive.
Any of the voting rights, preferences, limitations and relative rights of any class or series of shares authorized under this section may be made dependent upon facts ascertainable outside the charter; provided, that the manner in which such facts shall operate upon the voting powers, preferences, limitations and relative rights is set forth in reasonable detail in the charter.

Acts 1986, ch. 887, § 6.01; 1994, ch. 776, §§ 10-13.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, distributions, title 48, ch. 63.

Law Reviews.

Shareholder Oppression in Close Corporations: The Unanswered Question on Perspective, 53 Vand. L. Rev. 749 (2000).

48-16-102. Terms of class or series determined by board of directors.

If the charter so provides, the board of directors may determine, in whole or part, the preferences, limitations, and relative rights (within the limits set forth in § 48-16-101) of:
1. Any class of shares before the issuance of any shares of that class; or
2. One (1) or more series within a class before the issuance of any shares of that series.
Each series of a class must be given a distinguishing designation.
All shares of a series must have preferences, limitations, and relative rights identical with those of other shares of the same series and, except to the extent otherwise provided in the description of the series, with those of other series of the same class.
Before issuing any shares of a class or series created under this section, the corporation must deliver to the secretary of state for filing articles of amendment, which are effective without shareholder action, that set forth:
1. The name of the corporation;
2. The text of the amendment determining the terms of the class or series of shares;
3. The date it was adopted; and
4. A statement that the amendment was duly adopted by the board of directors.

Acts 1986, ch. 887, § 6.02.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 88.

48-16-103. Issued and outstanding shares.

A corporation may issue the number of shares of each class or series authorized by the charter. Shares that are issued are outstanding shares until they are reacquired, redeemed, converted, or cancelled.
The reacquisition, redemption, or conversion of outstanding shares is subject to the limitation of subsection (c) and to § 48-16-401.
At all times that shares of the corporation are outstanding, one (1) or more shares that together have unlimited voting rights and one (1) or more shares that together are entitled to receive the net assets of the corporation upon dissolution must be outstanding.

Acts 1986, ch. 887, § 6.03.

48-16-104. Fractional shares.

A corporation may:
1. Issue fractions of a share or pay in money the value of fractions of a share;
2. Arrange for disposition of fractional shares by the shareholders; and
3. Issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.
Each certificate representing scrip must be conspicuously labeled “scrip” and must contain the information required by § 48-16-206(b).
The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for them.
The board of directors may authorize the issuance of scrip, subject to any condition considered desirable, including that:
1. The scrip will become void if not exchanged for full shares before a specified date; and
2. The shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders.

Acts 1986, ch. 887, § 6.04.

Part 2
Issuance of Shares

48-16-201. Subscription for shares.

A subscription for shares entered into before incorporation shall be in writing, and any such subscription shall be irrevocable for six (6) months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.
Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, unless the subscription agreement provides otherwise, the corporation may rescind the agreement and may sell the shares if the debt remains unpaid more than twenty (20) days after the corporation sends written demand for payment to the subscriber.
A subscription agreement entered into after incorporation shall be in writing and is a contract between the subscriber and the corporation subject to § 48-16-202.

Acts 1986, ch. 887, § 6.20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1109, 5-1110.

48-16-202. Issuance of shares.

The powers granted in this section to the board of directors may be reserved to the shareholders by the charter.
The board of directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other benefits to be received, or other securities of the corporation.
Before the corporation issues shares, the board of directors shall determine that the consideration received or to be received for shares to be issued is adequate. A decision by the board of directors to accept consideration for shares shall be deemed a determination that the consideration is adequate. A determination by the board of directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid, and nonassessable.
When the corporation receives the consideration for which the board of directors authorized the issuance of shares, the shares issued therefor are fully paid and nonassessable. For the purposes of this subsection (d), when and to the extent consideration for the issuance of shares consists of a promissory note or contract for services or other benefits, the corporation has received such consideration at the time such note is issued or contract is entered into.
The corporation may place in escrow shares issued for a contract for future services or benefits or a promissory note, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the note is paid, or the benefits received. If the services are not performed, the note is not paid, or the benefits are not received, the shares escrowed or restricted and the distributions credited may be cancelled in whole or in part.

Acts 1986, ch. 887, § 6.21; 1994, ch. 776, §§ 14, 15.

Cross-References. Stocks held by fiduciary in nominee's name, § 35-3-118.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-103, 5-1203.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Consideration for Stock.

2. —Services.

Where the rights of creditors were not involved, officers of a corporation for the manufacture of a patented article of purely speculative value, who in good faith and with assent of the other stockholders gave their time, skill and means in attempting to develop and establish the business in consideration of a portion of unissued stock which had no present market value, were not liable to the corporation for the par value. Divine v. Universal Sewing Machine Motor Attachment Co., 38 S.W. 93, 1896 Tenn. Ch. App. LEXIS 59 (1896).

The labor or services given as consideration must be services actually rendered and not services to be rendered in the future. Community General Hospital, Inc. v. Diehl, 50 Tenn. App. 268, 360 S.W.2d 935, 1962 Tenn. App. LEXIS 151 (Tenn. Ct. App. 1962).

There was no consideration for issuance of common stock to directors for services in promotion of sale of preferred stock where the promotion of the corporation failed. Community General Hospital, Inc. v. Diehl, 50 Tenn. App. 268, 360 S.W.2d 935, 1962 Tenn. App. LEXIS 151 (Tenn. Ct. App. 1962).

3. —Property.

Stock subscriptions in corporation other than moneyed corporations could be paid in land or other property necessary or suitable to the business of the corporation, if paid in good faith and at its real value. Searight, Thornton & Co. v. Payne, 74 Tenn. 283, 1880 Tenn. LEXIS 248 (1880); Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Bristol Bank & Trust Co. v. Jonesboro Banking & Trust Co., 101 Tenn. 545, 48 S.W. 228, 1898 Tenn. LEXIS 103 (1898); Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

The whole or any part of the capital stock might be paid in land suitable for its purposes, at a fair cash valuation; and such property might be situate outside the state. Albitzue v. Guadelupe y Caloo Min. Co., 92 Tenn. 598, 22 S.W. 739, 1893 Tenn. LEXIS 16 (1893); Strong v. Efficiency Apartment Corp., 159 Tenn. 337, 17 S.W.2d 1, 1928 Tenn. LEXIS 91 (1929).

Corporation might be organized to buy specific property or manufacturing plant, provided such property or plant were useful and convenient and suitable to its purposes, and its purposes were legal. The transfer of property to the corporation in consideration of the issuance of its entire stock to the property owner would be upheld in a contest between the property owner's existing creditors and the creditors of the corporation, after both had become insolvent. Bristol Bank & Trust Co. v. Jonesboro Banking & Trust Co., 101 Tenn. 545, 48 S.W. 228, 1898 Tenn. LEXIS 103 (1898).

Corporation could accept property in payment of subscriptions, provided the property was needed by the corporation and a fair valuation was placed thereon. Aiken v. Galyon-Crumley Lumber Co., 1 Tenn. App. 702, 1926 Tenn. App. LEXIS 10 (1926).

A corporation could accept in payment for its stock any property it is authorized to own and that is necessary in its business, provided the property was accepted in good faith and at a fair valuation. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

4. —Surplus and Undivided Profits.

There was no power to pay for stock by the use of surplus and undivided profits, consisting of tangible and intangible assets. United Hosiery Mills Corp. v. Stevens, 146 Tenn. 531, 243 S.W. 656, 1921 Tenn. LEXIS 30 (1922); Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

An amendment to a charter purporting to grant right of payment for capital stock on increase in surplus and undivided profits, consisting of tangible and intangible assets, was void. United Hosiery Mills Corp. v. Stevens, 146 Tenn. 531, 243 S.W. 656, 1921 Tenn. LEXIS 30 (1922); Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

Where there was no evidence of agreement to devote profits to the payment of stock subscriptions or to treat the stock as paid-up in consideration of the surrender of the profits to the corporation, the fact that stockholders left in the business funds that might have been used to declare a dividend did not constitute a payment of subscriptions. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

5. —Loan of Credit.

The loaning of credit to the corporation was not sufficient payment of subscriptions. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

6. —Presumption of Fairness.

Where a corporation, pursuant to legal authority, issued full-paid and nonassessable certificates of stock in payment of property or services, or where it received property or services in payment of stock subscriptions, it was presumed that the transaction was made in good faith, and the property or services placed at a fair valuation; and in a suit to compel such stockholders to pay the difference between the par value of the stock and the alleged actual value of the property or services, in order to create a fund for the payment of the debts of the corporation, facts must be pleaded and proved showing that the transaction was fraudulent, and should not therefore operate as payment in full for such stock. Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894); Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

When property was accepted in payment of subscriptions, the burden was on the party attacking the validity of such transaction to show that an unfair value was put on the property. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

7. —Attack on Consideration.

The creditors of an insolvent corporation, or its assignee for their benefit, could not maintain a bill against its stock subscribers who had paid their subscriptions in property which the corporation was legally authorized to receive in payment for stock, for the difference between the face value of the subscriptions and the real value of the property, or for the difference between the actual value and the overvaluation of the property, without a distinct allegation that the overvaluation of the property was intentionally fraudulent, or was so gross and palpable as to be constructively fraudulent, as to corporate creditors. An allegation that the property was “not conveyed at a fair cash value, but very far in excess of it” is insufficient. Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

8. —Limitations.

Although notes given for stock may be barred by limitations, the statute does not begin on the indebtedness of the stock until a call is made. Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878).

The statutes of limitation of six and 10 years did not commence to run against the right of corporate creditors to enforce the liability of stockholders for the difference between the fraudulent overvaluation and the actual valuation of land conveyed by stockholders in payment for their subscriptions for stock, until the legal insolvency of the corporation had occurred. Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

48-16-203. Liability of shareholders.

A purchaser from a corporation of its own shares is not liable to the corporation or its creditors with respect to the shares except to pay the consideration for which the shares were authorized to be issued (§ 48-16-202) or specified in a preincorporation subscription agreement (§ 48-16-201).
A shareholder of a corporation is not personally liable for the acts or debts of the corporation except that the shareholder may become personally liable by reason of the shareholder's own acts or conduct.
Any person becoming an assignee or transferee of shares or of a subscription for shares in good faith and without knowledge or notice that the full consideration therefor has not been paid shall not be personally liable for any unpaid portion of such consideration, but the transferor shall remain liable therefor, whether such assignment or transfer be voluntary or involuntary.
No person holding shares in any corporation as collateral security shall be personally liable as a shareholder, but the person pledging such shares shall be considered the holder thereof and shall be so liable. No executor, administrator, guardian, trustee, or other fiduciary shall be personally liable as a shareholder, but the estate and funds in the hands of such executor, administrator, guardian, trustee, or other fiduciary shall be liable.

Acts 1986, ch. 887, § 6.22.

Law Reviews.

Vicarious Liability and the Traditional Law Firm Partnership: What You Should Know (Paul S. Davidson) 29 Tenn. B.J. 12 (1993).

NOTES TO DECISIONS

1. Liability of Officers.

Although a bankruptcy debtor was the sole member of a limited liability company (LLC) which was undercapitalized and owed a debt to a creditor, payment of debts to other creditors rather than the creditor did not constitute misconduct warranting personal liability of the debtor for the LLC's debt to the creditor. Ampharm, Inc. v. Samples (In re Samples), — B.R. —, 2009 Bankr. LEXIS 4077 (Bankr. M.D. Tenn. Dec. 11, 2009).

2. Shareholders Not Held Liable.

When a creditor pierced the corporate veil of a debtor's company to hold the debtor personally liable for debts to the creditor, the creditor could not hold other shareholders of the company personally liable on the theory that the other shareholders were liable once the corporate veil was pierced because: (1) T.C.A. § 48-16-203(b) directly contradicted the creditor's assertion by providing that a shareholder of a corporation was not personally liable for the acts or debts of the corporation except that the shareholder could become personally liable by reason of the shareholder's own acts or conduct, (2) No evidence supported the creditor's assertion that the other shareholders were apprised of, and acquiesced in, the debtor's use of the company's funds for personal reasons in disregard of the company's corporate form, and (3) The other shareholders' boilerplate acknowledgments that the other shareholders ratified the acts of the company's officers were insufficient to hold the other shareholders personally liable. Delta Dev. Corp. v. F. Fani Gulf Int'l, 393 S.W.3d 185, 2012 Tenn. App. LEXIS 222 (Tenn. Ct. App. Apr. 3, 2012), appeal denied, — S.W.3d —, 2012 Tenn. LEXIS 594 (Tenn. Aug. 16, 2012).

Decisions Under Prior Law

1. Payment of Subscriptions.

Where a call for payment of stock subscriptions was made by the board of directors, and the president was authorized by the board to make the call, and the president made and advertised it in the president's capacity as president alone, the president's action must be regarded as that of the board itself. Read v. Memphis Gayoso Gas Co., 56 Tenn. 545, 1872 Tenn. LEXIS 174 (1872).

2. —Sale of Stock.

Where a subscriber for stock in a corporation failed to pay the same or any part thereof, the corporation might, by bill in chancery, subject the stock to sale in satisfaction of the amount due and owing on the subscription. Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880).

3. —Enforcement.

The stock subscribed and agreed to be paid becomes the property of the corporation, and its directory has the right to enforce its payment; and at the instance of a creditor, the directory might be required in a court of equity to enforce such payment. Ohio Life Ins. & Trust Co. v. Merchants' Ins. & Trust Co., 30 Tenn. 1, 1850 Tenn. LEXIS 44 (1850); Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894).

Where the subscription for the initiatory stock in a corporation was valid, and the subscription for the increased stock was invalid, or where some assessments and calls for the payment of stock subscriptions were valid and some were invalid, the valid subscriptions or assessments and calls thereon might be sued for and enforced, and those that were invalid might be abandoned or waived. Read v. Memphis Gayoso Gas Co., 56 Tenn. 545, 1872 Tenn. LEXIS 174 (1872); Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792, 1907 Tenn. LEXIS 60 (1907).

Action on a subscription might be maintained without a previous tender of certificate for the shares. Paducah & M. R. Co. v. Parks, 86 Tenn. 554, 8 S.W. 842 (1888).

Stock subscriptions were not collectible where the corporation had not issued, and had no power to issue, or had divested itself of the power to issue, stock certificates to the subscribers in accordance with the terms of their contract of subscription, as where it had previously issued to others stock certificates for the entire capital stock, which were still outstanding. Railroad v. Knoxville, 98 Tenn. 1, 37 S.W. 883, 1896 Tenn. LEXIS 199 (1896); Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899).

The receiver and creditors of an insolvent corporation stood upon no higher ground than the corporation itself if it were in a solvent condition, as regards the enforcement of a contract of subscription which the corporation, without fault or participation of the contesting subscribers, had failed or disabled itself to perform on its part, as where it cannot lawfully issue certificates of stock therefor. Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899); White v. Bratton, 5 Tenn. App. 61, — S.W. —, 1927 Tenn. App. LEXIS 36 (Tenn. Ct. App. 1927).

4. —Forfeiture for Nonpayment.

No power existed in a corporation to disfranchise one of its members or to declare a forfeiture of stock, for nonpayment of assessments and calls upon subscriptions, unless the power was expressly conferred upon the corporation by statute; and for a stronger reason, a mere failure to pay such calls would not work a forfeiture of the stock. Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880); Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

5. —Limitations.

The statutes of limitation would not commence to run against a subscription with no fixed date of maturity and subject to call, until it was rendered payable by a call made for its payment, either by the directors or a court of equity, when the insolvency of the corporation was established, either by a general assignment or by a judgment and return of nulla bona, or, in case of bankruptcy, until some order or assessment of the court. This rule applied to personal representatives or estates of deceased subscribers. Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878); Marr v. Bank of W. Tenn., 72 Tenn. 578, 1880 Tenn. LEXIS 66 (1880); Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895).

6. Liability for Unpaid Subscriptions.

The subscription to the original or initiatory stock, made before the charter was procured, was absolute and irrevocable at the instant that all prerequisites made essential by law to the granting of the charter had been complied with. The subscriber then became a stockholder, and was liable absolutely for the subscription. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

It is not necessary, in order to make appellants liable to the responsibilities of stockholders, that they should have formally subscribed for stock. The fact that they receipted for, accepted, and held a certificate makes them liable to satisfy unsecured creditors. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

7. —As Trustee or Agent.

Where stock in a corporation is issued to one and the word “trustee” or “agent” is added to the name of the party, the party receiving the stock is personally liable for payment therefor. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

8. Assignee for Creditors.

Unpaid subscription was an asset of the corporation, and passed, under a general assignment for the benefit of its creditors, to the assignee, whose duty it was to collect the same; and the assignee might maintain a suit therefor. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

The right of an assignee under a general assignment for the benefit of its creditors to recover unpaid subscription for stock was not defeated by the fact that, with the assignee's permission given upon the execution of an indemnity bond, the stockholders other than such defaulting stockholder reorganized the corporation and resumed business with the machinery assigned to the assignee, after compromising some of the debts and acquiring assets sufficient to pay the others, with money borrowed and raised by issuing and selling preferred stock. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

9. Subpledgee.

Where a certificate of stock in a corporation was not fully paid up, when it was pledged by the owner as collateral security for a debt, and the owner made subsequent payments on the stock after it was received by the purchaser or subpledgee from the owner's assignee or first pledgee, such payments would not inure to the benefit of such purchaser or subpledgee. Cherry v. Frost, 75 Tenn. 1, 1881 Tenn. LEXIS 66 (1881).

10. Innocent Purchaser.

An innocent purchaser of a certificate of stock, for value and without notice, either from the face of the certificate or otherwise, that the stock is subject to future calls for unpaid balance of the subscription, could not be held by the corporation for the unpaid subscription. West Nashville Planing-Mill Co. v. Nashville Sav. Bank, 86 Tenn. 252, 6 S.W. 340, 1887 Tenn. LEXIS 44, 6 Am. St. Rep. 835 (1888).

A bona fide purchaser of stock for value without notice or knowledge that the subscription was unpaid could not be held for the unpaid subscription. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

11. —Death of Subscriber.

The personal representative of a deceased stockholder was liable for unpaid parts of the deceased's subscription, and not the heirs, even though the personal representative had settled the personal estate and paid proceeds to the heirs. Grigsby v. Ainsworth, 13 Tenn. App. 372, — S.W.2d —, 1930 Tenn. App. LEXIS 145 (Tenn. Ct. App. 1930).

If the holder of unpaid corporate stock dies without paying therefor, liability for the unpaid subscription may be enforced against the deceased's executrix. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

12. —Subscriptions by Insolvents.

Subscriptions by insolvents could not be counted to hold others liable; but, if such were apparently solvent at the time of subscription, no fraud was perpetrated on such others although insolvency afterwards developed. Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916); Mountain View Dev. Co. v. Burnett, 164 Tenn. 210, 46 S.W.2d 809, 1931 Tenn. LEXIS 25 (1931).

Insolvency at time of subscription was a matter of defense, and the burden of proof was on the defender asserting it. Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916).

The fact that part of subscription was not collectible was not a defense to an action against other stockholders on their subscriptions, in the absence of fraud, gross negligence, or any showing that stockholders whose subscriptions were obtained were insolvent at the time. Planters' Warehouse Co. v. Sentelle, 148 Tenn. 353, 255 S.W. 589, 1923 Tenn. LEXIS 22 (1923).

13. —Conditional Subscriptions.

For cases discussing subscriber liability under conditional subscriptions to stock, see Paducah & M. R. Co. v. Parks, 86 Tenn. 554, 8 S.W. 842 (1888); Anderson v. Middle & E. Tenn. Cent. R.R., 91 Tenn. 44, 17 S.W. 803, 1891 Tenn. LEXIS 75 (1891); Doak v. Stahlman, 58 S.W. 741, 1899 Tenn. Ch. App. LEXIS 178 (1899); Sweeney v. Tennessee C. R. Co., 118 Tenn. 297, 100 S.W. 732, 1906 Tenn. LEXIS 98 (1907); Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916); Eastern Products Corp. v. Tennessee C., I. & R. Co., 151 Tenn. 239, 269 S.W. 4, 1924 Tenn. LEXIS 64, 40 A.L.R. 1483 (1925), cert. denied, 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925), cert. denied, Eastern Products Corp. v. Tennessee C., I. & R. Co., 269 U.S. 572, 46 S. Ct. 100, 70 L. Ed. 418, 1925 U.S. LEXIS 193 (1925); Talbot v. Automobile Identification Underwriters, Inc., 163 Tenn. 256, 43 S.W.2d 220, 1931 Tenn. LEXIS 108 (1931); Mountain View Dev. Co. v. Burnett, 164 Tenn. 210, 46 S.W.2d 809, 1931 Tenn. LEXIS 25 (1931).

14. —Increase in Stock.

For cases discussing liability of subscribers to increase in capital stock, see Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897); Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899); Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792, 1907 Tenn. LEXIS 60 (1907); Planters' Warehouse Co. v. Sentelle, 148 Tenn. 353, 255 S.W. 589, 1923 Tenn. LEXIS 22 (1923); Mountain View Dev. Co. v. Burnett, 164 Tenn. 210, 46 S.W.2d 809, 1931 Tenn. LEXIS 25 (1931).

15. —Stock Illegally Issued.

Where corporation had no creditors, it could not recover on balance due on subscription by director to increased stock issued, where corporation did not comply with statutory provisions for issuance of additional stock, since issue was void; director was entitled to recover from corporation the amount paid on subscription. Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897).

There is no liability on overplus of shares erroneously issued in double the amount subscribed for, which error was corrected at first meeting of stockholders. White v. Bratton, 5 Tenn. App. 61, — S.W. —, 1927 Tenn. App. LEXIS 36 (Tenn. Ct. App. 1927).

Where there was no valid subscription, and the certificates of stock were recalled and canceled, there was no liability on call. White v. Bratton, 5 Tenn. App. 61, — S.W. —, 1927 Tenn. App. LEXIS 36 (Tenn. Ct. App. 1927).

16. —Creditor's Rights.

The subscribers for stock in a corporation were not liable to its creditors upon their unpaid subscriptions until the exhaustion of the corporate assets. Blake v. Hinkle, 18 Tenn. 218, 1836 Tenn. LEXIS 124 (1836); Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

The capital stock of a corporation, whether actually paid in or only subscribed and remaining unpaid, was a trust fund for the payment of its debts. Ohio Life Ins. & Trust Co. v. Merchants' Ins. & Trust Co., 30 Tenn. 1, 1850 Tenn. LEXIS 44 (1850); Marr v. Bank of West Tennessee, 44 Tenn. 471, 1867 Tenn. LEXIS 71 (1867); Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880).

A creditor whose debt was created before the subscriptions to stock were made may have remedy. Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894).

All unpaid stock subscriptions inure to the benefit of all creditors alike, whether their debts were created before or after the subscriptions were made, or before or after the capitalization of the corporation or any subscriptions for its stock. Kelley v. Fletcher, 94 Tenn. 1, 28 S.W. 1099, 1894 Tenn. LEXIS 20 (1894); Shields v. Clifton Hill Land Co., 94 Tenn. 123, 28 S.W. 668, 1894 Tenn. LEXIS 31, 45 Am. St. Rep. 700, 26 L.R.A. 509 (1894); Jones v. Whitworth, 94 Tenn. 602, 30 S.W. 736, 1894 Tenn. LEXIS 73 (1895); Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

Where a corporation has become hopelessly insolvent, a creditor and stockholder of the corporation has the right to maintain an action against subscribers for unpaid stock of the corporation. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

17. —Cancellation or Release.

In the absence of express power conferred by statute, no power existed in the corporation, its officers, or directory to release a stockholder from payment of a stock subscription, after the stockholder's liability had become fixed. Such release could be effected alone by the consent of all the stockholders, where the rights of creditors were not involved. Chase v. E. T., V. & G. R.R. Co., 73 Tenn. 415, 1880 Tenn. LEXIS 153 (1880); Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

A stockholder was not released, in law or equity, from liability for the stockholder's unpaid subscription where, on account of the stockholder's own or the stockholder's agent's mistake of law or fact, the stockholder supposed the contract of subscription had been properly canceled, and for that reason ceased to act as a stockholder in the corporation, which became insolvent through its subsequent management, in which the stockholder did not participate. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

Where an officer of a corporation assumed responsibility to obtain a release or cancellation of the stockholder's contract of subscription, the officer became the agent of the stockholder. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

The unauthorized release by the action of the corporation or its officers was not made effectual by reason of their having procured new and additional subscriptions and contribution of new capital to take the place of that released. It was wholly immaterial whether the new and additional subscriptions and contributions of capital were void or valid. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

If a corporation undertook by way of reduction of its capital stock to retire a part of its shares and to release subscribers therefor on unpaid parts of their subscriptions, such was ineffectual as to creditors in existence at the time of the reduction. Grigsby v. Ainsworth, 13 Tenn. App. 372, — S.W.2d —, 1930 Tenn. App. LEXIS 145 (Tenn. Ct. App. 1930).

Cancellation of subscription after the corporation became insolvent was void as to creditors, and the subscriber remained liable. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

Where the bill by a receiver set up an attempt to cancel a subscription and defendant denied the allegations of the bill generally, the latter could not urge the cancellation as an affirmative defense. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

The holders of unpaid corporate stock cannot defeat recovery on their subscriptions for the stock, by surrendering it to the corporation for cancellation at the suggestion of a creditor, pursuant to a resolution passed by the holders of unpaid stock, without notice to the holders of paid-up stock, since it requires the consent of all stockholders, where there are no rights of intervening creditors, to release the holders of unpaid stock from liability thereon. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

Unpaid subscriptions for corporate stock, like any other asset of the corporation, when it becomes insolvent, may be collected through the interposition of a court of equity, and, if the corporation has secretly agreed not to require payment, or if it has released the subscribers without consideration, the agreement or release may be held void as against creditors on the ground of fraud. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

18. —Defenses.

The fact that a corporation had violated its charter by taking stock subscriptions in excess of its authorized and fixed capital stock, or by other illegal acts, constituted no defense to its suit to recover from a subscriber the amount of the subscriber's unpaid subscription which was legal and valid because taken before the fixed capital stock was exceeded. Cartwright v. Dickinson, 88 Tenn. 476, 12 S.W. 1030, 1889 Tenn. LEXIS 68, 17 Am. St. Rep. 910, 7 L.R.A. 706 (1890).

The subscribers were not estopped to resist the collection of their subscriptions by the fact that they might have become directors, or attended the meetings of the directors or stockholders, if they did not participate or acquiesce in the illegal acts of the corporation, but promptly repudiated such after notice. Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899).

The subscriber upon increased capitalization, when sued on the subscriber's notes issued under the subscriber's contract of subscription, should not be permitted to set up as a defense the want of a legal organization, or the invalidity of the amendment to the charter increasing the amount of the capitalization, on the ground that the witness to the signature of the corporators on their application for the amendment to the charter was incompetent. Pope v. Merchants' Trust Co., 118 Tenn. 506, 103 S.W. 792, 1907 Tenn. LEXIS 60 (1907).

One whose subscription was obtained by fraud must show diligence in discovering the fraud and repudiating the subscription contract, as against creditors of the corporation. One year of delay and payment of one assessment operated to defeat the defense. Heiskell v. Morris, 135 Tenn. 238, 186 S.W. 99, 1916 Tenn. LEXIS 24 (1916).

That a corporation purchased realty at an excessive price was not a defense by a stockholder to an action to recover on his subscription. Planters' Warehouse Co. v. Sentelle, 148 Tenn. 353, 255 S.W. 589, 1923 Tenn. LEXIS 22 (1923).

19. —Interest.

In adjusting liabilities of stockholders in insolvent bank, actual payments on stock would bear interest from date on which made. Those who paid in notes of the bank would only be allowed the amount actually paid for such notes. Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878).

The receiver, suing to recover balance due on stock subscription, might recover interest thereon from the date of the subscription, although the subscriber was not liable for interest on the subscriber's individual, proportionate, or double liability beyond the par value of the stock, because such liability did not exist against the stockholder until the necessity for its collection arose. Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

20. Liability of Officers.

Where defendants, president and secretary respectively, of the corporation claimed that they were ignorant that the stock was unpaid, as officers they could not be heard to say as against creditors of the insolvent corporation that they were without such knowledge. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

21. Procedure.

While all the stockholders in a domestic corporation, subscriptions of which have not been fully paid up, must be made parties to action by corporate receiver, so as to apportion the loss equitably among them, nevertheless, where stockholder in a foreign corporation was sued in this state, the relation of the stockholder being contractual and entered into in contemplation of the laws of the state of corporation, those laws govern, and the courts of Tennessee would enforce the remedy they provide against a single stockholder, insofar as that remedy was not penal. Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

In receiver's suits to collect subscriptions, all solvent delinquent stockholders within the jurisdiction should be made defendants, but the failure to do so may not operate as a defense by one properly sued, where question was not raised in limine. Hamby v. Fouche, 15 Tenn. App. 248, — S.W.2d —, 1932 Tenn. App. LEXIS 92 (Tenn. Ct. App. 1932).

A debt which a stockholder had against the insolvent corporation could not be set off against a debt the stockholder owed for unpaid stock to the receiver of the corporation representing all creditors. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

The filing of an answer by a corporation to a general creditors' bill, admitting that the corporation was hopelessly insolvent and was not a going concern, waived objection to the maintenance of the creditors' bill, thereby precluding the holders of unpaid stock from thereafter objecting thereto. American Nat'l Bank v. Tinsley Millinery Co., 20 Tenn. App. 459, 100 S.W.2d 665, 1936 Tenn. App. LEXIS 37 (Tenn. Ct. App. 1936).

48-16-204. Share dividends.

Unless the charter provides otherwise, shares may be issued pro rata and without consideration to the corporation's shareholders or to the shareholders of one (1) or more classes or series. An issuance of shares under this subsection (a) is a share dividend.
Shares of one (1) class or series may not be issued as a share dividend in respect of shares of another class or series unless:
1. The charter so authorizes;
2. A majority of the votes entitled to be cast by the class or series to be issued approves the issue; or
3. There are no outstanding shares of the class or series to be issued.
If the board of directors does not fix the record date for determining shareholders entitled to a share dividend, it is the date the board of directors authorizes the share dividend.

Acts 1986, ch. 887, § 6.23.

48-16-205. Options to subscribe for or purchase shares — Instruments evidencing options — Authority to grant.

Unless the charter otherwise provides, a corporation, by its directors, may grant rights, options or warrants to subscribe for or to purchase shares of any authorized class, at the times and on the terms that are set forth in such rights, options or warrants, or in the contracts, warrants or instruments that evidence such rights, options or warrants, which contracts, warrants or instruments may be transferable or nontransferable and may be separable or inseparable from such rights, options or warrants upon the following conditions:
1. If the shares are subject to preemptive rights and if the rights, options or warrants are not granted to shareholders in satisfaction of their preemptive rights, the granting of the rights, options or warrants must be authorized by the vote or consent of the shareholders or holders of shares of particular classes that then would be required to waive or release such preemptive rights; the vote or consent shall release the preemptive rights to the shares required to satisfy the rights, options or warrants if and when exercised; and
2. If at the time of granting the rights, options or warrants the corporation does not have authorized and unissued shares sufficient to satisfy the rights, options or warrants if and when exercised, the granting of the rights, options or warrants must be authorized by the vote of the shareholders or holders of shares of particular classes that then would be required to adopt an amendment to the charter for the purpose of increasing the authorized number of such shares, and the shares required to be issued upon the exercise of the rights, options or warrants shall be provided by an amendment concurrently or thereafter adopted by the shareholders or the directors.
1. The securities, contracts, warrants or instruments that evidence the rights, options or warrants may contain any terms not repugnant to law, including, but not limited to, the following:
  1. Restrictions upon the authorization or issuance of additional shares;
  2. Provisions for the adjustment of the exercise price;
  3. Provisions concerning rights in the event of reorganization, merger, share exchange or sale of the entire assets of the corporation;
  4. Provisions for the reservation of authorized but unissued shares to satisfy the rights, options or warrants;
  5. Restrictions upon the declaration of payment of dividends or distributions; or
  6. Conditions on the exercise of the rights, options or warrants, including, subject to the limitation specified in subdivision (b)(2), conditions that preclude a holder, including, but not limited to, a holder of at least a specified number or percentage of the outstanding common shares of the corporation, or a holder offering to purchase at least a specified number or percentage of the outstanding common shares of the corporation, from exercising the rights, options or warrants.
2. The express or implied authority conferred by subdivision (b)(1) or any other section of this chapter for securities, contracts, warrants, or instruments that evidence such rights, options or warrants to contain a condition on the exercise of such rights, options or warrants that precludes a holder, including, but not limited to, a holder of at least a specified number or percentage of the outstanding common shares of the corporation, or a holder offering to purchase at least a specified number or percentage of the outstanding common shares of the corporation, from exercising rights, options or warrants, shall apply only to:
  1. A corporation that has issued and has outstanding shares listed on a national securities exchange or is regularly quoted in an over-the-counter market by one (1) or more members of a national or affiliated securities association; or
  2. A corporation that has adopted a shareholder's agreement pursuant to which rights, options or warrants are granted, if the securities, contracts, warrants or instruments that evidence the rights, options or warrants contain a condition that precludes a holder, including, but not limited to, a holder of at least a specified number or percentage of the outstanding common shares of the corporation or a holder offering to purchase at least a specified number or percentage of the outstanding common shares of the corporation, from exercising the rights, options or warrants.
Subject to the conditions set forth in subsection (a), the board of directors may authorize one (1) or more officers to designate the recipients of rights, options, warrants or other equity compensation awards that involve the issuance of shares and determine, within an amount and subject to any other limitations established by the board and, if applicable, the stockholders, the number of such rights, options, warrants or other equity compensation awards and the terms thereof to be received by the recipients; provided, that no officer shall use such authority to designate either such officer or such other persons as the board of directors may specify as a recipient of such rights, options, warrants or other equity compensation awards.
As used in this section, “securities” includes obligations and shares of the corporation.
This section shall apply to any rights, options or warrants, or any contracts, warrants, or instruments that evidence such rights, options or warrants which were issued subsequent to January 1, 1985.

Acts 1986, ch. 887, § 6.24; 1989, ch. 451, § 7; 2012, ch. 1051, § 22.

48-16-206. Form and content of certificate.

Shares may but need not be represented by certificates. Unless chapters 11-27 of this title or another statute expressly provides otherwise, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates.
At a minimum each share certificate must state on its face:
1. The name of the issuing corporation and that it is organized under the laws of this state;
2. The name of the person to whom issued; and
3. The number and class of shares and the designation of the series, if any, the certificate represents.
If the issuing corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge.
Each share certificate:
1. Shall be signed (either manually or in facsimile) by two (2) officers designated in the bylaws or by the board of directors; and
2. May bear the corporate seal or its facsimile.
If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid.

Acts 1986, ch. 887, § 6.25.

NOTES TO DECISIONS

1. Equity Invoked.

On December 31, 2001, the employee performed his obligations under the agreement, but the corporation never issued stock certificates evincing his ownership of shares; as a transfer of stock did not require issuance or delivery of a stock certificate to be valid, the court invoked equity to determine that the issuance and delivery of stock certificates to the employee was considered as having been done, and thus he was vested with ownership of the shares on December 31, 2001. Powers v. A&W Supply, Inc., — S.W.3d —, 2017 Tenn. App. LEXIS 188 (Tenn. Ct. App. Mar. 21, 2017).

2. Consideration on Summary Judgment.

Although the certificate was not signed by two corporate directors or officers, the two-signature requirement of T.C.A. § 48-16-206(d)(1) did not preclude the trial court's consideration of the certificate as evidence on the question of the intent of the issuers of the stock. In re Estate of Miller, — S.W.3d —, 2017 Tenn. App. LEXIS 434 (Tenn. Ct. App. June 29, 2017).

48-16-207. Shares without certificates.

Unless the charter or bylaws provide otherwise, the board of directors of a corporation may authorize the issue of some or all of the shares of any or all of its classes or series without certificates. The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.
Within a reasonable time after the issue or transfer of shares without certificates, the corporation shall send the shareholder a written statement of the information required on certificates by § 48-16-206(b) and (c), and, if applicable, § 48-16-208, except that no such written statement need be sent by a corporation in respect of shares that are not subject to any restriction on transfer described in § 48-16-208 and that are issued by a corporation subject to the reporting requirements of § 13 of the Securities Exchange Act of 1934 (15 U.S.C. § 78m).

Acts 1986, ch. 887, § 6.26.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1103.

48-16-208. Restriction on transfer of shares and other securities.

The charter, bylaws, an agreement among shareholders, or an agreement between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by § 48-16-207(b). Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
A restriction on the transfer or registration of transfer of shares is authorized:
1. To maintain the corporation's status when it is dependent on the number or identity of its shareholders;
2. To preserve exemptions under federal or state securities law; or
3. For any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
1. Obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;
2. Obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;
3. Require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; or
4. Prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.
For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.

Acts 1986, ch. 887, § 6.27.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1101, 5-1102, 5-1110 — 5-1113.

Law Reviews.

Some Whys and Wherefores in Drafting Shareholder Agreements (Robert L. McMurray), 23 Tenn. B.J. 19 (1987).

48-16-209. Expense of issue.

A corporation may pay the expenses of selling or underwriting its shares, and of organizing or reorganizing the corporation, from the consideration received for shares.

Acts 1986, ch. 887, § 6.28.

Part 3
Subsequent Acquisition of Shares by Shareholders and Corporation

48-16-301. Shareholders' preemptive rights.

The shareholders of a corporation, solely by virtue of their status as such, do not have a preemptive right to acquire the corporation's unissued shares except to the extent the charter so provides.
A statement included in the charter that “the corporation elects to have preemptive rights” (or words of similar import) means that the following principles apply except to the extent the charter expressly provides otherwise:
1. The shareholders of the corporation have a preemptive right, granted on uniform terms and conditions prescribed by the board of directors to provide a fair and reasonable opportunity to exercise the right, to acquire proportional amounts of the corporation's unissued shares upon the decision of the board of directors to issue them;
2. A shareholder may waive this preemptive right. A waiver evidenced by a writing is irrevocable even though it is not supported by consideration;
3. There is no preemptive right with respect to:
  1. Shares issued as compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
  2. Shares issued to satisfy conversion or option rights created to provide compensation to directors, officers, agents, or employees of the corporation, its subsidiaries or affiliates;
  3. Shares authorized in the charter that are issued within six (6) months from the effective date of incorporation; or
  4. Shares sold otherwise than for cash;
4. Holders of shares of any class without general voting rights but with preferential rights to distributions or assets have no preemptive rights with respect to shares of any class;
5. Holders of shares of any class with general voting rights but without preferential rights to distributions or assets have no preemptive rights with respect to shares of any class with preferential rights to distributions or assets unless the shares with preferential rights are convertible into or carry a right to subscribe for or acquire shares without preferential rights; and
6. Shares subject to preemptive rights that are not acquired by shareholders may be issued to any person for a period of one (1) year after being offered to shareholders at a consideration set by the board of directors that is not lower than the consideration set for the exercise of preemptive rights. An offer at a lower consideration or after the expiration of one (1) year is subject to the shareholders' preemptive rights.
For purposes of this section, “shares” includes a security convertible into or carrying a right to subscribe for or acquire shares.
This section does not limit or otherwise affect the ability of a corporation to grant by contract to one (1) or more of its shareholders the right to acquire shares on a preemptive or other priority basis.

Acts 1986, ch. 887, § 6.30; 1989, ch. 451, § 8; 1994, ch. 776, §§ 16, 17.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Injunction.

An injunction might issue to restrain issuance of stock in disregard of the rights of stockholders to subscribe pro rata therefor; the same rule applies to previously issued shares bought in by the corporation as treasury stock. Petre v. Bruce, 157 Tenn. 131, 7 S.W.2d 43, 1927 Tenn. LEXIS 57 (1928).

2. Estoppel.

Where the course of conduct of the officers and directors of a corporation was induced by misrepresentation of complainant and lacked elements of understanding and intention, such persons did not by consenting to the issue of a majority of shares of stock to complainant stockholder waive an agreement by such stockholder not to acquire a majority of stock in the corporation or to acquire control thereof, and complainant could not maintain a suit in equity to cancel an issue of stock to individual shareholders on the ground that under the bylaws and statute complainant was entitled to a pro rata share of such new issue. Heylandt Sales Co. v. Welding Gas Prods. Co., 180 Tenn. 437, 175 S.W.2d 557, 1943 Tenn. LEXIS 14 (1943).

Complainant stockholder who agreed not to acquire a majority of stock in a corporation or to secure control thereof but who acquired control of such corporation in violation of the agreement was precluded by the doctrine of unclean hands and estoppel by waiver from maintaining a suit in equity to cancel a new issue of stock to individual shareholders based on ground that complainant had been denied the right of participation in such issue in violation of a right reserved by the bylaws and statute. Heylandt Sales Co. v. Welding Gas Prods. Co., 180 Tenn. 437, 175 S.W.2d 557, 1943 Tenn. LEXIS 14 (1943).

48-16-302. Corporation's acquisition of its own shares.

1. A corporation may acquire its own shares and shares so acquired constitute authorized but unissued shares.
2. Shares of a class or a series, the preferences, limitations and relative rights of which were determined by the board of directors pursuant to § 48-16-102, that are acquired by the corporation shall constitute authorized but unissued shares having the same preferences, limitations and relative rights as the shares so acquired; provided, that, if the charter so provides, such authorized but unissued shares may instead constitute or be included in a class of shares with respect to which the board may again determine the preferences, limitations and relative rights under § 48-16-102.
If the charter prohibits the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the charter.
The board of directors may adopt articles of amendment that are required by subsection (b) without shareholder action, and deliver them to the secretary of state for filing. The articles must set forth:
1. The name of the corporation;
2. The reduction in the number of authorized shares, itemized by class and series; and
3. The total number of authorized shares, itemized by class and series, remaining after reduction of the shares.

Acts 1986, ch. 887, § 6.31; 1994, ch. 776, § 18.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-704.

Part 4
Distributions

48-16-401. Distributions to shareholders.

A board of directors may authorize and the corporation may make distributions to its shareholders subject to restriction by the charter and the limitation in subsection (c).
If the board of directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a repurchase or reacquisition of shares), it is the date the board of directors authorizes the distribution.
No distribution may be made if, after giving it effect:
1. The corporation would not be able to pay its debts as they become due in the usual course of business; or
2. The corporation's total assets would be less than the sum of its total liabilities plus (unless the charter permits otherwise) the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
The board of directors may base a determination that a distribution is not prohibited under subsection (c) either on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable in the circumstances.
Except as provided in subsection (g), the effect of a distribution under subsection (c) is measured:
1. In the case of distribution by purchase, redemption, or other acquisition of the corporation's shares, as of the earlier of:
  1. The date money or other property is transferred or debt incurred by the corporation; or
  2. The date the shareholder ceases to be a shareholder with respect to the acquired shares;
2. In the case of any other distribution of indebtedness or distribution through the incurrence of indebtedness, as of the date the indebtedness is distributed or incurred. In a case in which the incurrence of indebtedness is the granting of a mortgage, security interest, lien, or other encumbrance of the corporation's assets, the indebtedness shall be deemed to be incurred on the date of the execution and delivery of the security instrument granting such mortgage, security interest, lien, or other encumbrance; and
3. In all other cases, as of:
  1. The date the distribution is authorized if the payment occurs within four (4) months after the date of authorization; or
  2. The date the payment is made if it occurs more than four (4) months after the date of authorization.
A corporation's indebtedness to a shareholder incurred by reason of a distribution made in accordance with this section is at parity with the corporation's indebtedness to its general, unsecured creditors except to the extent subordinated by agreement.
Indebtedness of a corporation, including indebtedness issued as a distribution, is not considered a liability for purposes of determinations under subsection (c) if its terms provide that payment of principal and interest are to be made only if and to the extent that payment of a distribution to shareholders could then be made under this section. If the indebtedness referred to in the preceding sentence is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is actually made.

Acts 1986, ch. 887, § 6.40; 1989, ch. 451, § 9; 1994, ch. 776, §§ 19, 20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1114, 5-1202.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Dividends.

For cases, under prior statutes, discussing the particular funds from which dividends could be paid, see Titus v. Piggly Wiggly Corp., 2 Tenn. App. 184, — S.W. —, 1925 Tenn. App. LEXIS 101 (Tenn. Ct. App. 1925); Trenton Cotton Oil Co. v. McCanless, 190 Tenn. 219, 229 S.W.2d 143, 1950 Tenn. LEXIS 442 (1950); Brooks Equip. & Mfg. Co. v. United States, 95 F. Supp. 247, 1951 U.S. Ct. Cl. LEXIS 9 (Ct. Cl. 1951).

2. —Action of Directors.

Withdrawal of surplus net profits without action of the directors, where there were but two stockholders who were the officers, was not unlawful. Chattanooga Sav. Bank v. Brewer, 9 F.2d 982, 1925 U.S. Dist. LEXIS 1400 (1925), aff'd, 17 F.2d 79, 1927 U.S. App. LEXIS 2909 (1927), aff'd, Chattanooga Sav. Bank v. Brewer, 17 F.2d 79, 1927 U.S. App. LEXIS 2909 (1927), cert. denied, Chattanooga Sav. Bank v. Brewer, 274 U.S. 751, 47 S. Ct. 764, 71 L. Ed. 1332, 1927 U.S. LEXIS 198 (1927).

3. —Persons Entitled.

A dividend on particular shares belonged to the person who owned the shares on date of its declaration, which segregated the dividend from the general assets, as between vendor and vendee of the shares. Wallin v. Johnson City Lumber & Mfg. Co., 136 Tenn. 124, 188 S.W. 577, 1916 Tenn. LEXIS 106, L.R.A. (n.s.) 1917B323 (1916).

A dividend on particular shares belonged to the person who owned the shares on date of its declaration notwithstanding the fact that the resolution of declaration provided that payment to stockholders should be at a later date on order of the directory. Wallin v. Johnson City Lumber & Mfg. Co., 136 Tenn. 124, 188 S.W. 577, 1916 Tenn. LEXIS 106, L.R.A. (n.s.) 1917B323 (1916).

Where there was a binding contract to sell shares, payment of purchase price deferred, and there was a dividend declared between the time of the making of the contract and the delivery of the certificate, the dividend belonged in equity to the purchaser. Thompson v. Exchange Bldg. Co., 157 Tenn. 275, 8 S.W.2d 489, 1928 Tenn. LEXIS 191, 60 A.L.R. 693 (1928).

Where an option to purchase shares of stock was given, and before the option was exercised a dividend was declared, it went to the person granting the option. Thompson v. Exchange Bldg. Co., 157 Tenn. 275, 8 S.W.2d 489, 1928 Tenn. LEXIS 191, 60 A.L.R. 693 (1928).

In the absence of agreement to the contrary, a pledge of shares as collateral security carried with it the right to receive dividends afterwards declared to be applied to the secured debt. Payne v. Fowler, 12 Tenn. App. 449, — S.W.2d —, 1930 Tenn. App. LEXIS 87 (Tenn. Ct. App. 1930).

4. —Effect.

The declaration of a dividend had the effect to appropriate to the stockholders the amount required to pay it, the stockholders having the right to recover against the corporation as debtor. Wallin v. Johnson City Lumber & Mfg. Co., 136 Tenn. 124, 188 S.W. 577, 1916 Tenn. LEXIS 106, L.R.A. (n.s.) 1917B323 (1916).

5. —Notes.

A judgment on notes executed by an insolvent corporation for unearned dividends was a valid claim, though the notes were executed in violation of law. Alabama Marble & Stone Co. v. Chattanooga Marble & Stone Co., 37 S.W. 1004, 1896 Tenn. Ch. App. LEXIS 44 (1896).

Notes executed by an insolvent corporation for unearned dividends in violation of law were not enforceable by transferees who took same before maturity and without notice, but as collateral security for a past-due debt. Alabama Marble & Stone Co. v. Chattanooga Marble & Stone Co., 37 S.W. 1004, 1896 Tenn. Ch. App. LEXIS 44 (1896).

6. —Application to Debt.

A corporation could not apply the stockholder's dividend to the payment of a demand it held against a partnership of which the stockholder was a member. American Nat'l Bank v. Nashville Warehouse & Elevator Co., 36 S.W. 960, 1896 Tenn. Ch. App. LEXIS 21 (1896).

7. —Interest.

Where a corporation had been enjoined from collecting dividends due to its stockholders, which injunction was afterwards dissolved, a stockholder could recover thereon simple interest at legal rate from the time the dividend was declared, pending the injunction. Heck v. Bulkley, 3 Shannon's Cases 291, 1 S.W. 612, 1886 Tenn. LEXIS 167 (1886).

Chapter 17
Shareholders

Part 1
Meetings

48-17-101. Annual meeting.

Unless directors are elected by written consent in lieu of an annual meeting as permitted by § 48-17-104, a corporation shall hold a meeting of shareholders annually at a time stated in, or fixed in accordance with, the bylaws.
Annual shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation's principal office.
The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.

Acts 1986, ch. 887, § 7.01; 2012, ch. 1051, § 23.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, members and memberships, title 48, ch. 56.

Law Reviews.

A Theory of Shareholder Activism and its Place in Corporate Law, 82 Tenn. L. Rev. 791 (2015).

48-17-102. Special meeting.

A corporation shall hold a special meeting of shareholders:
1. On call of its board of directors or the person or persons authorized to do so by the charter or bylaws; or
2. Unless the charter otherwise provides, if the holders of at least ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation's secretary one (1) or more written demands for the meeting describing the purpose or purposes for which it is to be held.
If not otherwise fixed under § 48-17-103 or § 48-17-107, the record date for determining shareholders entitled to demand a special meeting is the date the first shareholder signs the demand.
Special shareholders' meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated or fixed in accordance with the bylaws, special meetings shall be held at the corporation's principal office.
Only business within the purpose or purposes described in the meeting notice required by § 48-17-105(c) may be conducted at a special shareholders' meeting.

Acts 1986, ch. 887, § 7.02; 1989, ch. 451, § 10.

48-17-103. Court-ordered meeting.

A court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located may summarily order a meeting to be held on application of:
1. Any shareholder of the corporation entitled to participate in an annual meeting, if an annual meeting was not held within the earlier of six (6) months after the end of the corporation's fiscal year or fifteen (15) months after its last annual meeting; or
2. A shareholder who signed a demand for a special meeting valid under § 48-17-102, if:
  1. Notice of the special meeting was not given within one (1) month after the date the demand was delivered to the corporation's secretary; or
  2. The special meeting was not held in accordance with the notice.
The court may fix the time and place of the meeting, determine the shares entitled to participate in the meeting, specify a record date for determining shareholders entitled to notice of and vote at the meeting, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action on those matters) and enter other orders necessary to accomplish the purpose or purposes of the meeting.

Acts 1986, ch. 887, § 7.03; 1987, ch. 273, § 31.

48-17-104. Action without meeting.

Action required or permitted by chapters 11-27 of this title to be taken at a shareholders' meeting may be taken without a meeting. If all shareholders entitled to vote on the action consent to taking such action without a meeting, the affirmative vote of the number of shares that would be necessary to authorize or take such action at a meeting is the act of the shareholders. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each shareholder entitled to vote on the action in one (1) or more counterparts, indicating each signing shareholder's vote or abstention on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
The charter may provide that any action required or permitted by chapters 11-27 of this title to be taken at a shareholders' meeting may be taken without a meeting, and without prior notice, if consents in writing setting forth the action so taken are signed by the holders of outstanding shares having not less than the minimum number of votes that would be required to authorize or take the action at a meeting at which all shares entitled to vote on the action were present and voted. The written consent shall bear the date of signature of the shareholder who signs the consent and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
If not otherwise determined under § 48-17-103 or § 48-17-107, the record date for determining shareholders entitled to take action without a meeting is the date the first shareholder signs the consent under subsection (a).
A consent signed under this section has the effect of a meeting vote and may be described as such in any document. Unless the charter, bylaws or a resolution of the board of directors provides for a reasonable delay to permit tabulation of written consents, the action taken by written consent shall be effective when written consents signed by sufficient shareholders to take the action are delivered to the corporation.
If chapters 11-27 of this title or the charter requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by consent of the voting shareholders, then the corporation must give its nonvoting shareholders written notice of the proposed action at least ten (10) days before the action is taken. The notice must contain or be accompanied by the same material that under chapters 11-27 of this title would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action.
1. If action is taken by less than unanimous written consent of the voting shareholders, the corporation must give its nonconsenting voting shareholders written notice of the action not more than ten (10) days after:
  1. Written consents sufficient to take the action have been delivered to the corporation; or
  2. Such later date that tabulation of consents is completed pursuant to an authorization under subsection (d).
2. The notice must reasonably describe the action taken and contain or be accompanied by the same material that chapters 11-27 of this title would require to be sent to voting shareholders in a notice of a meeting at which the action would have been submitted to the shareholders for action.
The notice requirements in subsections (e) and (f) shall not delay the effectiveness of actions taken by written consent, and a failure to comply with such notice requirements shall not invalidate actions taken by written consent; provided, that this subsection (g) shall not be deemed to limit judicial power to fashion any appropriate remedy in favor of a shareholder adversely affected by a failure to give such notice within the required time period.
An electronic transmission may be used to consent to an action, if the electronic transmission contains or is accompanied by information from which the corporation can determine the date on which the electronic transmission was signed and that the electronic transmission was authorized by the shareholder, the shareholder's agent or the shareholder's attorney-in-fact.
Delivery of a written consent to the corporation under this section is delivery to the corporation's registered agent at its registered office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the registered agent's registered office) or to the secretary of the corporation at its principal office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the corporation's principal office).

Acts 1986, ch. 887, § 7.04; 2012, ch. 1051, § 24; 2015, ch. 60, § 1.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-707, 5-902.

48-17-105. Notice of meeting.

A corporation shall notify shareholders of the date, time, and place of each annual and special shareholders' meeting no fewer than ten (10) days nor more than two (2) months before the meeting date. Unless chapters 11-27 of this title or the charter requires otherwise, the corporation is required to give notice only to shareholders entitled to vote at the meeting.
Unless chapters 11-27 of this title or the charter requires otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called.
Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called.
If not otherwise fixed under § 48-17-103 or § 48-17-107, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting is the close of business on the day before the first notice is mailed or otherwise dispatched to shareholders.
Unless the bylaws require otherwise, if an annual or special shareholders' meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, or place if the new date, time, or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under § 48-17-107, however, notice of the adjourned meeting must be given under this section to persons who are shareholders as of the new record date.
A certificate of the secretary or other person giving the notice, or of a transfer agent of the corporation, that the notice required by this section has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Acts 1986, ch. 887, § 7.05; 1994, ch. 776, § 21.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-811, 5-1107, 5-1108.

48-17-106. Waiver of notice.

A shareholder may waive any notice required by chapters 11-27 of this title, the charter, or bylaws before or after the date and time stated in the notice. The waiver must be in writing, be signed by the shareholder entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
A shareholder's attendance at a meeting:
1. Waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting (or promptly upon the shareholder's arrival) objects to holding the meeting or transacting business at the meeting; and
2. Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

Acts 1986, ch. 887, § 7.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1302.

48-17-107. Record date.

The bylaws may fix or provide the manner of fixing the record date for one (1) or more voting groups in order to determine the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action. If the bylaws do not fix or provide for fixing a record date, the board of directors of the corporation may fix a future date as the record date.
A record date fixed under this section may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders.
A determination of shareholders entitled to notice of or vote at a shareholders' meeting is effective for any adjournment of the meeting unless the board of directors fixes a new record date, which it must do if the meeting is adjourned to a date more than four (4) months after the date fixed for the original meeting.
If a court orders a meeting adjourned to a date more than four (4) months after the date fixed for the original meeting, it may provide that the original record date continues in effect or it may fix a new record date.

Acts 1986, ch. 887, § 7.07.

48-17-108. Waiver or approval by fiduciaries.

Each fiduciary, including such acting as executor, administrator, guardian, committee, agent, or trustee, who is a shareholder of record, whether the corporation issuing such shares is foreign or domestic, may waive notice or lapse of time pursuant to § 48-17-106 and may consent to the taking of any corporate action pursuant to § 48-17-104.

Acts 1986, ch. 887, § 7.08.

48-17-109. Shareholder meetings through special communication.

Unless the charter or bylaws provide otherwise, the corporation may permit any or all shareholders to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all shareholders participating may simultaneously hear each other during the meeting. A shareholder who participates in a meeting by this means is deemed to be present in person at the meeting.

Acts 1994, ch. 776, § 22.

48-17-110. Conduct of the meeting.

At each meeting of shareholders, a chair shall preside. The chair shall be appointed as provided in the bylaws or, in the absence of such provision, by the board.
The chair, unless the charter or bylaws provide otherwise, shall determine the order of business and shall have the authority to establish rules for the conduct of the meeting.
Any rules adopted for, and the conduct of, the meeting shall be fair to shareholders.
The chair of the meeting shall announce at the meeting when the polls close for each matter voted upon. If no announcement is made, the polls shall be deemed to have closed upon the final adjournment of the meeting. After the polls close, no ballots, proxies or votes nor any revocations or changes thereto may be accepted.

Acts 2012, ch. 1051, § 27.

Part 2
Voting

48-17-201. Shareholders' list for meeting.

After fixing a record date for a meeting, a corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder, in each case as reflected in the records of the corporation.
The shareholders' list must be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, or the shareholder's agent or attorney, is entitled on written demand to inspect and, subject to the requirements of § 48-26-102(c), to copy the list, during regular business hours and at such shareholder's or agent's expense, during the period it is available for inspection.
The corporation shall make the shareholders' list available at the meeting, and any shareholder, or the shareholder's agent or attorney, is entitled to inspect the list at any time during the meeting or any adjournment. If the right to vote at any meeting is challenged, the person presiding may rely on such list as evidence of the right of the person challenged to vote at such meeting.
If the corporation refuses to allow a shareholder, the shareholder's agent, or attorney to inspect the shareholders' list before or at the meeting (or copy the list as permitted by subsection (b)), a court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located, on application of the shareholder, may summarily order the inspection or copying at the corporation's expense and may postpone the meeting for which the list was prepared until the inspection or copying is complete.
Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting.

Acts 1986, ch. 887, § 7.20; 1994, ch. 776, § 23.

48-17-202. Voting entitlement of shares.

Except as provided in subsections (b) and (c) or unless the charter provides otherwise, each outstanding share, regardless of class, is entitled to one (1) vote on each matter voted on at a shareholders' meeting. Except as provided in subsection (f), only shares are entitled to vote.
Absent special circumstances, the shares of a corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and the first corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation, and no such shares shall be counted in determining the total number of outstanding shares of the corporation at any given time.
Subsection (b) does not limit the power of a corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares, and no such shares shall be counted in determining the total number of outstanding shares of the corporation at any given time.
Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the bylaws of such corporation may prescribe or, in the absence of a bylaw provision, as the board of directors of such corporation may determine. The corporation whose shares are being voted may rely on the representations of such officer, agent, or proxy as to the authority unless such authority is questioned.
A corporation may in its charter confer upon the holders of any bonds, debentures or other debt obligations the power to vote in respect of its corporate affairs and management of the corporation to the extent and in the manner provided in the charter and may confer upon such holders of bonds, debentures or other debt obligations the same right of inspection of its books, accounts and other records, and also any other rights, which the shareholders of the corporation have or may have by reason of chapters 11-27 of this title or of its charter. If and to the extent the charter so provides, such holders shall be deemed to be shareholders, and their bonds, debentures or other debt obligations shall be deemed to be shares of stock, for the purpose of any provision of this title which requires the vote of shareholders as a prerequisite to any corporate action, and the charter may divest the holders of shares of capital stock, in whole or in part, of their right to vote on any corporate matter whatsoever, except as set forth in § 48-20-104.

Acts 1986, ch. 887, § 7.21; 1994, ch. 776, §§ 24, 25.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Denial of Right to Vote.

An injunction would issue to restrain a director from denying one the right to vote the stockholder's share of stock which had not been transferred on the books because of an invalid bylaw which undertook to deny transfer right. Petre v. Bruce, 157 Tenn. 131, 7 S.W.2d 43, 1927 Tenn. LEXIS 57 (1928).

2. Shares of Subsidiary.

Where a parent corporation owned the majority common stock of a subsidiary, and five of the directors of the parent corporation comprised five of the six directors of the subsidiary, the parent corporation, through its directors, was entitled to vote the stock of the subsidiary, as the corporate owner thereof and to elect the board of directors of the subsidiary. State ex rel. Washington Industries, Inc. v. Shacklett, 512 S.W.2d 284, 1974 Tenn. LEXIS 483 (Tenn. 1974).

48-17-203. Proxies.

A shareholder may vote such shareholder's shares in person or by proxy.
Without limiting the manner in which a shareholder may authorize another person or persons to act for the shareholder as proxy pursuant to this section, the following shall constitute a valid means by which a shareholder may grant such authority:
1. A shareholder may execute a writing authorizing another person or persons to act for the shareholder as proxy. Execution may be accomplished by the shareholder personally signing such writing or by an attorney-in-fact in the case of an individual shareholder or by an authorized officer, director, employee, agent or attorney-in-fact in the case of any other shareholder signing such writing or causing the shareholder's signature to be affixed to such writing by any reasonable means, including, but not limited to, facsimile signature;
2. A shareholder may authorize another person or persons to act for the shareholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission; provided, that any such telegram, cablegram, or electronic transmission shall either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or electronic transmission was authorized by the shareholder. If it is determined that such telegrams, cablegrams, or electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making such determination shall specify the information upon which they relied;
3. Any copy, electronic transmission or other reliable reproduction of such writing or transmission may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, that such copy, electronic transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.
An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless another period is expressly provided in the appointment form.
An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of:
1. A pledgee;
2. A person who purchased or agreed to purchase the shares;
3. A creditor of the corporation who extended it credit under terms requiring the appointment;
4. An employee of the corporation whose employment contract requires the appointment; or
5. A party to a voting agreement created under § 48-17-302.
In the case of a proxy not made irrevocable under subsection (d), the death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises the proxy's authority under the appointment.
An appointment made irrevocable under subsection (d) becomes revocable when the interest with which it is coupled is extinguished.
A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if the transferee did not know of its existence when such transferee acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates.
Subject to § 48-17-205 and to any express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment.
Each fiduciary, including such acting as executor, administrator, guardian, committee, agent, or trustee, owning shares registered in such person's name as fiduciary, or in the name of another for the convenience of the fiduciary, whether the corporation issuing such shares is foreign or domestic, may, in addition to exercising the voting rights vested in such fiduciary, execute and deliver, or cause to be executed and delivered, a proxy or proxies in accordance with this section to others for the voting of such shares, but subject always to the following limitations:
1. If there are two (2) or more fiduciaries acting, the proxy shall be executed by, and voting instructions shall be issued by, agreement of all fiduciaries or a majority of them, and in the event of failure to obtain a majority, each of the fiduciaries shall vote the number of shares held by the fiduciaries divided by the number of fiduciaries; and
2. In the event the rights, manner or method of voting or the purpose to be accomplished is fixed by the instrument or instruments appointing the fiduciaries, the directions therein shall govern.

Acts 1986, ch. 887, § 7.22; 1994, ch. 776, §§ 26, 27; 1998, ch. 578, § 1; 2012, ch. 1051, §§ 25, 26.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1104 — 5-1106.

Law Reviews.

Judicial Review of Defensive Tactics in Proxy Contests: When Is Using a Rights Plan Right? (Randall S. Thomas), 46 Vand. L. Rev. 503 (1993).

NOTES TO DECISIONS

1. Revocation of Proxy Appointment.

If a proxy appointment is revocable, the shareholder can revoke the proxy simply by voting the stock itself; the shareholder's vote, not the proxy's vote, counts. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

2. —“Coupled with an Interest.”

“Coupled with an interest” basically means that the proxy has an interest in the stock that justifies the proxy in voting the stock for its own benefit and against the shareholder's interest. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

3. —Conspicuous Statement of Irrevocability.

Security agreement did not in any way make proxy appointment conspicuous. In re John Hicks Chrysler-Plymouth, Inc., 152 B.R. 503, 1992 Bankr. LEXIS 2293 (Bankr. E.D. Tenn. 1992).

48-17-204. Shares held by nominees.

A corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee is recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure.
The procedure may set forth:
1. The types of nominees to which it applies;
2. The rights or privileges that the corporation recognizes in a beneficial owner;
3. The manner in which the procedure is selected by the nominee;
4. The information that must be provided when the procedure is selected;
5. The period for which selection of the procedure is effective; and
6. Other aspects of the rights and duties created.

Acts 1986, ch. 887, § 7.23.

48-17-205. Corporation's acceptance of votes.

If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder.
If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of its shareholder, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if:
1. The shareholder is an entity and the name signed purports to be that of an officer or agent of the entity;
2. The name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
3. The name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
4. The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; or
5. Two (2) or more persons are the shareholder as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners and the person signing appears to be acting on behalf of all the co-owners.
The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder.
The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.

Acts 1986, ch. 887, § 7.24.

48-17-206. Quorum and voting requirements for voting groups.

Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the charter or chapters 11-27 of this title provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. If a quorum of the shares entitled to vote as a voting group shall fail to be obtained at any meeting, the chair of the meeting or the holders of a majority of the shares of such voting group who are present, in person or by proxy, may adjourn the meeting to another place, date or time and no notice of such place, date or time need be given except as required in § 48-17-105(e).
Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.
If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the charter or chapters 11-27 of this title requires a greater number of affirmative votes.
A charter amendment adding, changing, or deleting a quorum or voting requirement for a voting group greater than specified in subsection (a) or (c) is governed by § 48-17-208.
The election of directors is governed by § 48-17-209.

Acts 1986, ch. 887, § 7.25; 1994, ch. 776, § 28.

48-17-207. Action by single and multiple voting groups.

If the charter or chapters 11-27 of this title provide for voting by a single voting group on a matter, action on that matter is taken when voted upon by the voting group as provided in § 48-17-206.
If the charter or chapters 11-27 of this title provide for voting by two (2) or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately as provided in § 48-17-206. Action may be taken by one (1) voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.

Acts 1986, ch. 887, § 7.26.

48-17-208. Greater quorum or voting requirements.

The charter may provide for a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is provided for by chapters 11-27 of this title.
An amendment to the charter that adds, changes, or deletes a greater quorum or voting requirement shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.

Acts 1986, ch. 887, § 7.27.

48-17-209. Voting for directors — Cumulative voting.

Unless otherwise provided in the charter, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
Shareholders do not have a right to cumulate their votes for directors unless the charter so provides.
A statement included in the charter that “(all) (a designated voting group of) shareholders are entitled to cumulate their votes for directors” (or words of similar import) means that the shareholders designated are entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two (2) or more candidates.
Shares otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless:
1. The meeting notice or proxy statement accompanying the notice states conspicuously that cumulative voting is authorized; or
2. A shareholder who has the right to cumulate that shareholder's votes gives notice to the corporation no fewer than forty-eight (48) hours before the time set for the meeting of that shareholder's intent to cumulate that shareholder's votes during the meeting, and if one (1) shareholder gives this notice, all other shareholders in the same voting group participating in the election are entitled to cumulate their votes without giving further notice.

Acts 1986, ch. 887, § 7.28.

48-17-210. Shareholders presumed sui juris.

A corporation may treat any of its shareholders as sui juris until written notice to the contrary is received by the corporation.

Acts 1986, ch. 887, § 7.29.

Part 3
Voting Trusts and Shareholders' Agreements

48-17-301. Voting trusts.

One (1) or more shareholders may create a voting trust, conferring on a trustee the right to vote or otherwise act for them, by signing an agreement setting out the provisions of the trust (which may include anything consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is signed, the trustee shall prepare a list of the names and addresses of all owners of beneficial interests in the trust, together with the number and class of shares each transferred to the trust, and deliver copies of the list and agreement to the corporation's principal office.
A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee's name. A voting trust is valid for not more than ten (10) years after its effective date unless extended under subsection (c).
All or some of the parties to a voting trust may extend it for additional terms of not more than ten (10) years each by signing an extension agreement and obtaining the voting trustee's written consent to the extension. An extension is valid for ten (10) years from the date the first shareholder signs the extension agreement. The voting trustee shall deliver copies of the extension agreement and list of beneficial owners to the corporation's principal office. An extension agreement binds only those parties signing it.
The trustee or trustees of the voting trust may execute and deliver to the transferring shareholders voting trust certificates evidencing the interest of such transferring shareholder in the shares transferred in trust, and such voting trust certificates shall be transferable in the same manner and with the same effect as certificates representing shares under chapter 16 of this title.

Acts 1986, ch. 887, § 7.30.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1116.

NOTES TO DECISIONS

1. Voting Trust Created Upon Death of Shareholder.

A contract between a corporation's sole shareholders requiring the shares of the first to die to be put in a voting trust did not violate the Voting Trust Statute; since the contract created a present obligation with respect to the shares owned by the decedent, the share passed to the decedent's spouse subject to the existing obligation. Estate of Sinclair v. Keith-Sinclair Co., 894 S.W.2d 747, 1994 Tenn. App. LEXIS 636 (Tenn. Ct. App. 1994).

Decisions Under Prior Law

1. Transfer Between Trusts.

An agreement whereby stock deposited with one voting trust should come under another voting trust immediately upon the termination of the first trust was not illegal where such stock was not subject to be voted by the second trust until the termination of the first. Life & Casualty Ins. Co. v. McCormack, 174 Tenn. 327, 125 S.W.2d 151, 1938 Tenn. LEXIS 96 (1939).

48-17-302. Shareholders' agreements.

An agreement between two (2) or more shareholders, if in writing and signed by the parties thereto, may provide that, in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Nothing in this subsection (a) shall impair the right of the corporation to treat the shareholders of record as entitled to vote the shares standing in their names. A voting agreement created under this section is not subject to § 48-17-301 and may be specifically enforced.
No written agreement to which all or less than all the shareholders have actually assented, whether embodied in the charter or bylaws or in any agreement in writing signed by all the parties thereto, which agreement relates to any phase of the affairs of the corporation, whether to the management of its business or to the division of its profits or otherwise, shall be invalid as between the parties thereto on the ground that it is an attempt by the parties thereto to restrict the discretion of the board of directors in its management of the business of the corporation or to treat the corporation as if it were a partnership or to arrange their relationships in a manner that would be appropriate only between partners.
A transferee of shares in a corporation whose shareholders have entered into an agreement authorized by subsection (a) or (b) shall be bound by such agreement if the transferee takes the shares with notice thereof. A transferee shall be deemed to have notice of any such agreement or any such renewal if the existence thereof is noted on the face or back of the certificate or certificates representing such shares.
The effect of any agreement authorized by subsection (b) shall be to relieve the directors and impose upon the shareholders assenting thereto the liability for managerial acts or omissions that is imposed on directors by law, to the extent that and so long as the discretion or powers of the board of directors, in its management of corporate affairs, are controlled by any such agreement.

Acts 1986, ch. 887, § 7.31; 1994, ch. 776, §§ 29, 30.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1116.

NOTES TO DECISIONS

1. Management of Corporation.

Section 48-17-302(b) is directed at those agreements that in any way relate to the affairs of the corporation or which attempt to change the management of corporate affairs in a method or manner not contemplated by the Corporations Act. Pearson v. Hardy, 853 S.W.2d 497, 1992 Tenn. App. LEXIS 969 (Tenn. Ct. App. 1992).

2. Duration of Agreement.

Stock redemption agreement dealing solely with the rights of the stockholders and corporation to purchase stock of the stockholders if and when it is offered for sale, and which was permitted by T.C.A. § 48-16-208, was not subject to the 20-year limitation formerly found in T.C.A. § 48-17-302(c). Pearson v. Hardy, 853 S.W.2d 497, 1992 Tenn. App. LEXIS 969 (Tenn. Ct. App. 1992).

Part 4
Derivative Proceedings

48-17-401. Procedure in derivative proceedings.

A person may not commence a proceeding in the right of a domestic or foreign corporation unless the person was a shareholder of the corporation when the transaction complained of occurred or unless the person became a shareholder through transfer by operation of law from one who was a shareholder at that time.
A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why the person did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
A proceeding commenced under this section may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation's shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected. If notice is so directed to be given, the court may determine which one (1) or more parties to the suit shall bear the expense of giving such notice, in such proportions as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the suit and recoverable in the same manner as other taxable costs.
On termination of the proceeding, the court may order:
1. The corporation to pay the plaintiff's reasonable expenses, including counsel fees, incurred in the proceeding, if the court finds that the proceeding has resulted in a substantial benefit to the corporation;
2. The plaintiff to pay any defendant's reasonable expenses, including counsel fees, incurred in defending the proceeding, if the court finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose; or
3. A party to pay an opposing party's reasonable expenses, including counsel fees, incurred because of the filing of a pleading, motion or other paper, if the court finds that the pleading, motion or other paper was not well grounded in fact, after reasonable inquiry, or warranted by existing law or a good faith argument for the extension, modification or reversal of existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.
For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on the beneficial owner's behalf.

Acts 1986, ch. 887, § 7.40; 2008, ch. 726, § 1.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 572.

Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-23.06-1.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 50, 90.

NOTES TO DECISIONS

1. Demand for Action.

All jurisdictions impose threshold preconditions on derivative suits, the most common precondition requiring the shareholder to first make a written demand on the corporation's directors requesting them to prosecute the suit or to take other suitable corrective action, commonly known as the “demand requirement.” Preconditions such as demand allow the directors to occupy their normal status as the conductors of the corporation's affairs, encourage informal resolution of intracorporate disputes, guard against misuse of the derivative remedy. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

Courts in some jurisdictions like Tennessee that do not require a precomplaint demand in every case have segregated derivative actions into two categories. “Demand refused” cases are those in which the corporation's directors have refused to take action in response to a shareholder's demand. “Demand excused” cases are those in which a shareholder is not required to make a demand because doing so would be futile. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

Tennessee's futility exception to the demand requirement for derivative actions does not apply to foreign corporations, because their governance is determined by the laws of the state of incorporation; therefore, a trial court did not err by dismissing a derivative action for failure to make a pre-suit demand on a Utah corporation, because such a demand was required under Utah law. Hicks v. Lewis, 148 S.W.3d 80, 2003 Tenn. App. LEXIS 718 (Tenn. Ct. App. 2003), appeal denied, — S.W.3d —, 2004 Tenn. LEXIS 318 (Tenn. Apr. 5, 2004).

Proper demand-futility standard is version of two-pronged Aronson test. Lukas v. McPeak, 730 F.3d 635, 2013 FED App. 280P, 2013 U.S. App. LEXIS 19295 (6th Cir. Sept. 19, 2013).

Shareholder failed to meet demand-futility standard because shareholder failed to demonstrate majority of board was interested and not independent; at best, allegations made out that one board member's disinterest and independence may have been compromised, but did not allege any specifics regarding other board members. Lukas v. McPeak, 730 F.3d 635, 2013 FED App. 280P, 2013 U.S. App. LEXIS 19295 (6th Cir. Sept. 19, 2013).

2. Dismissal.

The party seeking dismissal of a derivative suit based on a special litigation committee's recommendation has the burden of satisfying the court of the committee's independence, good faith, and procedural fairness, as well as the soundness of the committee's conclusions and recommendations. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

Since T.C.A. § 48-17-401(c) specifically requires the court to approve the dismissal of all derivative actions, the court should not limit its review to a special litigation committee's investigative procedure and methodologies, but should extend review to the rationale of the committee's decision. The reviewing court is not to substitute its own business judgment for the committee's but should critically evaluate the special litigation committee's findings and recommendations, to determine whether they were made in good faith, whether they are supported by the record of the investigation, and whether they are consistent with the corporation's best interests as articulated in the special committee's report. Lewis on behalf of Citizens Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 1992 Tenn. App. LEXIS 471 (Tenn. Ct. App. 1992).

3. Action by Estate.

A personal representative was a proper entity to maintain a shareholder derivative action on behalf of the estate with respect to a sale of stock even though the representative could not maintain the suit in the representative's own right as a shareholder because the representative participated in the transaction. Christiansen v. Rolich Corp., 909 S.W.2d 823, 1995 Tenn. App. LEXIS 399 (Tenn. Ct. App. 1995), appeal denied, 1995 Tenn. LEXIS 632 (Tenn. Oct. 30, 1995).

4. Standing.

A single shareholder had standing to bring a derivative action on behalf of the corporation against another shareholder, despite the fact that plaintiff was the only affected shareholder and had brought an independent action against the corporation. Hall v. Tennessee Dressed Beef Co., 957 S.W.2d 536, 1997 Tenn. LEXIS 627 (Tenn. 1997).

Shareholder under T.C.A. § 48-17-401(e) does not mean that a shareholder is only someone who falls into the categories listed thereunder; therefore, in an action alleging that a president of a corporation converted corporate assets, the court rejected the assertion that certain shareholders were not allowed to bring a derivative action because they were not specifically included in § 48-17-401(e). May v. Nat'l Bank of Commerce, 387 F. Supp. 2d 770, 2004 U.S. Dist. LEXIS 28751 (W.D. Tenn. 2004).

Although a grandchild did not own a nursery's stock at the time of alleged wrongs, a trial court erred in dismissing the grandchild's stockholder's derivative action because the grandchild acquired the stock by operation of law from a predecessor who was a stockholder at the time of the acts; thus, the grandchild had standing to maintain the action under T.C.A. § 48-17-401. Howell v. Ryerkerk, — S.W.3d —, 2010 Tenn. App. LEXIS 304 (Tenn. Ct. App. Apr. 30, 2010).

5. Derivative Action Improper.

For purposes of T.C.A. § 48-17-401(c), appellants had not satisfied the statutory requirements for a derivative action; because that was their sole recourse under T.C.A. § 48-56-401(a)(1) to contest the authority of the board of directors, appellants could not challenge the board's assessment of association fees absent a properly pleaded derivative action, for purposes of T.C.A. § 48-53-104(b). Germantown Manor Homeowners Ass'n v. GGAT Dev. Corp., — S.W.3d —, 2017 Tenn. App. LEXIS 576 (Tenn. Ct. App. Aug. 24, 2017).

Decisions Under Prior Law

1. Standing.

Where a corporation sued for damages for the induced breach of a contract between the corporation and a former employee, the principal stockholder and creditor of the corporation had standing in court to maintain an action for damages for inducing the breach of contract. Koehler v. Cummings, 380 F. Supp. 1294, 1971 U.S. Dist. LEXIS 12910 (M.D. Tenn. 1971).

2. Award of Costs.

When it should have been obvious to the plaintiff at the outset that someone with a primary interest in protecting the plaintiff's debentures, rather than protecting the plaintiff's stock, could not fairly and adequately represent the interests of the other shareholders, the action was brought without reasonable cause. Owen v. Modern Diversified Industries, Inc., 643 F.2d 441, 1981 U.S. App. LEXIS 19383 (6th Cir. Tenn. 1981).

It was proper to award partial attorney's fees when the court expressly found the plaintiff did not bring the action in bad faith. Owen v. Modern Diversified Industries, Inc., 643 F.2d 441, 1981 U.S. App. LEXIS 19383 (6th Cir. Tenn. 1981).

Chapter 18
Directors and Officers

Part 1
Board of Directors

48-18-101. Requirement for and duties of board of directors.

Except as provided in subsection (c), each corporation must have a board of directors.
All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitation set forth in the charter.
A corporation having fifty (50) or fewer shareholders may dispense with or limit the authority of a board of directors by describing in its charter who will perform some or all of the duties of a board of directors; provided, that any such person or persons shall be subject to the same standards of conduct that this chapter imposes on directors in the performance of their duties.

Acts 1986, ch. 887, § 8.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, directors and officers, title 48, ch. 58.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-201.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

Director and Officer Liability, 40 Vand. L. Rev. 599 (1987).

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

48-18-102. Qualifications of directors.

The charter or bylaws may prescribe qualifications for directors. A director need not be a resident of this state or a shareholder of the corporation unless the charter or bylaws so prescribe.

Acts 1986, ch. 887, § 8.02.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-103.

48-18-103. Number and election of directors.

A board of directors must consist of one (1) or more individuals, with the number specified in or fixed in accordance with the charter or bylaws.
The charter or bylaws may provide that the board of directors has power to fix or change the number of directors, including an increase or decrease in the number of directors. Absent such a provision, only the shareholders may fix or change the number of directors, except as provided in subsection (c).
The charter or bylaws may establish a variable range for the size of the board of directors by fixing a minimum and maximum number of directors. If a variable range is established, the number of directors may be fixed or changed from time to time, within the minimum and maximum, by the shareholders or the board of directors; provided, that unless the charter or bylaws provide otherwise, only the shareholders may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.
Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter, unless their terms are staggered under § 48-18-106 or unless their terms are for more than one (1) year as provided by § 48-18-105.

Acts 1986, ch. 887, § 8.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-402.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Voting for Directors.

Election of a director by vote of a single stockholder did not make the director agent of latter or raise any presumption that the director acted otherwise than for corporation's interest. Rogers v. Nashville, C. & St. L. R. Co., 91 F. 299, 1898 U.S. App. LEXIS 1849 (6th Cir. Tenn. 1898).

48-18-104. Election of directors by certain classes of shareholders.

If the charter authorizes dividing the shares into classes or series, the charter may also authorize the election of all or a specified number of directors by the holders of one (1) or more authorized classes or series of shares. Each class (or classes) or series of shares entitled to elect one (1) or more directors is a separate voting group for purposes of the election of directors.

Acts 1986, ch. 887, § 8.04.

48-18-105. Terms of directors generally.

The terms of the initial directors of a corporation expire at the first shareholders' meeting at which directors are elected.
The terms of all other directors expire at the next annual shareholders' meeting following their election unless their terms are staggered under § 48-18-106, or unless the charter provides for terms of more than one (1) year but not more than three (3) years.
A decrease in the number of directors does not shorten an incumbent director's term.
The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected.
Despite the expiration of a director's term, the director continues to serve until a successor is elected and qualified or until there is a decrease in the number of directors.

Acts 1986, ch. 887, § 8.05.

48-18-106. Staggered terms for directors.

The charter may provide for staggering the terms of directors by dividing the total number of directors into two (2) or three (3) groups, with each group containing one half (½) or one third (1/3) of the total, as near as may be. In that event, the terms of directors in the first group expire at the first annual shareholders' meeting after their election, the terms of the second group expire at the second annual shareholders' meeting after their election, and the terms of the third group, if any, expire at the third annual shareholders' meeting after their election. At each annual shareholders' meeting held thereafter, the directors shall be chosen for a term of two (2) years or three (3) years, as the case may be, to succeed those whose terms expire.

Acts 1986, ch. 887, § 8.06.

48-18-107. Resignation of directors.

A director may resign at any time by delivering a written resignation to the board of directors, or its chair, or to the secretary of the corporation.
A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. A resignation that is conditioned upon failing to receive a specified vote for election as a director may provide that it is irrevocable.

Acts 1986, ch. 887, § 8.07; 2012, ch. 1051, § 28.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1303.

48-18-108. Removal of directors.

The shareholders may remove one (1) or more directors with or without cause unless the charter provides that directors may be removed only for cause.
If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove the director without cause.
If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect the director under cumulative voting is voted against the director's removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove the director exceeds the number of votes cast not to remove the director.
If so provided by the charter, any or all of the directors may be removed for cause by a vote of a majority of the entire board of directors.
A director may be removed by the shareholders or directors only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one (1) of the purposes, of the meeting is removal of directors.

Acts 1986, ch. 887, § 8.08.

Law Reviews.

A Critical Look at Corporate Governance (Lawrence E. Mitchell), 45 Vand. L. Rev. 1263 (1992).

48-18-109. Removal of directors by judicial proceeding.

Any court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located may remove a director of the corporation from office in a proceeding commenced either by the corporation or by its shareholders holding at least ten percent (10%) of the outstanding shares of any class if the court finds that:
1. The director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation; and
2. Removal is in the best interest of the corporation.
The court that removes a director may bar the director from reelection for a period prescribed by the court.
If shareholders commence a proceeding under subsection (a), they shall make the corporation a party defendant.

Acts 1986, ch. 887, § 8.09.

48-18-110. Vacancy on board.

Unless the charter provides otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors or a vacancy resulting from a removal with or without cause:
1. The shareholders may fill the vacancy;
2. The board of directors may fill the vacancy; or
3. If the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.
A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 48-18-107(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

Acts 1986, ch. 887, § 8.10.

48-18-111. Compensation of directors.

Unless the charter or bylaws provide otherwise, the board of directors may fix the compensation of directors.

Acts 1986, ch. 887, § 8.11.

Part 2
Meetings and Action of the Board

48-18-201. Meetings.

The board of directors may hold regular or special meetings in or out of this state. Unless the bylaws otherwise provide, special meetings of the board of directors may be called by the chair of the board, the president, or any two (2) directors.
Unless the charter or bylaws provide otherwise, the board of directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

Acts 1986, ch. 887, § 8.20.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Special or Informal Meetings.

Although the rules of the corporation required the directors to have regular meetings, they might have special or informal meetings whenever the interest of the corporation required it, because this was a necessary power incident to the faithful discharge of their trust; and if recorded as part of their official action, such meetings were legal and binding. Read v. Memphis Gayoso Gas Co., 56 Tenn. 545, 1872 Tenn. LEXIS 174 (1872).

Though there be no formal meeting of directorate and no minutes of their action, the unanimous agreement or act of the number of directors requisite to form a quorum might bind the corporation to increase of salaries, when such directors were practically the sole owners of the corporate stock. Watts v. Gordon, 127 Tenn. 96, 153 S.W. 483, 1912 Tenn. LEXIS 13 (1912).

48-18-202. Action without meeting.

Except to the extent that the charter or bylaws require that action by the board of directors be taken at a meeting, action required or permitted by chapters 11-27 of this title to be taken by the board of directors may be taken without a meeting if each director signs a consent describing the action to be taken and delivers it to the corporation. If all directors consent to taking such action without a meeting, the affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the board. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director in one (1) or more counterparts, indicating each signing director's vote or abstention on the action, and delivered to the corporation, and shall be included in the minutes or filed with the corporate records reflecting the action taken.
Action taken under this section is the act of the board of directors when one (1) or more consents signed by all the directors are delivered to the corporation. The consent may specify the time at which the action taken thereunder is to be effective. A director's consent may be withdrawn by a revocation signed by the director and delivered to the corporation prior to delivery to the corporation of unrevoked written consents signed by all the directors.
A consent signed under this section has the effect of action taken at a meeting of the board of directors and may be described as such in any document.

Acts 1986, ch. 887, § 8.21; 2012, ch. 1051, § 29.

NOTES TO DECISIONS

1. Minutes of a Director's Meeting.

Although document purported to be the minutes of a director's meeting, it met statutory requirements of action taken by consent without a meeting and properly authorized the corporation to execute notes, where the document described the action taken, was signed by each director, indicated the vote of each director by describing the vote as “unanimous,” and further provided that each director ratified and confirmed the action described. Herskowitz v. Pilot House Motor Inns, Inc., 806 S.W.2d 531, 1990 Tenn. App. LEXIS 250 (Tenn. Ct. App. 1990).

2. No Preemption.

Claims brought under T.C.A. § 48-22-101 and T.C.A. § 48-18-202 to void a transaction entered into by a corporation's president were not preempted by 29 U.S.C. § 1144 of the Employee Retirement Income Security Act because the action did not seek to recover benefits. May v. Nat'l Bank of Commerce, 387 F. Supp. 2d 770, 2004 U.S. Dist. LEXIS 28751 (W.D. Tenn. 2004).

48-18-203. Notice of meeting.

Unless the charter or bylaws provide otherwise, regular meetings of the board of directors may be held without notice of the date, time, place, or purpose of the meeting.
Unless the charter or bylaws provide for a longer or shorter period, special meetings of the board of directors must be preceded by at least two (2) days' notice of the date, time, and place of the meeting. The notice need not describe the purpose of the special meeting unless required by the charter or bylaws.
Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one (1) adjournment.

Acts 1986, ch. 887, § 8.22.

48-18-204. Waiver of notice.

A director may waive any notice required by chapters 11-27 of this title, the charter, or bylaws before or after the date and time stated in the notice. Except as provided by subsection (b), the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting (or promptly upon the director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

Acts 1986, ch. 887, § 8.23.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1302.

48-18-205. Quorum and voting.

Unless the charter or bylaws require a greater number, a quorum of a board of directors consists of:
1. A majority of the fixed number of directors if the corporation has a fixed board size; or
2. A majority of the number of directors prescribed, or if no number is prescribed, the number in office immediately before the meeting begins, if the corporation has a variable-range size board.
The charter or bylaws may authorize a quorum of a board of directors to consist of no fewer than one third (1/3) of the fixed or prescribed number of directors determined under subsection (a).
If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board of directors unless the charter or bylaws require the vote of a greater number of directors.
A director who is present at a meeting of the board of directors when corporate action is taken is deemed to have assented to the action taken unless:
1. The director objects at the beginning of the meeting (or promptly upon the director's arrival) to holding it or transacting business at the meeting;
2. The director's dissent or abstention from the action taken is entered in the minutes of the meeting; or
3. The director delivers written notice of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

Acts 1986, ch. 887, § 8.24.

Law Reviews.

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

48-18-206. Committees.

Unless the charter or bylaws provide otherwise, the board of directors may create one (1) or more committees. A committee may consist of one (1) member. All members of committees of the board of directors which exercise powers of the board of directors must be members of the board of directors and serve at the pleasure of the board of directors.
The creation of a committee and appointment of a member or members to it must be approved by the greater of:
1. A majority of all the directors in office when the action is taken; or
2. The number of directors required by the charter or bylaws to take action under § 48-18-205.
Sections 48-18-201 — 48-18-205, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board of directors, apply to committees and their members as well.
To the extent specified by the board of directors or in the charter or bylaws, each committee may exercise the authority of the board of directors under § 48-18-101.
A committee may not, however:
1. Authorize distributions, except according to a formula or method prescribed by the board of directors;
2. Fill vacancies on the board of directors or on any of its committees;
3. Adopt, amend, or repeal bylaws;
4. Authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or
5. Authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors.
The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in § 48-18-301.

Acts 1986, ch. 887, § 8.25; 1994, ch. 776, § 31.

Part 3
Standards of Conduct

48-18-301. General standards for directors.

A director shall discharge all duties as a director, including duties as a member of a committee:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the director reasonably believes to be in the best interests of the corporation.
In discharging such duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more officers or employees of the corporation (or a subsidiary of the corporation) whom the director reasonably believes to be reliable and competent in the matters presented;
2. Legal counsel, public accountants, or other persons as to matters the director reasonably believes are within the person's professional or expert competence; or
3. A committee of the board of directors of which the director is not a member, if the director reasonably believes the committee merits confidence.
A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
A director is not liable for any action taken as a director, or any failure to take any action, if the director performed the duties of the office in compliance with this section.

Acts 1986, ch. 887, § 8.30; 1994, ch. 776, § 32.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 506.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

The Conundrum of Directors' Duties in Nearly Insolvent Corporations (Mike Roberts), 23 Mem. St. U.L. Rev. 273 (1993).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Duty Limited to Corporation.

Statute imposed a duty that ran to the corporation, in favor of the corporation and its stockholders; it was not intended to establish a statutory privity between directors and officers and third parties not representing the corporate entity. Merriman v. Smith, 599 S.W.2d 548, 1979 Tenn. App. LEXIS 389 (Tenn. Ct. App. 1979).

2. Directors as Trustees.

The directors occupied a fiduciary relation toward the stockholders, and were bound to good faith and reasonable diligence in the performance of their duties; they were not express trustees, and were trustees only in the sense in which every agent is a trustee for the agent's principal, but they were bound to exercise diligence and good faith to all the parties interested in the affairs of the corporation; they must also use care, attention, circumspection in the affairs of the corporation, and particularly in the safekeeping and disbursement of the funds committed to their control; they must see that these funds are appropriated as intended to the purposes of the trust, and if they misappropriate them, or allow others to divert them from these purposes, they must answer individually for it. Ignorance would not excuse them when they had the means of knowledge. Shea v. Mabry, 69 Tenn. 319, 1878 Tenn. LEXIS 94 (1878); Vance v. Phoenix Ins. Co., 72 Tenn. 385, 1880 Tenn. LEXIS 31 (1880); Wallace v. Lincoln Sav. Bank, 89 Tenn. 630, 15 S.W. 448, 1890 Tenn. LEXIS 87, 24 Am. St. Rep. 625 (1891); Deaderick v. Bank of Commerce, 100 Tenn. 457, 45 S.W. 786, 1897 Tenn. LEXIS 136 (1897).

Directors, not being technical trustees, might purchase stock from stockholders without being subjected to the stringent rules governing such. Harris v. Lemming-Harris Agricultural Works, 43 S.W. 869, 1896 Tenn. Ch. App. LEXIS 125 (1896).

3. Absent Director.

A director who is absent at the time questionable action is taken by the board but who arrives shortly thereafter and is informed of all that has been done, whereupon the director approves of what has been done, occupies the same status as one present and voting throughout the meeting. Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

4. Personal Liability.

Where the makers of a note described themselves in the body as “the directors” of a certain corporation, the note was the individual obligation of the parties signing it, and was not the agreement of the corporation. Gregory v. Bohannon, 3 Shan. 479 (1875).

Directors were primarily liable to the corporation both for nonfeasance and misfeasance, but they might, in equity, be proceeded against by stockholders or creditors in proper cases, who would be subrogated to the rights of the corporation; such liability was an asset of the corporation, and passed to the assignee under a general assignment for the benefit of creditors. Shea v. Knoxville & K. R. Co., 65 Tenn. 277, 1873 Tenn. LEXIS 345 (1873); Moses v. Ocoee Bank, 69 Tenn. 398, 1878 Tenn. LEXIS 110 (1878); Hume v. Commercial Bank, 77 Tenn. 728, 1882 Tenn. LEXIS 130 (1882).

Statutory liability of directors for creating excessive debts was not an asset of the corporation, but was one inuring directly and exclusively to the benefit of particular creditors whose debts were excessively created; and such liability could be enforced only by a general creditor's bill, and not by a suit prosecuted by the receiver of the corporation. A suit to enforce such liability could not be maintained by a few, less than all, of the creditors of the corporation entitled to hold the directors so liable, but the suit must be brought by all, or by some on behalf of all, of the creditors for whose debts the directors had so rendered themselves individually liable. Moulton v. Connell-Hall-McLester Co., 93 Tenn. 377, 27 S.W. 672, 1893 Tenn. LEXIS 65 (1894); Tradesman Pub. Co. v. Knoxville Car-Wheel Co., 95 Tenn. 634, 32 S.W. 1097, 1895 Tenn. LEXIS 140, 49 Am. St. Rep. 943, 31 L.R.A. 593 (1895); Simmons v. Taylor, 106 Tenn. 729, 63 S.W. 1123, 1901 Tenn. LEXIS 130 (1901).

A director was not liable to creditors for profits earned by way of use of a plant which the director had leased from the corporation as an idle plant after the failure of the corporation, the director paying a maximum rental therefor. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

Where directors, acting as individuals, sold, in good faith, and on advice of counsel, to the corporation capital stock for the purpose of retiring the stock at a time when the corporation was in a prosperous condition and there was no reason to anticipate its subsequent financial collapse, due to economic conditions, they were not liable to stockholders for the purchase price of the stock to stockholders who: (1) participated in the transaction; (2) who for any appreciable length of time before a receiver was appointed knew of the transaction; or (3) who, subsequent to the transaction, purchased their stock from one with knowledge of the transaction. Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

A director of a corporation, who on advice of experienced counsel and in good faith, approved a sale of the capital stock of the corporation to the corporation, for purposes of retirement of the stock, by other directors as individuals, the corporation being at the time in a prosperous condition and there being then no reason to anticipate the subsequent financial collapse of the corporation due to economic conditions, was not liable for the purchase price of the shares so sold. Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

5. —Directors Not Accepting Office.

Directors who were not notified of their election and did not accept the office, nor assume the duties thereof, were not liable to the creditors of the corporation, simply because the corporation caused their names to be published as directors, in which they tacitly acquiesced by mere negligence, without any word or act on their part tending to show that they held themselves out as directors. Hume v. Commercial Bank, 77 Tenn. 728, 1882 Tenn. LEXIS 130 (1882).

6. —Exhaustion of Corporate Assets.

The stockholders, officers, and directors of a corporation were not individually and personally liable for their delinquencies, to its creditors until the corporate assets of every description, legal and equitable, should have been exhausted. Blake v. Hinkle, 18 Tenn. 218, 1836 Tenn. LEXIS 124 (1836); Johnson v. Churchwell, 38 Tenn. 146, 1858 Tenn. LEXIS 144 (Tenn. Sep. 1858); Allison v. Coal Co., 87 Tenn. 60, 9 S.W. 226, 1888 Tenn. LEXIS 35 (1888); Albitzue v. Guadelupe y Caloo Min. Co., 92 Tenn. 598, 22 S.W. 739, 1893 Tenn. LEXIS 16 (1893); Tradesman Pub. Co. v. Knoxville Car-Wheel Co., 95 Tenn. 634, 32 S.W. 1097, 1895 Tenn. LEXIS 140, 49 Am. St. Rep. 943, 31 L.R.A. 593 (1895).

7. Claims Against Corporation.

An officer, though a director, might recover for services rendered outside the scope of the officer's official duties, on an implied promise to pay therefor. Reeve v. Harris, 50 S.W. 658, 1897 Tenn. Ch. App. LEXIS 161 (1897).

Where a director lent the corporation money to enable it to take up checks issued by it on a failed bank, the director had a claim allowable in a general creditors' proceeding. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

8. Salaries.

In voting salaries to themselves directors were required to act in utmost good faith in the interest of stockholders; exorbitant salaries not sustainable. Harris v. Lemming-Harris Agricultural Works, 43 S.W. 869, 1896 Tenn. Ch. App. LEXIS 125 (1896).

9. Discharge of Duties.

Whether a director or officer has properly discharged the duties of office is a question of fact to be determined in each case in view of all the circumstances. Fitch v. Midland Bank & Trust Co., 737 S.W.2d 785, 1987 Tenn. App. LEXIS 2798 (Tenn. Ct. App. 1987).

48-18-302. Liability for unlawful distributions.

A director who votes for or assents to a distribution made in violation of § 48-16-401 or the charter is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating such section or the charter if it is established that the director did not perform such director's duties in compliance with § 48-18-301. In any proceeding commenced under this section, a director has all of the defenses ordinarily available to a director.
A director held liable under subsection (a) for an unlawful distribution is entitled to contribution from:
1. Every other director who could be held liable under subsection (a) for the unlawful distribution; and
2. Each shareholder for the amount the shareholder accepted knowing the distribution was made in violation of § 48-16-401 or the charter.
A proceeding under this section is barred unless it is commenced within two (2) years after the date on which the effect of the distribution was measured under § 48-16-401.

Acts 1986, ch. 887, § 8.33; 1994, ch. 776, § 33; 1996, ch. 618, § 1; T.C.A. § 48-18-304; Acts 2012, ch. 1051, § 30.

Compiler's Notes. Former § 48-18-302 (Acts 1986, ch. 887, § 8.31), concerning director and officer conflict of interest, was repealed by Acts 2012, ch. 1051, § 30, effective January 1, 2013.

Part 4
Officers

48-18-401. Required officers.

A corporation has the officers described in its bylaws or designated by its board of directors in accordance with the bylaws. Unless the charter or bylaws provide otherwise, officers shall be elected or appointed by the board of directors.
A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors' and shareholders' meetings and for authenticating records of the corporation.
The same individual may simultaneously hold more than one (1) office in a corporation.

Acts 1986, ch. 887, § 8.40; 1989, ch. 451, § 11; 1999, ch. 272, § 1; 2012, ch. 1051, §§ 31, 32.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Compensation of Officers.

For cases discussing compensation of officers, see Reeve v. Harris, 50 S.W. 658, 1897 Tenn. Ch. App. LEXIS 161 (1897); Wood v. Myers Paper Co., 3 Tenn. App. 128, 1926 Tenn. App. LEXIS 76 (1926); Graves v. Graves Co., 7 Tenn. App. 369, 1928 Tenn. App. LEXIS 55 (1928).

48-18-402. Duties of officers.

Each officer has the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties of other officers.

Acts 1986, ch. 887, § 8.41.

NOTES TO DECISIONS

Decisions Under Prior Law

1. President.

Where it was claimed that the president of a land company (a corporation) in selling its stock agreed that the corporation would buy it back in event the purchaser became dissatisfied and surrendered the shares, there was lack of power in such officer to bind the corporation to repurchase. Olds v. Phillipsburg Land Co., 48 S.W. 285, 1898 Tenn. Ch. App. LEXIS 69 (1898).

A deed of trust purporting to be that of a corporation and to convey its property is sufficient though signed by “M.L.B., president of K.L. Company.” Its validity was not affected by failure of the instrument to recite authority for the official to borrow money for the security of which it was executed. Where the money was received by the corporation, authority was presumed in favor of the lender secured thereby. Turner v. Kingston Lumber & Mfg. Co., 59 S.W. 410, 1900 Tenn. Ch. App. LEXIS 93 (1900).

The president of a corporation had no power by virtue of the president's office alone to control the corporation's property or its management. Nickey Bros. v. Lonsdale Mfg. Co., 149 Tenn. 391, 258 S.W. 776, 1923 Tenn. LEXIS 104 (1924).

Where bonds secured by deed of trust were issued so that a corporation might borrow money for lawful purposes, and its president was authorized to dispose of them through a trust company or other agency, for the best interest of the corporation, and use the proceeds for corporate purposes, when the president deposited them with the bank, directing that they be sold, and so much of the proceeds as was necessary be applied to the debts to the bank, the president was acting within the powers vested in the president. Nickey Bros. v. Lonsdale Mfg. Co., 149 Tenn. 391, 258 S.W. 776, 1923 Tenn. LEXIS 104 (1924).

2. Secretary.

A secretary of an ordinary trading corporation was without power to endorse and transfer its commercial paper. Furst & Furst v. Freels, 9 Tenn. App. 423, — S.W.2d —, 1928 Tenn. App. LEXIS 248 (Tenn. Ct. App. 1928).

3. Delegation of Powers.

A contract to purchase and for exclusive right to sell coal in a certain territory, made by a general manager of a coal company, not officer under charter or bylaw, but under the president, was binding on a coal company as against one who did not know of limit on authority. Allison v. Tennessee C., I. & R. Co., 46 S.W. 348, 1897 Tenn. Ch. App. LEXIS 112 (1897).

What a corporation might do lawfully through its proper officers might be done through a delegated agent. McCallum v. McIsaac, 159 Tenn. 655, 21 S.W.2d 392, 1929 Tenn. LEXIS 26 (1929).

4. Payment of Personal Debts.

The liability of the payee accepting a check of the corporation signed by an officer in payment of the officer's own debt depended on authority to use corporate funds for that purpose, or on ratification by the corporation. Mt. Verd Mills Co. v. McElwee, 42 S.W. 465, 1897 Tenn. Ch. App. LEXIS 59 (1897); Watts v. Gordon, 127 Tenn. 96, 153 S.W. 483, 1912 Tenn. LEXIS 13 (1912).

Payee who accepts check of corporation in payment of the debt of an officer has the burden of showing the authority. Charles A. Hill & Co. v. Belmont Heights Baptist Church, 17 Tenn. App. 603, 69 S.W.2d 612, 1933 Tenn. App. LEXIS 94 (Tenn. Ct. App. 1933).

5. Pleading Corporate Nonexistence.

Persons served as representative of a corporation were entitled to plead nonexistence of the corporation. Kelley v. Mississippi C. R. Co., 1 F. 564, 1880 U.S. App. LEXIS 2389 (C.C.D. Tenn. 1880).

48-18-403. Standards of conduct for officers.

An officer with discretionary authority shall discharge all duties under that authority:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the officer reasonably believes to be in the best interest of the corporation.
In discharging such duties, an officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more officers or employees of the corporation (or a subsidiary of the corporation) whom the officer reasonably believes to be reliable and competent in the matters presented; or
2. Legal counsel, public accountants, or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
An officer is not acting in good faith if the officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
An officer is not liable for any action taken as an officer, or any failure to take any action, if the officer performed the duties of office in compliance with this section.

Acts 1986, ch. 887, § 8.42; 1994, ch. 776, § 34.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

NOTES TO DECISIONS

1. Illustrative Cases.

An inmate's petition for a declaration that the officers and an agent of the corporation that operated a penal facility for the state wrongfully denied the inmate's claim for property losses was properly dismissed where there was no allegation that the defendants failed to exercise their authority in accordance with the standards of T.C.A. § 48-18-403. Becker v. Myers, 895 S.W.2d 685, 1994 Tenn. App. LEXIS 590 (Tenn. Ct. App. 1994).

Majority shareholders of close corporation who were also officers, directors and employees of the corporation, owed a duty of good faith and fairness to the corporation which they served as officers, and if they were protecting legitimate interests of the corporation when they fired the only other shareholder, the presence of spite or ill will would not render them or the corporation liable to the minority shareholder whose employment was terminated. Nelson v. Martin, 958 S.W.2d 643, 1997 Tenn. LEXIS 573 (Tenn. 1997), overruled in part, Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 2002 Tenn. LEXIS 154 (Tenn. 2002), overruled in part, Watson's Carpet & Floor Covering, Inc. v. McCormick, 247 S.W.3d 169, 2007 Tenn. App. LEXIS 27 (Tenn. Ct. App. Jan. 18, 2007), but see, Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 2002 Tenn. LEXIS 154 (Tenn. 2002).

The court adopted the tort of intentional interference with business relationships, thereby overruling that portion of the court's decision in Nelson v. Martin, 958 S.W.2d 643, 1997 Tenn. LEXIS 573 (Tenn. 1997); the court also hold that liability should be imposed on the interfering party provided that the plaintiff can demonstrate the following: (1) An existing business relationship with specific third parties or a prospective relationship with an identifiable class of third persons; (2) The defendant's knowledge of that relationship and not a mere awareness of the plaintiff's business dealings with others in general; (3) The defendant's intent to cause the breach or termination of the business relationship; (4) The defendant's improper motive or improper means; and finally, (5) Damages resulting from the tortious interference.Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 2002 Tenn. LEXIS 154 (Tenn. 2002).

Decisions Under Prior Law

1. Duty Limited to Corporation.

Statute imposed a duty that ran to the corporation, in favor of the corporation and its stockholders but was not intended to establish a statutory privity between directors and officers and third parties not representing the corporate entity. Merriman v. Smith, 599 S.W.2d 548, 1979 Tenn. App. LEXIS 389 (Tenn. Ct. App. 1979).

2. Officers as Trustees.

Officers of an insolvent corporation, in whose hands the assets remain, were quasi trustees for the creditors of the corporation. Marr v. Bank of West Tennessee, 44 Tenn. 471, 1867 Tenn. LEXIS 71 (1867); Memphis Barrel Co. v. Ward, 99 Tenn. 172, 42 S.W. 13, 1897 Tenn. LEXIS 21, 63 Am. St. Rep. 825 (1897).

3. President's Knowledge of Untruthfulness of Statement.

Where a financial statement was made by a corporation to a bank whose president, independently of the statement, knew of the true financial condition of the corporation, the bank was bound by the president's knowledge; so that if there were fraud, it did not work to the detriment of the bank. Russell v. Tennessee & Kentucky Tobacco Co., 16 Tenn. App. 561, 65 S.W.2d 256, 1933 Tenn. App. LEXIS 28 (Tenn. Ct. App. 1933).

4. Prima Facie Liability.

Proof that company president disbursed company funds as an unsecured loan, without receiving any evidence of indebtedness, constituted a prima facie case of the president's liability for breach of the president's fiduciary duties. Founders Life Corp. v. Hampton, 597 S.W.2d 897, 1980 Tenn. LEXIS 450 (Tenn. 1980).

5. Delivery of Shares in Pledge.

That the president of the debtor corporation and the vice-president of the creditor corporation were the same was immaterial on the issue of delivery of shares in pledge, there being no charge of fraud. Winslow v. Harriman Iron Co., 42 S.W. 698, 1897 Tenn. Ch. App. LEXIS 73 (1897).

6. Suit by Stockholder.

Stockholder in a corporation might sue to enforce a claim of the corporation against its managing officer for diversion of funds, when its assignee in insolvency refused to do so, though the stockholder was authorized to sue upon corporate rights of action. Streight v. Junk, 59 F. 321, 1893 U.S. App. LEXIS 2355 (6th Cir. Tenn. 1893).

48-18-404. Resignation and removal of officers.

An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specified a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, its board of directors may fill the pending vacancy before the effective date if the board of directors provides that the successor does not take office until the effective date.
A board of directors may remove any officer at any time with or without cause and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer.

Acts 1986, ch. 887, § 8.43.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1303.

Law Reviews.

Corporate Directors [and Officers] Making Business Judgments in Tennessee: The Business Judgment Rule, 44 U. Mem. L. Rev. 455 (2013).

48-18-405. Contract rights of officers.

The appointment of an officer does not itself create contract rights.
An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer.

Acts 1986, ch. 887, § 8.44.

48-18-406. Release or assignment of life insurance on officers.

When a corporation, organized under the laws of this state, has caused or shall cause to be insured the life of any director, officer, agent, or employee, or when such corporation is named as a beneficiary in or assignee of any policy of life insurance, due authority to effect, assign, release, relinquish, convert, surrender, change the beneficiary, or to take any other action with reference to such insurance shall be sufficiently evidenced to the insurance company by a written statement to that effect, signed by the president or secretary or other corresponding officer of such corporation. Such statement shall be binding upon such corporation, and any act done or suffered to be done by it upon the faith thereof shall protect the insurance company concerned, without further inquiry into the validity of the corporate authority or the regularity of the corporate proceedings. No person shall be disqualified, by reason of interest in the subject matter, from acting as a director or as a member of the executive committee of such corporation, on any corporate procedure touching such insurance.

Acts 1986, ch. 887, § 8.45.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1304.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Constitutionality.

Statute was not unconstitutional as class legislation on ground that it gave corporate officers of insurance companies more power to bind corporations than was granted corporate officers generally in dealing with corporate assets. Massachusetts Mut. Life Ins. Co. v. Vogue, Inc., 54 Tenn. App. 624, 393 S.W.2d 164, 1965 Tenn. App. LEXIS 282 (Tenn. Ct. App. 1965).

Part 5
Indemnification

48-18-501. Part definitions.

In this part:

“Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction;
“Director” means an individual who is or was a director of a corporation, including individuals acting pursuant to § 48-18-101, or an individual who, while a director of a corporation, is or was serving at the corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if the director's duties to the corporation also impose duties on or otherwise involve services by the director to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the context requires otherwise, the estate or personal representative of a director;
“Expenses” includes counsel fees;
“Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding;
1. “Official capacity” means:
  1. When used with respect to a director, the office of director in a corporation; and
  2. When used with respect to an individual other than a director, as contemplated in § 48-18-507, the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation;
2. “Official capacity” does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise;
“Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding; and
“Proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal.

Acts 1986, ch. 887, § 8.50; 1987, ch. 273, § 32.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

48-18-502. Authority to indemnify.

Except as provided in subsection (d), a corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if:
1. The individual's conduct was in good faith; and
2. The individual reasonably believed:
  1. In the case of conduct in the individual's official capacity with the corporation, that the individual's conduct was in its best interest; and
  2. In all other cases, that the individual's conduct was at least not opposed to its best interests; and
3. In the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful.
A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subdivision (a)(2)(B).
The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
A corporation may not indemnify a director under this section:
1. In connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or
2. In connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director.

Acts 1986, ch. 887, § 8.51.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Indemnification Appropriate.

“Outside” directors of a corporation charged with issuing a false and misleading prospectus in connection with a securities registration who showed that, before signing the registration statement, they conducted a reasonable investigation and verification of the facts in the statement, and that based on that investigation they had reasonable grounds to believe and did actually believe that the statement was true and accurate, were entitled to a court order of indemnification by the corporation for expenses incurred in defending a lawsuit based on the issuance of that statement and such indemnification did not contravene the public policy of the Securities Act of 1933, compiled in 15 U.S.C. § 77a et seq. Goldstein v. Alodex Corp., 409 F. Supp. 1201, 1976 U.S. Dist. LEXIS 16048 (E.D. Pa. 1976).

48-18-503. Mandatory indemnification.

Unless limited by its charter, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding.

Acts 1986, ch. 887, § 8.52.

NOTES TO DECISIONS

1. In General.

Since plaintiff was sued because of the plaintiff's position with the company, and since the plaintiff was successful in the defense of that suit, the plaintiff was entitled to indemnification as a matter of law. Sherman v. Am. Water Heater Co., 50 S.W.3d 455, 2001 Tenn. App. LEXIS 119 (Tenn. Ct. App. 2001), review or rehearing denied, — S.W.3d —, 2001 Tenn. LEXIS 544 (Tenn. July 2, 2001).

48-18-504. Advance for expenses.

A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
1. The director furnishes the corporation a written affirmation of the director's good faith belief that the director has met the standard of conduct described in § 48-18-502;
2. The director furnishes the corporation a written undertaking, executed personally or on the director's behalf, to repay the advance if it is ultimately determined that the director is not entitled to indemnification; and
3. A determination is made that the facts then known to those making the determination would not preclude indemnification under this part.
The undertaking required by subdivision (a)(2) must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.
Determinations and authorizations of payments under this section shall be made in the manner specified in § 48-18-506.

Acts 1986, ch. 887, § 8.53; 1987, ch. 273, § 33.

48-18-505. Court ordered indemnification.

Unless a corporation's charter provides otherwise, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification if it determines the director is:

Entitled to mandatory indemnification under § 48-18-503, in which case the court shall also order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification; or
Fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in § 48-18-502 or was adjudged liable as described in § 48-18-502(d), but if the director was adjudged so liable the director's indemnification is limited to reasonable expenses incurred.

Acts 1986, ch. 887, § 8.54.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Indemnification Granted.

“Outside” directors of a corporation charged with issuing a false and misleading prospectus in connection with a securities registration who showed that, before signing the registration statement, they conducted a reasonable investigation and verification of the facts in the statement and that based on that investigation they had reasonable grounds to believe and did actually believe that the statement was true and accurate were entitled to a court order of indemnification by the corporation for expenses incurred in defending a lawsuit based on the issuance of that statement and such indemnification did not contravene the public policy of the Securities Act of 1933, compiled in 15 U.S.C. § 77a et seq. Goldstein v. Alodex Corp., 409 F. Supp. 1201, 1976 U.S. Dist. LEXIS 16048 (E.D. Pa. 1976).

48-18-506. Determination and authorization of indemnification.

A corporation may not indemnify a director under § 48-18-502 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in § 48-18-502.
The determination shall be made:
1. By the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding;
2. If a quorum cannot be obtained under subdivision (b)(1), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceeding;
3. By independent special legal counsel:
  1. Selected by the board of directors or its committee in the manner prescribed in subdivision (b)(1) or (b)(2); or
  2. If a quorum of the board of directors cannot be obtained under subdivision (b)(1) and a committee cannot be designated under subdivision (b)(2), selected by majority vote of the full board of directors (in which selection directors who are parties may participate); or
4. By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (b)(3) to select counsel.

Acts 1986, ch. 887, § 8.55.

48-18-507. Indemnification of officers, employees, and agents.

Unless a corporation's charter provides otherwise:

An officer of the corporation who is not a director is entitled to mandatory indemnification under § 48-18-503, and is entitled to apply for court-ordered indemnification under § 48-18-505, in each case to the same extent as a director;
The corporation may indemnify and advance expenses under this part to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and
A corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its charter, bylaws, general or specific action of its board of directors, or contract.

Acts 1986, ch. 887, § 8.56.

NOTES TO DECISIONS

1. Construction.

48-18-508. Insurance.

A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by the individual in that capacity or arising from the individual's status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify the individual against the same liability under § 48-18-502 or § 48-18-503.

Acts 1986, ch. 887, § 8.57.

48-18-509. Exclusivity of rights — Charter limiting indemnification — Payment of witness expenses.

1. The indemnification and advancement of expenses granted pursuant to, or provided by, chapters 11-27 of this title shall not be deemed exclusive of any other rights to which a director seeking indemnification or advancement of expenses may be entitled, whether contained in chapters 11-27 of this title, the charter, or the bylaws or, when authorized by such charter or bylaws, in a resolution of shareholders, a resolution of directors, or an agreement providing for such indemnification; provided, that no indemnification may be made to or on behalf of any director if a judgment or other final adjudication adverse to the director establishes the director's liability:
  1. For any breach of the duty of loyalty to the corporation or its shareholders;
  2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
  3. Under § 48-18-302.
2. Nothing contained in chapters 11-27 of this title shall affect any rights to indemnification to which corporate personnel, other than directors, may be entitled by contract or otherwise under law. If the charter limits indemnification or advance for expenses, indemnification and advance for expenses are valid only to the extent consistent with the charter.
This part does not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with the director's appearance as a witness in a proceeding at a time when the director has not been made a named defendant or respondent to the proceeding.

Acts 1986, ch. 887, § 8.58; 1987, ch. 273, § 34; 1989, ch. 451, § 12; 2012, ch. 1051, §§ 33, 34.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-101, 5-201.

Part 6
Limitation of Actions

48-18-601. Limitation of actions for breach of fiduciary duty.

Any action alleging breach of fiduciary duties by directors or officers, including alleged violations of the standards established in § 48-18-301, § 48-18-403 or part 7 of this chapter, must be brought within one (1) year from the date of such breach or violation; provided, that in the event the alleged breach or violation is not discovered nor reasonably should have been discovered within the one-year period, the period of limitation shall be one (1) year from the date such was discovered or reasonably should have been discovered. In no event shall any such action be brought more than three (3) years after the date on which the breach or violation occurred, except where there is fraudulent concealment on the part of the defendant, in which case the action shall be commenced within one (1) year after the alleged breach or violation is, or should have been, discovered.

Acts 1986, ch. 887, § 8.60; 2012, ch. 1051, § 35.

Law Reviews.

Unpacking Limited Liability: Direct and Vicarious Liability of Corporate Participants for Torts of the Enterprise (Robert B. Thompson), 47 Vand. L. Rev. 1 (1994).

NOTES TO DECISIONS

1. Applicability.

In an action against savings and loan directors for breach of fiduciary duties, the six-year limitation period in T.C.A. § 28-3-109 applied rather than the three-year limitation period in T.C.A. § 28-3-105 where the action was filed prior to the enactment of T.C.A. § 48-18-601, which would otherwise clearly have controlled. Federal Sav. & Loan Ins. Corp. v. Burdette, 696 F. Supp. 1196, 1988 U.S. Dist. LEXIS 11038 (E.D. Tenn. 1988).

The delayed effective date of T.C.A. § 48-18-601 was not an expression of intent that it should take effect prior to its expressly stated effective date, or be retroactively applied to all rights arising after its enactment, but before its effective date. American Network Group, Inc. v. Kostyk, 804 S.W.2d 447, 1990 Tenn. App. LEXIS 763 (Tenn. Ct. App. 1990).

On January 1, 1988, the former limitation of six years was shortened to one year, and plaintiffs in action accruing before 1988 had one year after January 1, 1988, within which to sue, their suit not being barred by the former six year statute. American Network Group, Inc. v. Kostyk, 804 S.W.2d 447, 1990 Tenn. App. LEXIS 763 (Tenn. Ct. App. 1990).

Since this section applies to the breach of fiduciary duties by “directors or officers,” it did not apply to an action by minority shareholders against a majority shareholder. Mike v. Po Group, 937 S.W.2d 790, 1996 Tenn. LEXIS 529 (Tenn. 1996).

Part 7
Conflicting Interest Transactions

48-18-701. Part definitions.

In this part:

“Control” (including “controlled by”) means:
1. Having the power, directly or indirectly, to elect or remove a majority of the members of the board of directors or other governing body of an entity, whether through the ownership of voting shares or interests, by contract, or otherwise; or
2. Being subject to a majority of the risk of loss from the entity's activities or entitled to receive a majority of the entity's residual returns;
“Director's or officer's conflicting interest transaction” means a transaction effected or proposed to be effected by the corporation (or by an entity controlled by the corporation):
1. To which, at the relevant time, the director or officer is a party; or
2. Respecting which, at the relevant time, the director or officer had knowledge and a material financial interest known to the director or officer; or
3. Respecting which, at the relevant time, the director or officer knew that a related person was a party or had a material financial interest;
“Fair to the corporation” means, for purposes of § 48-18-702(b)(3), that the transaction as a whole was beneficial to the corporation, taking into appropriate account whether it was:
1. Fair in terms of the director's or officer's dealings with the corporation; and
2. Comparable to what might have been obtainable in an arm's length transaction, given the consideration paid or received by the corporation;
“Material financial interest” means a financial interest in a transaction that would reasonably be expected to impair the objectivity of the director's or officer's judgment when participating in action on the authorization of the transaction;
“Material relationship” means a familial, financial, professional, employment or other relationship that would reasonably be expected to impair the objectivity of the director's judgment when participating in the action to be taken;
1. “Qualified director” means a director who, at the time action is to be taken under § 48-18-703, is not a director:
  1. As to whom the transaction is a director's or officer's conflicting interest transaction; or
  2. Who has a material relationship with another director as to whom the transaction is a director's or officer's conflicting interest transaction;
2. The presence of one (1) or more of the following circumstances shall not automatically prevent a director from being a qualified director:
  1. Nomination or election of the director to the current board by any director who is not a qualified director with respect to the matter (or by any person that has a material relationship with that director), acting alone or participating with others; or
  2. Service as a director of another corporation of which a director who is not a qualified director with respect to the matter (or any individual who has a material relationship with that director), is or was also a director;
“Related person” means:
1. The director's or officer's spouse;
2. A child, stepchild, grandchild, parent, step parent, grandparent, sibling, step sibling, half sibling, aunt, uncle, niece or nephew (or spouse of any thereof) of the director or officer or of the director's or officer's spouse;
3. An individual living in the same home as the director or officer;
4. An entity (other than the corporation or an entity controlled by the corporation) controlled by the director or officer or any person specified in subdivisions (7)(A)-(C);
5. A domestic or foreign:
  1. Business or nonprofit corporation (other than the corporation or an entity controlled by the corporation) of which the director or officer is a director but only with respect to a transaction or proposed transaction to which the corporation and the other business or nonprofit corporation are parties or proposed parties and that is a transaction or proposed transaction that is or should be considered by the board of directors of the corporation;
  2. Unincorporated entity of which the director or officer is a general partner or a member of the governing body; or
  3. Individual, trust or estate for whom or of which the director or officer is a trustee, guardian, personal representative or like fiduciary; or
6. A person that is or an entity that is controlled by, an employer of the director or officer;
“Relevant time” means:
1. The time at which directors' action respecting the transaction is taken in compliance with § 48-18-703; or
2. If the transaction is not brought before the board of directors of the corporation (or its committee) for action under § 48-18-703, at the time the corporation (or an entity controlled by the corporation) becomes legally obligated to consummate the transaction; and
“Required disclosure” means disclosure of:
1. The existence and nature of the director's or officer's conflicting interest; and
2. All facts known to the director or officer respecting the subject matter of the transaction that a director or officer free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction.

Acts 2012, ch. 1051, § 36.

48-18-702. Judicial action.

A transaction effected or proposed to be effected by the corporation (or by an entity controlled by the corporation) may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director or officer of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director or officer has an interest respecting the transaction, if it is not a director's or officer's conflicting interest transaction.
A director's or officer's conflicting interest transaction may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director or officer of the corporation, in a proceeding by a shareholder or by or in the right of the corporation, on the ground that the director or officer has an interest respecting the transaction, if:
1. Directors' action respecting the transaction was taken in compliance with § 48-18-703 at any time;
2. Shareholders' action respecting the transaction was taken in compliance with § 48-18-704 at any time; or
3. The transaction, judged according to the circumstances at the relevant time, is established to have been fair to the corporation.

Acts 2012, ch. 1051, § 36.

48-18-703. Directors' action.

Directors' action respecting a director's or officer's conflicting interest transaction is effective for purposes of § 48-18-702(b)(1) if the transaction has been authorized by the affirmative vote of a majority (but no fewer than two (2)) of the qualified directors who voted on the transaction, after required disclosure by the conflicted director or officer of information not already known by such qualified directors, or after modified disclosure in compliance with subsection (b); provided, that:
1. The qualified directors have deliberated and voted without the participation by any other director; and
2. Where the action has been taken by a committee, all members of the committee were qualified directors, and either:
  1. The committee was composed of all the qualified directors on the board of directors; or
  2. The members of the committee were appointed by the affirmative vote of a majority of the qualified directors on the board.
Notwithstanding subsection (a), when a transaction is a director's or officer's conflicting interest transaction only because a related person described in § 48-18-701(7)(E) or (7)(F) is a part to or has a material financial interest in the transaction, the conflicted director or officer is not obligated to make required disclosure to the extent that the director or officer reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule; provided, that the conflicted director or officer discloses to the qualified directors voting on the transaction:
1. All the information required to be disclosed that is not so violative;
2. The existence and nature of the director's or officer's conflicting interest; and
3. The nature of the conflicted director's or officer's duty not to disclose the confidential information.
1. A majority (but no fewer than two (2)) of all the qualified directors on the board of directors, or on the committee, constitutes a quorum for purposes of action that complies with this section.
2. Where directors' action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the charter, the bylaws or a provision of law, independent action to satisfy those authorization requirements must be taken by the board of directors or a committee, in which action directors who are not qualified directors may participate.

Acts 2012, ch. 1051, § 36.

Cross-References. Confidentiality of public records, § 10-7-504.

48-18-704. Shareholders' action.

Shareholders' action respecting a director's or officer's conflicting interest transaction is effective for purposes of § 48-18-702(b)(2) if a majority of the votes cast by the holders of all qualified shares are in favor of the transaction after:
1. Notice to shareholders describing the action to be taken respecting the transaction;
2. Provision to the corporation of the information referred to in subsection (b); and
3. Communication to the shareholders entitled to vote on the transaction of the information that is the subject of required disclosure, to the extent the information is not known by them.
A director or officer who has conflicting interest respecting the transaction shall, before the shareholders' vote, inform the secretary or other officer or agent of the corporation authorized to tabulate votes, in writing, of the number of shares that the director or officer knows are not qualified shares under subsection (c), and the identity of the holders of those shares.
For purposes of this section:
1. “Holder” means, and “held by” refers to, shares held by both a record shareholder (as defined in § 48-23-101) and a beneficial shareholder (as defined in § 48-23-101); and
2. “Qualified shares” means all shares entitled to be voted with respect to the transaction except for shares that the secretary or other officer or agent of the corporation authorized to tabulate votes either knows, or under subsection (b) is notified, are held by:
  1. A director or officer who has a conflicting interest respecting the transaction; or
  2. A related person of the director or officer (excluding a person described in § 48-18-701(7)(F)).
A majority of the votes entitled to be cast by the holders of all qualified shares constitutes a quorum for purposes of compliance with this section. Subject to subsection (e), shareholders' action that otherwise complies with this section is not affected by the presence of holders, or by the voting, of shares that are not qualified shares.
If a shareholders' vote does not comply with subsection (a) solely because of a director's or officer's failure to comply with subsection (b), and if the director or officer establishes that the failure was not intended to influence and did not in fact determine the outcome of the vote, the court may take such action respecting the transaction and the director or officer, and may give such effect, if any, to the shareholders' vote, as the court considers appropriate in the circumstances.
Where shareholders' action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the charter, the bylaws or a provision of law, independent action to satisfy those authorization requirements must be taken by the shareholders, in which action shares that are not qualified shares may participate.

Acts 2012, ch. 1051, § 36.

Chapter 19
[Reserved]

Chapter 20
Amendment of Charter and Bylaws

Part 1
Amendment of Charter

48-20-101. Authority to amend.

A corporation may amend its charter at any time to add or change a provision that is required or permitted in the charter or to delete a provision not required in the charter. Whether a provision is required or permitted in the charter is determined as of the effective date of the amendment.
A shareholder of the corporation does not have a vested property right resulting from any provision in the charter or bylaws, including provisions relating to management, control, capital structure, dividend entitlement, or purpose or duration of the corporation.

Acts 1986, ch. 887, § 10.01; 1987, ch. 273, § 35.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Documents filed with county register of deeds in addition to the secretary of state's office, § 48-11-303.

Nonprofit corporations, amendment of charter and bylaws, title 48, ch. 60.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Change in Capital Stock.

For cases discussing, under prior laws, amendments to increase or reduce capital stock, see Peck v. Elliott, 79 F. 10, 1897 U.S. App. LEXIS 1730, 38 L.R.A. 616 (6th Cir. Tenn. 1897); Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897); Newport Cotton-Mill Co. v. Mims, 103 Tenn. 465, 53 S.W. 736, 1899 Tenn. LEXIS 128 (1899); Uffelman v. Boillin, 19 Tenn. App. 1, 82 S.W.2d 545, 1935 Tenn. App. LEXIS 18 (Tenn. Ct. App. 1935).

2. Void Amendment.

An amendment which purported to include a grant of an unwarranted power, to pay for an increase of stock by use of surplus and undivided profits consisting of both tangible and intangible assets, was void. United Hosiery Mills Corp. v. Stevens, 146 Tenn. 531, 243 S.W. 656, 1921 Tenn. LEXIS 30 (1922).

48-20-102. Amendment by board of directors.

Unless the charter provides otherwise, a corporation's board of directors may adopt one (1) or more amendments to the corporation's charter without shareholder action to:

Delete the names and addresses of the initial directors;
Delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the secretary of state;
Designate or change the address of the principal office of the corporation (or a mailing address if the United States postal service does not deliver to the principal office);
Change each issued and unissued authorized share of an outstanding class into a greater number of whole shares if the corporation has only shares of that class outstanding;
Change the corporate name by substituting the word “corporation,” “incorporated,” “company,” or the abbreviation “corp.,” “inc.,” or “co.,” for a similar word or abbreviation in the name, or by adding, deleting or changing a geographical attribution for the name;
Designate the street address and zip code of the corporation's current registered office (or a mailing address if the United States postal service does not deliver to the registered office), the county in which the office is located, and the name of its current registered agent at that office, as required by § 48-27-101(b);
Delete the initial principal office, if an annual report is on file with the secretary of state; or
Make any other change expressly permitted by chapters 11-27 of this title to be made without shareholder action.

Acts 1986, ch. 887, § 10.02; 1987, ch. 273, § 36; 1989, ch. 451, § 13; 1991, ch. 188, § 3; 2012, ch. 1051, §§ 37, 38.

48-20-103. Amendment by board of directors and shareholders.

A corporation's board of directors may propose one (1) or more amendments to the charter for submission to the shareholders.
For the amendment to be adopted:
1. The board of directors shall recommend the amendment to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances, it should make no recommendation and communicate the basis for its determination to the shareholders with the amendment; and
2. The shareholders entitled to vote on the amendment shall approve the amendment as provided in subsection (e).
The board of directors may condition its submission of the proposed amendment on any basis.
The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice of meeting must also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
Unless chapters 11-27 of this title, the charter, or the board of directors (acting pursuant to subsection (c)) requires a greater vote or a vote by voting groups, the amendment to be adopted must be approved by:
1. A majority of the votes entitled to be cast on the amendment by any voting group with respect to which the amendment would create dissenters' rights; and
2. The votes required by §§ 48-17-206 and 48-17-207 by every other voting group entitled to vote on the amendment.

Acts 1986, ch. 887, § 10.03.

48-20-104. Voting on amendments by voting groups.

The holders of the outstanding shares of a class are entitled to vote as a separate voting group (if shareholder voting is otherwise required by chapters 11-27 of this title) on a proposed amendment if the amendment would:
1. Increase or decrease the aggregate number of authorized shares of the class;
2. Effect an exchange or reclassification of all or part of the shares of the class into shares of another class;
3. Effect an exchange or reclassification, or create the right of exchange, of all or part of the shares of another class into shares of the class;
4. Change the designation, rights, preferences, or limitations of all or part of the shares of the class;
5. Change the shares of all or part of the class into a different number of shares of the same class;
6. Create a new class or change a class with subordinate and inferior rights into a class of shares, having rights or preferences with respect to distributions or dissolution that are prior, superior, or substantially equal to the shares of the class, or increase the rights, preferences or number of authorized shares of any class having rights or preferences with respect to distributions or to dissolution that are prior, superior, or substantially equal to the shares of the class;
7. Limit or deny an existing preemptive right of all or part of the shares of the class;
8. Authorize the issuance as a share dividend of shares of such class in respect of shares of another class; or
9. Cancel or otherwise affect rights to distributions or dividends that have accumulated but not yet been declared on all or part of the shares of the class.
If a proposed amendment would affect a series of a class of shares in one (1) or more of the ways described in subsection (a), the shares of that series are entitled to vote as a separate voting group on the proposed amendment.
If a proposed amendment that entitles two (2) or more series of shares to vote as separate voting groups under this section would affect those two (2) or more series in the same or a substantially similar way, the shares of all the series so affected must vote together as a single voting group on the proposed amendment.
A class or series of shares is entitled to the voting rights granted by this section although the charter provides that the shares are nonvoting shares.

Acts 1986, ch. 887, § 10.04; 1989, ch. 451, § 14.

48-20-105. Amendment before issuance of shares.

If a corporation has not yet issued shares, its board of directors or its incorporators, in the event that there is no board of directors, may adopt one (1) or more amendments to the corporation's charter.

Acts 1986, ch. 887, § 10.05.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Effect on Subscribers.

An amendment to the charter filed before the corporation came into existence prevented the corporation as originally contemplated from coming into existence, so that subscriptions taken on the basis of the original charter never became binding. Wallace v. Duel, 18 Tenn. App. 483, 79 S.W.2d 595, 1934 Tenn. App. LEXIS 50 (Tenn. Ct. App. 1934).

An attempt by incorporators to change the original charter without the consent of a subscriber, after the subscription had been made, worked a change in the subscription contract, and a subsequent perfection of the amended charter did not act as an acceptance of the original offer of the subscriber, binding the subscriber to the new terms resulting from the amendment. Wallace v. Duel, 18 Tenn. App. 483, 79 S.W.2d 595, 1934 Tenn. App. LEXIS 50 (Tenn. Ct. App. 1934).

The failure of a subscriber to capital stock of a proposed corporation, upon notice given by the promoters, to attend a so-called meeting of the stockholders, the object of which was to amend the corporate charter, would not justify anyone in relying upon the subscriber's subscription as an estoppel, nor as a waiver of the subscriber's rights as they then existed. Wallace v. Duel, 18 Tenn. App. 483, 79 S.W.2d 595, 1934 Tenn. App. LEXIS 50 (Tenn. Ct. App. 1934).

48-20-106. Articles of amendment.

A corporation amending its charter shall deliver to the secretary of state for filing articles of amendment setting forth:

The name of the corporation;
The text of each amendment adopted;
If an amendment provides for an exchange, reclassification or cancellation of issued shares, provisions for implementing such amendment if not contained in the amendment itself;
The date of each amendment's adoption;
If an amendment was duly adopted by the incorporators or board of directors without shareholder action, a statement to that effect and that shareholder action was not required; and
If an amendment was duly adopted by the shareholders, a statement to that effect.

Acts 1986, ch. 887, § 10.06; 1989, ch. 451, § 15; 1991, ch. 188, § 8.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-703, 5-704, 5-706.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Filing.

An amended charter, equally with the charter, was void unless the requirements as to registration were complied with. Anderson v. Middle & E. Tenn. Cent. R.R., 91 Tenn. 44, 17 S.W. 803, 1891 Tenn. LEXIS 75 (1891); Union Ry. v. Sneed, 99 Tenn. 1, 41 S.W. 364 (1897).

2. Shareholder Approval.

Where the certificate evidencing the stockholder approval of the amendment was duly filed, the amendment was complete and the validity of the same could not be collaterally questioned. Filley v. Kickoff Publishing Co., 454 F.2d 1288, 1972 U.S. App. LEXIS 11409 (6th Cir. Tenn. 1972).

48-20-107. Restated charter.

A corporation's board of directors may restate its charter at any time with or without shareholder action.
The restatement may include one (1) or more amendments to the charter. If the restatement includes an amendment requiring shareholder approval, it shall be adopted as provided in § 48-20-103.
If the board of directors submits a restatement for shareholder action, the corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the charter.
A corporation restating its charter shall deliver to the secretary of state the restated charter, setting forth the name of the corporation and the text of the restated charter, together with a certificate setting forth:
1. Whether the restatement contains an amendment to the charter requiring shareholder approval and, if it does not, that the board of directors adopted the restatement; or
2. If the restatement contains an amendment to the charter requiring shareholder approval, the information required by § 48-20-106.
If the restatement contains an amendment to the charter, it shall be designated in the heading as an “Amended and Restated Charter.”
The restated charter must contain all the requirements of a charter as set out in § 48-12-102(a) unless the corporation is exempt from any of those requirements pursuant to § 48-27-101(b).
A duly adopted restated charter supersedes the original charter and all prior amendments thereto.
The secretary of state may certify a restated charter as the charter currently in effect, without including the certificate information required by subsection (d).

Acts 1986, ch. 887, § 10.07; 1989, ch. 451, § 16; 1991, ch. 188, § 6.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-702.

48-20-108. Amendment of charter pursuant to reorganization.

A corporation's charter may be amended without action by the board of directors or shareholders to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute, if the charter after amendment contains only provisions required or permitted by § 48-12-102.
The individual or individuals designated by the court shall deliver to the secretary of state for filing articles of amendment setting forth:
1. The name of the corporation;
2. The text of each amendment approved by the court;
3. The date of the court's order or decree approving the articles of amendment;
4. The title of the reorganization proceeding in which the order or decree was entered; and
5. A statement that the court had jurisdiction of the proceeding under federal statute.
Shareholders of a corporation undergoing reorganization do not have dissenters' rights except as and to the extent provided in the reorganization plan.
This section does not apply after entry of a final decree in the reorganization proceedings, even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

Acts 1986, ch. 887, § 10.08.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-705.

Law Reviews.

The Conundrum of Directors' Duties in Nearly Insolvent Corporations (Mike Roberts), 23 Mem. St. U.L. Rev. 273 (1993).

48-20-109. Effect of amendment.

An amendment to the charter does not affect a cause of action existing against or in favor of the corporation, a proceeding to which the corporation is a party, or the existing rights of persons other than shareholders of the corporation. An amendment changing a corporation's name does not abate a proceeding brought by or against the corporation in its former name.

Acts 1986, ch. 887, § 10.09.

Part 2
Amendment of Bylaws

48-20-201. Amendment of bylaws by board of directors or shareholders.

A corporation's board of directors may amend or repeal the corporation's bylaws unless:
1. The charter or chapters 11-27 of this title reserve this power exclusively to the shareholders in whole or in part; or
2. The shareholders in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw.
A corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors.

Acts 1986, ch. 887, § 10.20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-104, 5-203.

48-20-202. Bylaw increasing quorum or voting requirement for shareholders.

If expressly authorized by the charter, the shareholders may adopt or amend a bylaw that fixes a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than is required by chapters 11-27 of this title. The adoption or amendment of a bylaw that adds, changes, or deletes a greater quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
A bylaw that fixes a greater quorum or voting requirement for shareholders under subsection (a) may not be adopted, amended, or repealed by the board of directors.

Acts 1986, ch. 887, § 10.21.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-104.

48-20-203. Bylaw increasing quorum or voting requirement for directors.

A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed:
1. If originally adopted by the shareholders, only by the shareholders;
2. If originally adopted by the board of directors, either by the shareholders or by the board of directors.
A bylaw adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.
Action by the board of directors under subdivision (a)(2) to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.

Acts 1986, ch. 887, § 10.22.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-104, 5-203.

Chapter 21
Merger, Share Exchange and Conversion

48-21-101. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

“Converted entity” means the domestic business corporation or domestic unincorporated entity that adopts a plan of entity conversion or the foreign unincorporated entity converting to a domestic business corporation;
“Eligible entity” means a domestic or foreign unincorporated entity or a domestic or foreign nonprofit corporation;
“Eligible interests” means interests or memberships;
“Filing entity” means an unincorporated entity that is of a type that is created by filing a public organic document;
“Interest holder” means a person who holds of record an interest;
“Membership” means the rights of a member in a domestic or foreign nonprofit corporation;
“Participating shares” means shares however denominated that entitle their holders to participate in distributions on dissolution after all preferences have been paid;
“Party to a merger or share exchange” means any domestic or foreign corporation, or eligible entity that will:
1. Merge in a plan of merger;
2. Acquire shares or eligible interests of another domestic or foreign corporation, or an eligible entity in a share exchange; or
3. Have all of its shares or eligible interests of one (1) or more classes or series acquired in share exchange;
“Survivor” means the corporation or unincorporated entity that is in existence immediately after consummation of a merger or entity conversion pursuant to this chapter; and
“Voting shares” means shares that entitle their holders to vote unconditionally in the election of directors.

Acts 1994, ch. 776, § 35; 2006, ch. 620, § 58; 2012, ch. 1051, § 39.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-808, 5-810.

Law Reviews.

Congratulations, It's A Merger!, 50 Tenn. B.J. 22 (2014).

The Market for Preclusion in Merger Litigation, 66 Vand. L. Rev. 1053 (2013).

19th Annual Institute for Law And Economic Policy Conference: The Economics of Aggregate Litigation: What Should We Do About Multijurisdictional Litigation in M&A Deals?, 66 Vand. L. Rev. 1925 (2013).

48-21-102. Merger.

One (1) or more corporations may merge with one (1) or more domestic or foreign business corporations or eligible entities pursuant to a plan of merger, or two (2) or more foreign business corporations or domestic or foreign eligible entities may merge into a new domestic business corporation to be created in the merger in the manner provided in this chapter. The merger shall result in a single survivor.
A foreign business corporation, or a foreign eligible entity, may be a party to a merger with a domestic business corporation, or may be created by the terms of the plan of merger, only if the merger is permitted by the laws under which the foreign business corporation or eligible entity is organized or by which it is governed. If the organic law of a domestic eligible entity does not provide procedures for the approval of a merger, a plan of merger may be adopted and approved, the merger effectuated, and dissenters' rights exercised in accordance with the procedures in this chapter and chapter 23 of this title. For the purposes of applying this chapter and chapter 23 of this title:
1. The eligible entity, its members or interest holders, eligible interests, and organic documents taken together shall be deemed to be a domestic business corporation, shareholders, shares and charter, respectively and vice versa, as the context may require; and
2. If the business and affairs of the eligible entity are managed by a group of persons that is not identical to the members or interest holders, that group shall be deemed to be the board of directors.
The plan of merger must set forth:
1. The name of each domestic or foreign business corporation or eligible entity planning to merge and the name of each domestic or foreign business corporation or eligible entity that shall survive the merger;
2. The terms and conditions of the merger;
3. The manner and basis of converting the shares of each merging domestic or foreign business corporation and eligible interest of each merging domestic or foreign eligible entity into shares or other securities, eligible interests, obligations, rights to acquire shares, other securities or eligible interest, cash, other property, or any combination of the foregoing;
4. The charter of any domestic or foreign business corporation or nonprofit corporation, or the organic documents of any domestic or foreign unincorporated entity, to be created by the merger, or if a new domestic or foreign business or nonprofit corporation or unincorporated is not to be created by the merger, any amendments to the survivor's charter or organic documents; and
5. Any other provision required by the laws under which any party to the merger is organized or by which it is governed, or by the charter or organic documents of any such party.
The plan of merger may set forth any other provisions relating to the merger.
Terms of a plan of merger may be made dependent on facts objectively ascertainable outside the plan in accordance with § 48-11-301(j).
The plan of merger may also include a provision that the plan may be amended prior to filing articles of merger, but if the shareholders of a domestic corporation that is a party to the merger are required or permitted to vote on the plan, the plan must provide that subsequent to approval of the plan by such shareholders the plan may not be amended to change:
1. The amount or kind of shares or other securities, eligible interests, obligations, rights to acquire shares, other securities, or eligible interests, cash, or other property to be received under the plan by the shareholders of or owners of eligible interests in any party to the merger;
2. The charter of any corporation, or the organic documents of any unincorporated entity, that will survive or be created as a result of the merger, except for changes permitted by § 48-20-102 or by comparable provisions of the organic laws of any such foreign corporation or domestic or foreign unincorporated entity; or
3. Any of the other terms or conditions of the plan if the change would adversely affect such shareholders in any material respect.
Property held in trust or for charitable purposes under the laws of this state by a domestic or foreign eligible entity shall not be diverted by a merger from the objects for which it was donated, granted, or devised, unless and until the eligible entity obtains a court order specifying the disposition of the property to the extent required by and pursuant to § 35-15-413.

Acts 1986, ch. 887, § 11.01; 1987, ch. 273, § 37; 1994, ch. 776, § 36; T.C.A., § 48-21-101; Acts 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-102 was transferred to § 48-21-103 effective January 1, 1995.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Merger, consolidation and exchange of stock of insurance companies, title 56, ch. 10.

Nonprofit corporations, merger, title 48, ch. 61.

Tennessee Business Combination Act, title 48, ch. 103, part 2.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-802, 5-804, 5-806.

48-21-103. Share exchange.

Through a share exchange:
1. A domestic corporation may acquire all of the outstanding shares of one (1) or more classes or series of shares of another domestic or foreign corporation or all of the interests of one (1) or more classes or series of interests of a domestic or foreign other entity, in exchange for shares, other securities, interests, obligations, rights to acquire shares, other securities, or interests, cash, other property, or any combination of the foregoing, pursuant to a plan of share exchange; or
2. All of the shares of one (1) or more classes or series of shares of a domestic corporation may be acquired by another domestic or foreign corporation or other entity, in exchange for shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property, or any combination of the foregoing, pursuant to a plan of share exchange.
A foreign corporation or eligible entity may be a party to a share exchange only if the share exchange is permitted by the law under which the corporation or other entity is organized or by which it is governed. If the organic law of a domestic other entity does not provide procedures for the approval of a share exchange, a plan of share exchange may be adopted and approved, the share exchange effectuated, and dissenters' rights exercised in accordance with the procedures, if any, for a merger. If the organic law of a domestic other entity does not provide procedures for the approval of either a share exchange or a merger, a plan of share exchange may be adopted and approved, the share exchange effectuated, and dissenters' rights exercised, in accordance with the procedures in this chapter and chapter 23 of this title. For the purposes of applying this chapter and chapter 23 of this title:
1. The other entity, its interest holders, interests, and organic documents taken together shall be deemed to be a domestic business corporation, shareholders, shares, and charter, respectively and vice versa, as the context may require; and
2. If the business and affairs of the other entity are managed by a group of persons that is not identical to the interest holders, that group shall be deemed to be the board of directors.
The plan of share exchange must set forth:
1. The name of each corporation or other entity whose shares or interests will be acquired and the name of the acquiring corporation or other entity;
2. The terms and conditions of the share exchange;
3. The manner and basis of exchanging shares of each corporation or interests in an other entity who shares or interests will be acquired under the share exchange into shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property, or any combination of the foregoing; and
4. Any other provisions required by the laws under which any party to the share exchange is organized or by the charter or organic document of any such party.
The plan of share exchange may set forth other provisions relating to the share exchange.
This section does not limit the power of a domestic corporation to acquire all or part of the shares of one (1) or more classes or series of another corporation or interests of another entity through a voluntary exchange or otherwise.

Acts 1986, ch. 887, § 11.02; 1994, ch. 776, § 37; T.C.A., § 48-21-102; Acts 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-103 was transferred to § 48-21-104 effective January 1, 1995.

48-21-104. Action on plan of merger or share exchange.

In the case of a domestic corporation that is a party to a merger or share exchange:

The plan of merger or share exchange shall be adopted by the board of directors of each party to the merger or share exchange and approved by the shareholders;
Except as provided in subdivision (7) and in § 48-21-105, after adopting the plan of merger or share exchange, the board of directors shall submit the plan of merger or share exchange for approval by the shareholders. The board of directors must also transmit to the shareholders a recommendation that the shareholders approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must also transmit to the shareholders the basis for that determination;
The board of directors may condition its submission of the plan of merger or share exchange to its shareholders on any basis;
If the plan of merger or share exchange is required to be approved by the shareholders, and if the approval is to be given at a meeting, the corporation shall notify each shareholder, whether or not entitled to vote, of the shareholders' meeting at which the plan is to be submitted for approval. The notice shall state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan of merger or share exchange and shall contain or be accompanied by a copy or summary of the plan. If the corporation is to be merged into an existing corporation or other entity, the notice shall also include or be accompanied by a copy or summary of the charter or organic documents of that corporation or other entity. If the corporation is to be merged into a corporation or other entity that is to be created pursuant to the merger, the notice shall include or be accompanied by a copy or a summary of the charter or organizational documents of the new corporation or other entity;
Unless chapters 11-27 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of merger or share exchange to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group;
Separate voting by voting groups is required:
1. On a plan of merger, by each class or series of shares that would be entitled to vote as a separate group on a provision in the plan that, if contained in a proposed amendment to the charter, would require action by separate voting groups under § 48-20-104;
2. On a plan of share exchange, by each class or series of shares included in the exchange, with each class or series constituting a separate voting group; or
3. On a plan of merger or share exchange, if the voting group is entitled under the charter or by agreement to vote as a voting group to approve a plan of merger or share exchange;
Unless the charter otherwise provides, approval by the shareholders of a domestic corporation of a plan of merger or share exchange shall not be required if:
1. The corporation will survive the merger or is the acquiring corporation in a share exchange;
2. Except for amendments enumerated in § 48-20-102, its charter will not differ from the charter before the merger;
3. Each shareholder of the corporation whose shares were outstanding immediately before the effective date of the merger or exchange will hold the same number of shares, with identical designations, preferences, limitations and relative rights, immediately after the effective date of the merger or exchange;
4. The voting power of the shares outstanding immediately after the merger or exchange, plus the voting power of the shares issuable as a result of the merger or exchange (either by the conversion of securities issued pursuant to the merger or exchange or by the exercise of rights and warrants issued pursuant to the merger or exchange), will not exceed by more than twenty percent (20%) the voting power of the total shares of the corporation outstanding immediately before the merger or exchange; and
5. The number of participating shares outstanding immediately after the merger or exchange, plus the number of participating shares issuable as a result of the merger or exchange (either by the conversion of securities issued pursuant to the merger or exchange by the exercise of rights and warrants issued pursuant to the merger or exchange), will not exceed more than twenty percent (20%) the total number of participating shares outstanding immediately before the merger or exchange; and
If as a result of a merger or share exchange one (1) or more shareholders of a domestic corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, approval of the plan of merger or share exchange shall require the execution, by each shareholder, of a separate written consent to become subject to such owner liability.

Acts 1986, ch. 887, § 11.03; 1994, ch. 776, § 38; T.C.A., § 48-21-103; Acts 1996, ch. 618, § 2; 2012, ch. 1051, § 39; 2015, ch. 60, § 2.

Compiler's Notes. Former § 48-21-104 was transferred to § 48-21-105 effective January 1, 1995.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-801, 5-807, 5-811.

48-21-105. Merger of parent and subsidiary.

A domestic parent corporation owning at least ninety percent (90%) of the outstanding voting shares of each class and series of a domestic or foreign subsidiary corporation or eligible interests of an other entity may either:
1. Merge the subsidiary corporation or other entity into the parent corporation;
2. Merge the parent corporation into the subsidiary corporation or other entity; or
3. Merge two (2) or more such subsidiary corporations or subsidiary other entities with and into each other.
The board of directors of the parent corporation shall adopt a plan of merger that sets forth:
1. The name of the parent corporation owning at least ninety percent (90%) of the outstanding voting shares of the subsidiary corporation or eligible interests of the other entity and the name of the subsidiary corporation(s) or other entity or entities to be a party to the merger, and the name of the corporation or other entity that is to survive the merger;
2. The terms and conditions of the merger;
3. The manner and basis of converting the shares of each corporation or eligible interests of the subsidiary or other entity into shares, eligible interests, obligations or other securities of the survivor or of any other corporation or other entity or into cash or other property or any combination of the foregoing; and
4. Such other provisions with respect to the proposed merger as the board considers necessary or desirable.
No vote of the shareholders of a subsidiary corporation or approval of interest holders of a subsidiary other entity shall be required with respect to such a merger. If the parent corporation will be the survivor, no vote of its shareholders shall be required. If the subsidiary corporation or other entity will be the survivor, the approval of the shareholders of the parent corporation shall be obtained in the manner provided in § 48-21-104.
If under subsection (c) approval of a merger by the subsidiary's shareholders or interest holders is not required, the parent corporation shall, within ten (10) days after the effective date of the merger, notify each of the subsidiary's shareholders or interest holders that the merger has become effective.
Except as provided in subsections (a)-(d), a merger between a parent and a subsidiary shall be governed by the provisions of this chapter applicable to mergers generally.

Acts 1986, ch. 887, § 11.04; 1989, ch. 451, § 34; 1994, ch. 776, § 39; T.C.A., § 48-21-104; Acts 1996, ch. 618, § 3; 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-105 was transferred to § 48-21-107 effective January 1, 1995.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-803, 5-804.

48-21-106. Abandonment of merger.

After a plan of merger or share exchange has been adopted and approved as required by chapters 11-27 of this title, and at any time before the merger or share exchange has become effective, the merger or share exchange may be abandoned (subject to any contractual rights) by any corporation or other entity that is a party to the merger or share exchange, without action by the shareholders or interest holders of such party, in accordance with the procedures set forth in the plan of merger or share exchange or, if no such procedures are set forth in the plan, in the manner determined by the board of directors of such corporation or the managers of such other entity.
If the merger or share exchange is abandoned after articles of merger or share exchange have been filed with the secretary of state but before the merger or share exchange has become effective, a statement, executed on behalf of each party to the merger or share exchange by an officer or other duly authorized representative, stating that the merger or share exchange has been abandoned in accordance with the plan and this section, shall be filed with the secretary of state prior to the effectiveness of the merger or share exchange.
The secretary of state shall, when all fees have been paid as required by law:
1. Endorse on the original and each copy the word “filed” and the month, day, and year of the filing thereof;
2. File the original in the office of the secretary of state; and
3. Issue a certificate of abandonment to each party to the merger or share exchange.
Upon the filing of such statement by the secretary of state, the merger or share exchange shall be deemed abandoned and shall not become effective.

Acts 1994, ch. 776, § 40; 1999, ch. 361, §§ 1, 2; 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-106 was transferred to § 48-21-108 effective January 1, 1995.

48-21-107. Articles of merger or share exchange.

After a plan of merger or share exchange has been adopted and approved as required by this chapter, articles of merger or share exchange shall be executed on behalf of each party to the merger or share exchange by an officer or other duly authorized representative and shall set forth:
1. The names of the parties to the merger or share exchange and the date on which the merger or share exchange occurred or is to be effective;
2. If the charter or organic documents of the survivor of a merger are amended, or if a new corporation is created as a result of a merger, the amendments to the survivor’s charter or organic documents or the charter of the new corporation;
3. If approval by the shareholders of a domestic corporation that is a party to the merger or exchange is not required by this chapter, a statement to that effect and the date on which the plan was adopted by the board of directors;
4. If approval by the shareholders of a domestic corporation that is a party to the merger or exchange is required by this chapter, a statement to that effect and a statement that the plan was approved by the affirmative vote of the required percentage of all of:
  1. The votes entitled to be cast if there is no voting by voting groups; or
  2. The votes entitled to be cast by each voting group having the right to vote separately on the plan and the votes cast by the outstanding shares otherwise entitled to vote on the plan; and
5. As to each foreign corporation and each other entity that was a party to the merger or share exchange, a statement that the plan and performance of its terms were duly authorized by all action required by the laws under which it was organized and by its charter or organic documents.
The original of the articles of merger or share exchange shall be delivered to the secretary of state for filing together with the required filing fee. A merger or share exchange takes effect upon the effective date of the articles of merger or share exchange.

Acts 1986, ch. 887, § 11.05; 1994, ch. 776, § 44; T.C.A., § 48-21-105; Acts 2012, ch. 1051, § 39.

Compiler's Notes. Former § 48-21-107 was transferred to § 48-21-109 effective January 1, 1995.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-801, 5-803, 5-805, 5-807, 5-809.

48-21-108. Effect of merger or share exchange.

When a merger becomes effective:
1. The corporation or eligible entity that is designated in the plan of merger as an entity surviving the merger shall survive, and the separate existence of every other corporation or eligible entity that is a party to the merger shall cease;
2. All property owned by, and every contract right possessed by, each corporation or eligible entity that is merged into the survivor shall be vested in the survivor without reversion or impairment;
3. All liabilities of each corporation or eligible entity that is merged into the survivor shall be vested in the survivor;
4. A proceeding pending against any corporation or eligible entity that is a party to the merger may be continued as if the merger did not occur or the name of the survivor may be substituted in the proceeding for any corporation or eligible entity whose existence ceased in the merger;
5. The charter or organic document of the survivor shall be amended to the extent provided in the plan of merger;
6. The charter or organic documents of a survivor created by the plan of merger shall become effective; and
7. The share of each corporation and the interests of each eligible entity that are to be converted into shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property, or any combination of the foregoing in the merger shall be converted or exchanged, and the former holders of such shares or eligible interests shall be entitled only to the rights provided to them in the plan of merger or to their rights under chapter 23 of this title or the organic law of the eligible entity.
When a share exchange takes effect, the shares of each corporation that are to be exchanged for shares, other securities, interests, obligations, rights to acquire shares, other securities or interests, cash, other property or any combination of the foregoing in the share exchange shall be exchanged, and the former holders of such shares shall be entitled only to the rights provided in the plan of share exchange or to their rights under chapter 23 of this title.
Upon a merger becoming effective, a foreign corporation, or a foreign eligible entity, that is the survivor of the merger is deemed to:
1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of shareholders of each domestic corporation that is a party to the merger who exercise dissenters' rights; and
2. Agree that it will promptly pay the amount, if any, to which such shareholders are entitled under chapter 23 of this title.
The effect of a merger or share exchange on the owner liability of a person who had owner liability for some or all of the debts, obligations or liabilities of a party to the merger or share exchange shall be as follows:
1. The merger or share exchange does not discharge any owner liability under the organic law of the entity in which the person was a shareholder or interest holder to the extent any such owner liability arose before the effective time of the articles of merger or share exchange;
2. The person shall not have owner liability under the organic law of the entity in which the person was shareholder or interest holder prior to the merger or share exchange for any debt, obligation or liability that arises after the effective time of the articles of merger or share exchange;
3. The organic law of any entity for which the person had owner liability before the merger or share exchange shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (d)(1), as if the merger or share exchange had not occurred; and
4. The person shall have whatever rights of contribution from other persons are provided by the organic law of the entity for which the person had owner liability with respect to any owner liability preserved by subdivision (d)(1), as if the merger or share exchange had not occurred.
A merger or share exchange shall take effect upon the date the articles of merger or share exchange are filed as provided in § 48-21-107(b) or on such later date as may be specified in the plan of merger or share exchange.

Acts 1986, ch. 887, § 11.06; 1994, ch. 776, § 41; T.C.A., § 48-21-106; Acts 2012, ch. 1051, § 39.

48-21-109. Entity conversion.

A domestic business corporation may become a domestic unincorporated entity pursuant to a plan of entity conversion.
A domestic business corporation may become a foreign unincorporated entity if the entity conversion is permitted by the laws of the foreign jurisdiction.
A domestic unincorporated entity may become a domestic business corporation. If the organic law of a domestic unincorporated entity does not provide procedures for the approval of an entity conversion, the conversion shall be adopted and approved, and the entity conversion effectuated, in the same manner as a merger of the unincorporated entity. If the organic law of a domestic unincorporated entity does not provide procedures for the approval of either an entity conversion or a merger, a plan of entity conversion shall be adopted and approved, the entity conversion effectuated, and dissenters' rights exercised, in accordance with the procedures in this chapter and chapter 23 of this title. Without limiting this subsection (c), a domestic unincorporated entity whose organic law does not provide procedures for the approval of an entity conversion shall be subject to subsection (e) and § 48-21-111(7). For purposes of applying this chapter and chapter 23 of this title:
1. The unincorporated entity, its interest holders, interests, and organic documents taken together, shall be deemed to be a domestic business corporation, shareholders, shares, and charters, respectively, and vice versa, as the context may require; and
2. If the business and affairs of the unincorporated entity are managed by a group of persons that is not identical to the interest holders, that group shall be deemed to be the board of directors.
A foreign unincorporated entity may become a domestic business corporation if the organic law of the foreign unincorporated entity authorizes it to become a corporation in another jurisdiction.
If any provision of a debt security, note or similar evidence of indebtedness for money borrowed, whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a domestic business corporation before January 1, 2013, applies to a merger of the corporation and the document does not refer to an entity conversion of the corporation, the provision shall be deemed to apply to an entity conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2013.

Acts 1986, ch. 887, § 11.07; 1994, ch. 776, §§ 42, 43; T.C.A., § 48-21-107; Acts 2012, ch. 1051, § 39.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-806, 5-810.

48-21-110. Plan of entity conversion.

A plan of entity conversion must include:
1. A statement of the type of other entity the survivor will be and, if it will be a foreign other entity, its jurisdiction of organization;
2. The terms and conditions of the conversion;
3. The manner and basis of converting the shares of the domestic business corporation following its conversion into interests or other securities, obligations, rights to acquire interests or other securities, cash, other property, or any combination of the foregoing; and
4. The full text, as they will be in effect immediately after consummation of the conversion, of the organic documents of the survivor.
The plan of entity conversion may also include a provision that the plan may be amended prior to filing articles of entity conversion, except that subsequent to approval of the plan by the shareholders, the plan may not be amended to change:
1. The amount or kind of shares or other securities, interests, obligations, rights to acquire shares, other securities or interests, cash or other property to be received under the plan by the shareholders;
2. The organic documents that will be in effect immediately following the conversion, except for changes permitted by a provision of the organic law of the survivor comparable to § 48-20-102; or
3. Any of the other terms or conditions of the plan if the change would adversely affect any of the shareholders in any material respect.
Terms of a plan of entity conversion may be made dependent upon facts objectively ascertainable outside the plan in accordance with § 48-11-301.

Acts 1994, ch. 868, § 7; 2006, ch. 620, § 59; 2012, ch. 1051, § 39.

48-21-111. Action on a plan of entity conversion.

In the case of an entity conversion of a domestic business corporation to a domestic or foreign unincorporated entity:

The plan of entity conversion must be adopted by the board of directors;
After adopting the plan of entity conversion, the board of directors must submit the plan to the shareholders for their approval. The board of directors must also transmit the shareholders a recommendation that the shareholders approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the shareholders the basis for that determination;
The board of directors may condition its submission of the plan of entity conversion to the shareholders on any basis;
If the approval of the shareholders is to be given at a meeting, the corporation must notify each shareholder, whether or not entitled to vote, of the meeting of shareholders at which the plan of entity conversion is to be submitted for approval. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan and must contain or be accompanied by a copy or summary of the plan. The notice shall include or be accompanied by a copy of the organic documents as they will be in effect immediately after the entity conversion;
Unless chapters 11-27 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group;
If any provision of the charter, bylaws or an agreement to which any of the directors or shareholders are parties, adopted or entered into before January 1, 2013, applies to a merger of the corporation and the document does not refer to an entity conversion of the corporation, the provision shall be deemed to apply to an entity conversion of the corporation until such time as the provision is subsequently amended; and
If as a result of the conversion one (1) or more shareholders of the corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, approval of the plan of conversion shall require the execution, by each such shareholder, of a separate written consent to become subject to such owner liability.

Acts 2000, ch. 623, § 1; 2006, ch. 620, §§ 60–62; 2012, ch. 1051, § 39.

48-21-112. Articles of entity conversion.

After the conversion of a domestic business corporation to a domestic unincorporated entity has been adopted and approved as required by this chapter, articles of entity conversion shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles shall:
1. Set forth the name of the corporation immediately before the filing of the articles of entity conversion and the name to which the name of the corporation is to be changed, which shall be a name that satisfies the organic law of the survivor;
2. State the type of unincorporated entity that the survivor will be;
3. Set forth a statement that the plan of entity conversion was duly approved by the shareholders in the manner required by this chapter and the charter; and
4. If the survivor is a filing entity, have attached the applicable public organic document; except that provisions that would not be required to be included in a restated public organic document may be omitted.
After the conversion of a domestic unincorporated entity to a domestic business corporation has been adopted and approved as required by the organic law of the unincorporated entity, articles of entity conversion shall be executed on behalf of the unincorporated entity by any officer or other duly authorized representative. The articles shall:
1. Set forth the name of the unincorporated entity immediately before the filing of the articles of entity conversion and the name to which the name of the unincorporated entity is to be changed, which shall be a name that satisfies the requirements of § 48-14-101;
2. Set forth a statement that the plan of entity conversion was duly approved in accordance with the organic law of the unincorporated entity; and
3. Have attached a charter; except that provisions that would not be required to be included in a restated charter of a domestic business corporation may be omitted.
After the conversion of a foreign unincorporated entity to a domestic business corporation has been authorized as required by the laws of the foreign jurisdiction, articles of entity conversion shall be executed on behalf of the foreign unincorporated entity by any officer or other duly authorized representative. The articles shall:
1. Set forth the name of the unincorporated entity immediately before the filing of the articles of entity conversion and the name to which the name of the unincorporated entity is to be changed, which shall be a name that satisfies the requirements of § 48-14-101;
2. Set forth the jurisdiction under the laws of which the unincorporated entity was organized immediately before the filing of the articles of entity conversion and the date on which the unincorporated entity was organized in that jurisdiction;
3. Set forth a statement that the conversion of the unincorporated entity was duly approved in the manner required by its organic law; and
4. Have attached a charter; except that provisions that would not be required to be included in a restated charter of a domestic business corporation may be omitted.
1. The articles of entity conversion shall be delivered to the secretary of state for filing, together with the required filing fee, and shall take effect at the effective time provided in § 48-11-304.
2. Articles of entity conversion filed under subsection (a) or (b) may be combined with any required conversion filing under the organic law of the domestic unincorporated entity if the combined filing satisfies the requirements of both this section and the other organic law.
3. The public organic document required to be attached by subsection (a) shall be delivered to the secretary of state for filing, and shall take effect at the effective time of the articles of entity conversion. A filing fee for the public organic document shall be paid to the secretary of state in the amount specified for such public organic document by the applicable law governing the formation of such domestic unincorporated entity.
4. The charter required to be attached by subsection (b) or (c) shall be delivered to the secretary of state for filing, and shall take effect at the effective time of the articles of entity conversion. The fee for filing the charter shall be paid in accordance with § 48-11-303.
If the converting entity is a foreign unincorporated entity that is authorized to transact business in this state under a provision of law similar to chapter 25 of this title, its certificate of authority or other type of foreign qualification shall be cancelled automatically on the effective date of its conversion.

Acts 2000, ch. 623, § 2; 2006, ch. 620, § 63; 2012, ch. 1051, § 39.

48-21-113. Surrender of charter upon conversion.

Whenever a domestic business corporation has adopted and approved, in the manner required by this chapter, a plan of entity conversion providing for the corporation to be converted to a foreign unincorporated entity, articles of charter surrender shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles of charter surrender shall set forth:
1. The name of the corporation;
2. A statement that the articles of charter surrender are being filed in connection with the conversion of the corporation to a foreign unincorporated entity;
3. A statement that the conversion was duly approved by the shareholders in the manner required by this chapter and the charter;
4. The jurisdiction under the laws of which the survivor will be organized; and
5. If the survivor will be a nonfiling entity, the address of its executive office immediately after the conversion.
The articles of charter surrender shall be delivered by the corporation to the secretary of state for filing together with the required filing fee. The articles of charter surrender shall take effect on the effective time provided in § 48-11-304.

Acts 2012, ch. 1051, § 39.

48-21-114. Effect of entity conversion.

When a conversion under § 48-21-111 takes effect:
1. All title to real and personal property, both tangible and intangible, of the converting entity remains in the survivor without reversion or impairment;
2. All obligations and liabilities of the converting entity continue as obligations and liabilities of the survivor;
3. An action or proceeding pending against the converting entity continues against the survivor as if the conversion had not occurred;
4. In the case of a survivor that is a filing entity, its charter or public organic document and its private organic document become effective;
5. In the case of a survivor that is a nonfiling entity, its private organic document becomes effective;
6. The shares or interests of the converting entity are reclassified into shares, interests, other securities, obligations, rights to acquire shares, interests, or other securities, or into cash or other property in accordance with the plan of conversion; and the shareholders or interest holders of the converting entity are entitled only to the rights provided to them under the terms of the conversion and to any dissenters' rights they may have under chapter 23 of this title or under the applicable organic law of the converting entity if it is other than a corporation; and
7. The survivor is deemed to:
  1. Be incorporated or organized under and subject to the organic law of the converting entity for all purposes;
  2. Be the same corporation or unincorporated entity without interruption as the converting entity; and
  3. Have been incorporated or otherwise organized on the date that the converting entity was originally incorporated or organized.
When a conversion of a domestic business corporation to a foreign other entity becomes effective, the surviving entity is deemed to:
1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of shareholders who exercise dissenters' rights in connection with the conversion; and
2. Agree that it will promptly pay the amount, if any, to which such shareholders are entitled under chapter 23 of this title.
A shareholder who becomes subject to owner liability for some or all of the debts, obligations, or liabilities of the survivor shall be personally liable only for those debts, obligations, or liabilities of the survivor that arise after the effective time of the articles of entity conversion.
The owner liability of an interest holder in an unincorporated entity that converts to a domestic business corporation shall be as follows:
1. The conversion does not discharge any owner liability under the organic law of the unincorporated entity to the extent any such owner liability arose before the effective time of the articles of entity conversion;
2. The interest holder shall not have owner liability under the organic law of the unincorporated entity for any debt, obligation, or liability of the corporation that arises after the effective time of the articles of entity conversion;
3. The organic law of the unincorporated entity shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (d)(1), as if the conversion had not occurred; and
4. The interest holder shall have whatever rights of contribution from other interest holders are provided by the organic law of the unincorporated entity with respect to any owner liability preserved by subdivision (d)(1), as if the conversion had not occurred.
The converting entity shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and such conversion shall not be deemed to constitute a dissolution of such entity.
The interests of the interest holders of the converting entity, unless otherwise agreed, shall be cancelled and become of no effect whatsoever, with respect to the survivor, and the former holders of such interests shall be entitled only to the rights provided in the plan of conversion or the organic documents for the conversion of shares into interests in the survivor.
A conversion shall take effect upon the date the articles of conversion are filed, as provided in § 48-21-112, or on such later date as may be specified in the plan of conversion.
Notwithstanding any other law to the contrary, this section and § 48-21-109 shall have no effect on the application of title 67 and other state and federal tax statutes. Any tax consequences of the conversion as referenced herein shall continue to be controlled by applicable state and federal tax statutes as they may be amended from time to time.

Acts 2012, ch. 1051, § 39.

48-21-115. Abandonment of entity conversion.

Unless otherwise provided in a plan of entity conversion of a domestic business corporation, after the plan has been adopted and approved as required by § 48-21-111, and at any time before the entity conversion has become effective, it may be abandoned by the board of directors without action by the shareholders.
If an entity conversion is abandoned after articles of entity conversion or articles of charter surrender have been filed with the secretary of state but before the entity conversion has become effective, a statement that the entity conversion has been abandoned in accordance with this section, executed by an officer or other duly authorized representative, shall be delivered to the secretary of state for filing, together with the required filing fee, prior to the effective date of the entity conversion. Upon filing, the statement shall take effect and the entity conversion shall be deemed abandoned and shall not become effective.

Acts 2012, ch. 1051, § 39.

48-21-116. Nonprofit conversion.

A domestic business corporation may become a domestic nonprofit corporation pursuant to a plan of nonprofit conversion.
A domestic business corporation may become a foreign nonprofit corporation if the nonprofit conversion is permitted by the laws of the foreign jurisdiction. Regardless of whether the laws of the foreign jurisdiction require the adoption of a plan of nonprofit conversion, the foreign nonprofit conversion shall be approved by the adoption by the domestic business corporation of a plan of nonprofit conversion in the manner provided in this section.
The plan of nonprofit conversion must include:
1. The terms and conditions of the conversion;
2. The manner and basis of reclassifying the shares of the corporation following its conversion into memberships, if any, or securities, obligations, rights to acquire memberships or securities, cash, other property, or any combination of the foregoing;
3. Any desired amendments to the charter of the corporation following its conversion; and
4. If the domestic business corporation is to be converted to a foreign nonprofit corporation, a statement of the jurisdiction in which the corporation will be incorporated after the conversion.
The plan of nonprofit conversion may also include a provision that the plan may be amended prior to filing articles of nonprofit conversion, except that subsequent to approval of the plan by the shareholders the plan may not be amended to change:
1. The amount or kind of memberships or securities, obligations, rights to acquire memberships or securities, cash, or other property to be received by the shareholders under the plan;
2. The charter as it will be in effect immediately following the conversion, except for changes permitted by § 48-20-102; or
3. Any of the other terms or conditions of the plan if the change would adversely affect any of the shareholders in any material respect.
Terms of a plan of nonprofit conversion may be made dependent upon facts objectively ascertainable outside the plan in accordance with § 48-11-301.
If any debt security, note or similar evidence of indebtedness for money borrowed, whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a domestic business corporation before January 1, 2013, contains a provision applying to a merger of the corporation and the document does not refer to a nonprofit conversion of the corporation, the provision shall be deemed to apply to a nonprofit conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2013.

Acts 2012, ch. 1051, § 39.

48-21-117. Action on a plan of nonprofit conversion.

In the case of a conversion of a domestic business corporation to a domestic or foreign nonprofit corporation:

The plan of nonprofit conversion must be adopted by the board of directors;
After adopting the plan of nonprofit conversion, the board of directors must submit the plan to the shareholders for their approval. The board of directors must also transmit to the shareholders a recommendation that the shareholders approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the shareholders the basis for that determination;
The board of directors may condition its submission of the plan of nonprofit conversion to the shareholders on any basis;
If the approval of the shareholders is to be given at a meeting, the corporation must notify each shareholder of the meeting of shareholders at which the plan of nonprofit conversion is to be submitted for approval. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan and must contain or be accompanied by a copy or summary of the plan. The notice shall include or be accompanied by a copy of the charter as it will be in effect immediately after the nonprofit conversion;
Unless chapters 11-27 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group; and
If any provision of the charter, bylaws, or an agreement to which any of the directors or shareholders are parties, adopted or entered into before January 1, 2013, applies to a merger of the corporation and the document does not refer to a nonprofit conversion of the corporation, the provision shall be deemed to apply to a nonprofit conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2013.

Acts 2012, ch. 1051, § 39.

48-21-118. Articles of nonprofit conversion.

After a plan of nonprofit conversion providing for the conversion of a domestic business corporation to a domestic nonprofit corporation has been adopted and approved as required by this chapter, articles of nonprofit conversion shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles shall set forth:
1. The name of the corporation immediately before the filing of the articles of nonprofit conversion and if that name does not satisfy the requirements of § 48-54-101, or the corporation desires to change its name in connection with the conversion, a name that satisfies the requirements of § 48-54-101; and
2. A statement that the plan of nonprofit conversion was duly approved by the shareholders in the manner required by this chapter and the charter.
The articles of nonprofit conversion shall have attached a charter that satisfies the requirements of § 48-52-102. Provisions that would not be required to be included in a charter of a domestic nonprofit corporation may be omitted.
The articles of nonprofit conversion shall be delivered to the secretary of state for filing, together with the required filing fee, and shall take effect at the effective time provided in § 48-11-304. The attached charter shall also be delivered to the secretary of state for filing. The fee for filing the charter shall be paid in accordance with § 48-51-303.

Acts 2012, ch. 1051, § 39.

48-21-119. Surrender of a charter upon foreign nonprofit conversion.

Whenever a domestic business corporation has adopted and approved, in the manner required by this chapter, a plan of nonprofit conversion providing for the corporation to be converted to a foreign nonprofit corporation, articles of charter surrender shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles of charter surrender shall set forth:
1. The name of the corporation;
2. A statement that the articles of charter surrender are being filed in connection with the conversion of the corporation to a foreign nonprofit corporation;
3. A statement that the foreign nonprofit conversion was duly approved by the shareholders in the manner required by this section and the charter; and
4. The corporation's new jurisdiction of incorporation.
The articles of charter surrender shall be delivered by the corporation to the secretary of state for filing together with the required filing fee. The articles of charter surrender shall take effect on the effective time provided in § 48-11-304.

Acts 2012, ch. 1051, § 39.

48-21-120. Effect of nonprofit conversion.

When a conversion of a domestic business corporation to a domestic nonprofit corporation becomes effective:
1. The title to all real and personal property, both tangible and intangible, of the corporation remains in the corporation without reversion or impairment;
2. The liabilities of the corporation remain the liabilities of the corporation;
3. An action or proceeding pending against the corporation continues against the corporation as if the conversion had not occurred;
4. The charter of the domestic nonprofit corporation becomes effective;
5. The shares of the corporation are reclassified into memberships, securities, obligations, rights to acquire memberships, or securities, or into cash or other property in accordance with the plan of conversion, and the shareholders are entitled only to the rights provided in the plan of nonprofit conversion or to any rights they may have under chapter 23 of this title; and
6. The corporation is deemed to:
  1. Be a domestic nonprofit corporation for all purposes;
  2. Be the same corporation without interruption as the corporation that existed prior to the conversion; and
  3. Have been incorporated on the date it was originally incorporated as a domestic business corporation.
When a conversion of a domestic business corporation to a foreign nonprofit corporation becomes effective, the foreign nonprofit corporation is deemed to:
1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of shareholders who exercise dissenters' rights in connection with the conversion; and
2. Agree that it will promptly pay the amount, if any, to which such shareholders are entitled under chapter 23 of this title.
The owner liability of a shareholder in a domestic business corporation that converts to a domestic nonprofit corporation shall be as follows:
1. The conversion does not discharge any owner liability of the shareholder as a shareholder of the business corporation to the extent any such owner liability arose before the effective time of the articles of nonprofit conversion;
2. The shareholder shall not have owner liability for any debt, obligation, or liability of the nonprofit corporation that arises after the effective time of the articles of nonprofit conversion;
3. The laws of this state shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (c)(1), as if the conversion had not occurred and the nonprofit corporation was still a business corporation; and
4. The shareholder shall have whatever rights of contribution from other shareholders are provided by the laws of this state with respect to any owner liability preserved by subdivision (c)(1), as if the conversion had not occurred and the nonprofit corporation was still a business corporation.
A shareholder who becomes subject to owner liability for some or all of the debts, obligations, or liabilities of the nonprofit corporation shall have owner liability only for those debts, obligations, or liabilities of the nonprofit corporation that arise after the effective time of the articles of nonprofit conversion.

Acts 2012, ch. 1051, § 39.

48-21-121. Abandonment of a nonprofit conversion.

Unless otherwise provided in a plan of nonprofit conversion of a domestic business corporation, after the plan has been adopted and approved as required by this section, and at any time before the nonprofit conversion has become effective, it may be abandoned by the board of directors without action by the shareholders.
If a nonprofit conversion is abandoned under subsection (a) after articles of nonprofit conversion or articles of charter surrender have been filed with the secretary of state but before the nonprofit conversion has become effective, a statement that the nonprofit conversion has been abandoned in accordance with this section, executed by an officer or other duly authorized representative, shall be delivered to the secretary of state, together with the required filing fee, for filing prior to the effective date of the nonprofit conversion. The statement shall take effect upon filing, and the nonprofit conversion shall be deemed abandoned and shall not become effective.

Acts 2012, ch. 1051, § 39.

Chapter 22
Sale of Assets

48-22-101. Sale of assets in regular course of business and mortgage of assets.

A corporation may, on the terms and conditions and for the consideration determined by the board of directors:
1. Sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property in the usual and regular course of business;
2. Mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber any or all of its property whether or not in the usual and regular course of business; or
3. Transfer any or all of the corporation's assets to one (1) or more corporations or other entities all of the shares or interests of which are owned by the corporation.
Unless the charter requires it, approval by the shareholders of a transaction described in subsection (a) is not required.

Acts 1986, ch. 887, § 12.01; 2012, ch. 1051, § 40.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, sale of assets, title 48, ch. 62.

NOTES TO DECISIONS

1. No Preemption.

48-22-102. Sale of assets other than in regular course of business.

A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will) otherwise than in the usual and regular course of business, on the terms and conditions and for the consideration determined by the corporation's board of directors, if the board of directors proposes and its shareholders approve the proposed transaction. The sale, lease, exchange or other disposition of all, or substantially all, of the properties (with or without the good will) of one (1) or more subsidiaries of a corporation in which such corporation owns shares possessing at least eighty percent (80%) of the total combined voting power of all classes of stock of the subsidiary then entitled to vote for the election of directors, otherwise than in the usual and regular course of business, shall be treated as a disposition within the meaning of this subsection (a) if the subsidiary or subsidiaries constitute all, or substantially all, of the properties of such corporation.
For a transaction to be authorized:
1. The board of directors must recommend the proposed transaction to the shareholders, unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the shareholders with the submission of the proposed transaction; and
2. The shareholders entitled to vote must approve the transaction.
The board of directors may condition its submission of the proposed transaction on any basis.
The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, the property of the corporation and contain or be accompanied by a description of the transaction.
Unless the charter or the board of directors (acting pursuant to subsection (c)) requires a greater vote or a vote by voting groups, the transaction to be authorized must be approved by a majority of all the votes entitled to be cast on the transaction.
After a sale, lease, exchange or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights) without further shareholder action.
A transaction that constitutes a distribution is governed by § 48-16-401 and not by this section.

Acts 1986, ch. 887, § 12.02; 1989, ch. 451, § 17.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1108.

Chapter 23
Dissenters' Rights

Part 1
Right to Dissent and Obtain Payment for Shares

48-23-101. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

“Beneficial shareholder” means the person who is a beneficial owner of shares held by a nominee as the record shareholder;
“Corporation” means the issuer of the shares held by a dissenter before the corporate action, and, for purposes of §§ 48-23-203 — 48-23-302, includes the survivor of a merger or conversion or the acquiring entity in a share exchange of that issuer;
“Dissenter” means a shareholder who is entitled to dissent from corporate action under § 48-23-102 and who exercises that right when and in the manner required by part 2 of this chapter;
“Fair value,” with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action;
“Interest” means interest from the effective date of the corporate action that gave rise to the shareholder's right to dissent until the date of payment, at the average auction rate paid on United States treasury bills with a maturity of six (6) months (or the closest maturity thereto) as of the auction date for such treasury bills closest to such effective date;
“Record shareholder” means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation; and
“Shareholder” means the record shareholder or the beneficial shareholder.

Acts 1986, ch. 887, § 13.01; 2012, ch. 1051, § 41.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-812, 5-1108.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Valuation of Assets.

The evaluation of the assets of a corporation as a going concern does not mean that the asset value has been enhanced by a consideration of the good will of the corporation. Elk Yarn Mills v. 514 Shares of Common Stock of Elk Yarn Mills, Inc., 742 S.W.2d 638, 1987 Tenn. App. LEXIS 2878 (Tenn. Ct. App. 1987).

48-23-102. Right to dissent.

A shareholder is entitled to dissent from, and obtain payment of the fair value of the shareholder's shares in the event of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a party:
  1. If shareholder approval is required for the merger by § 48-21-104 or the charter and the shareholder is entitled to vote on the merger if the merger is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the merger if the merger had been submitted to a vote at a shareholders' meeting; or
  2. If the corporation is a subsidiary that is merged with its parent under § 48-21-105;
2. Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the shareholder is entitled to vote on the plan if the plan is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the plan if the plan had been submitted to a vote at a shareholders' meeting;
3. Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange if the sale or exchange is submitted to a vote at a shareholders' meeting or the shareholder is a nonconsenting shareholder under § 48-17-104(b) who would have been entitled to vote on the sale or exchange if the sale or exchange had been submitted to a vote at a shareholders' meeting, including a sale of all, or substantially all, of the property of the corporation in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one (1) year after the date of sale;
4. An amendment of the charter that materially and adversely affects rights in respect of a dissenter's shares because it:
  1. Alters or abolishes a preferential right of the shares;
  2. Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares;
  3. Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities;
  4. Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or
  5. Reduces the number of shares owned by the shareholder to a fraction of a share, if the fractional share is to be acquired for cash under § 48-16-104;
5. Any corporate action taken pursuant to a shareholder vote to the extent the charter, bylaws, or a resolution of the board of directors provides that voting or nonvoting shareholders are entitled to dissent and obtain payment for their shares;
6. Consummation of a conversion of the corporation to another entity pursuant to chapter 21 of this title; or
7. In accordance with and to the extent provided in § 48-28-104(b), an amendment to the charter of a corporation as described in § 48-28-104(b)(1), or consummation of a merger or plan of share exchange as described in § 48-28-104(b)(2).
A shareholder entitled to dissent and obtain payment for the shareholder's shares under this chapter may not challenge the corporate action creating the shareholder's entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.
Notwithstanding subsection (a), no shareholder may dissent as to any shares of a security which, as of the date of the effectuation of the transaction which would otherwise give rise to dissenters' rights, is listed on an exchange registered under § 6 of the Securities Exchange Act of 1934 (15 U.S.C. § 78f), as amended, or is a “national market system security,” as defined in rules promulgated pursuant to the Securities Exchange Act of 1934 (15 U.S.C. § 78a), as amended.

Acts 1986, ch. 887, § 13.02; 2012, ch. 1051, §§ 42-44; 2015, ch. 497, § 2.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1108.

Law Reviews.

The Purpose of the Shareholders' Appraisal Remedy, 65 Tenn. L. Rev. 661 (1998).

Valuation of Dissenters' Stock Under the Appraisal Remedy — Is the Delaware Block Method Right for Tennessee? (Don S. Clardy), 62 Tenn. L. Rev. 285 (1995).

NOTES TO DECISIONS

1. Valuation.

Tennessee overrules Blasingame v. American Materials, Inc., 654 S.W.2d 659 (Tenn. 1983), to the extent that it implicitly mandates use of the Delaware Block method for determining the fair value of a dissenting shareholder's stock. Tennessee adopts the approach espoused in Weinberger, in which trial courts are permitted to determine fair value by using any technique or method that is generally acceptable in the financial community and admissible in court, including valuation methods that incorporate projections of future value. Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

Supreme Court of Tennessee found that trial courts were not required to use the Delaware Block method to determine the fair value of a dissenting shareholder's stock. Because the court could not determine whether a trial court's evaluation of the evidence was affected by its perception that Tennessee case law mandated the use of the Delaware Block valuation method, the court vacated the trial court's order and remanded the case for reconsideration of the valuation of the dissenting shareholders' shares. Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

Decisions Under Prior Law

1. Amendment of Charter.

Where the certificate evidencing stockholder approval of the amendment was duly filed, the amendment was complete and the dissenting stockholder's right to withdrawal vested. Filley v. Kickoff Publishing Co., 454 F.2d 1288, 1972 U.S. App. LEXIS 11409 (6th Cir. Tenn. 1972).

It was unreasonable and oppressive to require a member or stockholder to remain in a corporation whose fundamental purposes had been changed against the member or stockholder's will. Filley v. Kickoff Publishing Co., 454 F.2d 1288, 1972 U.S. App. LEXIS 11409 (6th Cir. Tenn. 1972).

48-23-103. Dissent by nominees and beneficial owners.

A record shareholder may assert dissenters' rights as to fewer than all the shares registered in the record shareholder's name only if the record shareholder dissents with respect to all shares beneficially owned by any one (1) person and notifies the corporation in writing of the name and address of each person on whose behalf the record shareholder asserts dissenters' rights. The rights of a partial dissenter under this subsection (a) are determined as if the shares as to which the partial dissenter dissents and the partial dissenter's other shares were registered in the names of different shareholders.
A beneficial shareholder may assert dissenters' rights as to shares of any one (1) or more classes held on the beneficial shareholder's behalf only if the beneficial shareholder:
1. Submits to the corporation the record shareholder's written consent to the dissent not later than the time the beneficial shareholder asserts dissenters' rights; and
2. Does so with respect to all shares of the same class of which the person is the beneficial shareholder or over which the person has power to direct the vote.

Acts 1986, ch. 887, § 13.03.

Part 2
Procedure for Exercise of Dissenters' Rights

48-23-201. Notice of dissenters' rights.

Where any corporate action specified in § 48-23-102(a) is to be submitted to a vote at a shareholders' meeting, the meeting notice (including any meeting notice required under chapters 11-27 to be provided to nonvoting shareholders) must state that the corporation has concluded that the shareholders are, are not, or may be entitled to assert dissenters' rights under this chapter. If the corporation concludes that dissenters' rights are or may be available, a copy of this chapter must accompany the meeting notice sent to those record shareholders entitled to exercise dissenters' rights.
In a merger pursuant to § 48-21-105, the parent corporation must notify in writing all record shareholders of the subsidiary who are entitled to assert dissenters rights that the corporate action became effective. Such notice must be sent within ten (10) days after the corporate action became effective and include the materials described in § 48-23-203.
Where any corporate action specified in § 48-23-102(a) is to be approved by written consent of the shareholders pursuant to § 48-17-104(a) or § 48-17-104(b):
1. Written notice that dissenters' rights are, are not, or may be available must be sent to each record shareholder from whom a consent is solicited at the time consent of such shareholder is first solicited and, if the corporation has concluded that dissenters' rights are or may be available, must be accompanied by a copy of this chapter; and
2. Written notice that dissenters' rights are, are not, or may be available must be delivered together with the notice to nonconsenting and nonvoting shareholders required by § 48-17-104(e) and (f), may include the materials described in § 48-23-203 and, if the corporation has concluded that dissenters' rights are or may be available, must be accompanied by a copy of this chapter.
A corporation's failure to give notice pursuant to this section will not invalidate the corporate action.

Acts 1986, ch. 887, § 13.20; 2012, ch. 1051, § 45.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-811, 5-1108.

48-23-202. Notice of intent to demand payment.

If a corporate action specified in § 48-23-102(a) is submitted to a vote at a shareholders' meeting, a shareholder who wishes to assert dissenters' rights with respect to shares for which dissenters' rights may be asserted under this chapter:
1. Must deliver to the corporation, before the vote is taken, written notice of the shareholder's intent to demand payment if the proposed action is effectuated; and
2. Must not vote, or cause or permit to be voted, any such shares in favor of the proposed action.
If a corporate action specified in § 48-23-102(a) is to be approved by less than unanimous written consent, a shareholder who wishes to assert dissenters' rights with respect to shares for which dissenters' rights may be asserted under this chapter must not sign a consent in favor of the proposed action with respect to such shares.
A shareholder who fails to satisfy the requirements of subsection (a) or subsection (b) is not entitled to payment under this chapter.

Acts 1986, ch. 887, § 13.21; 2012, ch. 1051, § 46.

NOTES TO DECISIONS

1. Written Notice.

Corporation waived the requirement of written notice of dissent because although the dissenters failed to adhere to the letter of the statute, the corporation knew of their intention to dissent and proceeded exactly as though they had complied with the statute; the corporation even filed suit requesting a judicial determination of the fair value of the dissenters shares, and thus, it suffered absolutely no prejudice as a result of their failure to provide written notice. Nat'l Parks Resort Lodge Corp. v. Perfetto, — S.W.3d —, 2018 Tenn. App. LEXIS 296 (Tenn. Ct. App. May 29, 2018).

48-23-203. Dissenters' notice.

If a corporate action requiring dissenters' rights under § 48-23-102(a) becomes effective, the corporation must send a written dissenters' notice and form required by subdivision (b)(1) to all shareholders who satisfy the requirements of § 48-23-202(a) or § 48-23-202(b). In the case of a merger under § 48-21-105, the parent must deliver a dissenters' notice and form to all record shareholders who may be entitled to assert dissenters' rights.
The dissenters' notice must be delivered no earlier than the date the corporate action specified in § 48-23-102(a) became effective, and no later than (10) days after such date, and must:
1. Supply a form that:
  1. Specifies the first date of any announcement to shareholders made prior to the date the corporate action became effective of the principal terms of the proposed corporate action;
  2. If such announcement was made, requires the shareholder asserting dissenters' rights to certify whether beneficial ownership of those shares for which dissenters' rights are asserted was acquired before that date; and
  3. Requires the shareholder asserting dissenters' rights to certify that such shareholder did not vote for or consent to the transaction;
2. State:
  1. Where the form must be sent and where certificates for certificated shares must be deposited and the date by which those certificates must be deposited, which date may not be earlier than the date for receiving the required form under subdivision (b)(2)(B);
  2. A date by which the corporation must receive the form, which date may not be fewer than forty (40) nor more than sixty (60) days after the date the subsection (a) dissenters' notice is sent, and state that the shareholder shall have waived the right to demand payment with respect to the shares unless the form is received by the corporation by such specified date;
  3. The corporation's estimate of the fair value of shares; and
  4. That, if requested in writing, the corporation will provide, to the shareholder so requesting, within ten (10) days after the date specified in subdivision (b)(2)(B) the number of shareholders who return the forms by the specified date and the total number of shares owned by them; and
3. Be accompanied by a copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201.

Acts 1986, ch. 887, § 13.22; 2012, ch. 1051, § 47; 2015, ch. 60, § 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-812, 5-813.

48-23-204. Duty to demand payment.

A shareholder sent a dissenters' notice described in § 48-23-203 must demand payment, certify whether the shareholder acquired beneficial ownership of the shares before the date required to be set forth in the dissenters' notice pursuant to § 48-23-203(b)(2), and deposit the shareholder's certificates in accordance with the terms of the notice.
The shareholder who demands payment and deposits the shareholder's share certificates under subsection (a) retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action.
A shareholder who does not demand payment or deposit the shareholder's share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for the shareholder's shares under this chapter.
A demand for payment filed by a shareholder may not be withdrawn unless the corporation with which it was filed, or the surviving corporation, consents thereto.

Acts 1986, ch. 887, § 13.23; 2012, ch. 1051, § 48.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-813.

48-23-205. Share restrictions.

The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is effectuated or the restrictions released under § 48-23-207.
The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a shareholder until these rights are cancelled or modified by the effectuation of the proposed corporate action.

Acts 1986, ch. 887, § 13.24.

48-23-206. Payment.

Except as provided in § 48-23-208, as soon as the proposed corporate action is effectuated, or upon receipt of a payment demand, whichever is later, the corporation shall pay each dissenter who complied with § 48-23-204 the amount the corporation estimates to be the fair value of each dissenter's shares, plus accrued interest.
The payment must be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any;
2. A statement of the corporation's estimate of the fair value of the shares, which estimate shall equal or exceed the corporation's estimate given pursuant to § 48-23-203(b)(2)(C);
3. An explanation of how the interest was calculated;
4. A statement of the dissenter's right to demand payment under § 48-23-209; and
5. A copy of this chapter if the corporation has not previously sent a copy of this chapter to the shareholder pursuant to § 48-23-201 or § 48-23-203.

Acts 1986, ch. 887, § 13.25; 2015, ch. 60, § 4.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Valuation Date.

Date for valuation of stock interest of plaintiff, who sued for fraudulent breach of oral employment contract of closely-held corporation, was the date of termination of the plaintiff's employment. Blasingame v. American Materials, Inc., 654 S.W.2d 659, 1983 Tenn. LEXIS 639 (Tenn. 1983), superseded by statute as stated in, Wakefield v. Crawley, 6 S.W.3d 442, 1999 Tenn. LEXIS 576 (Tenn. 1999), overruled in part, Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

2. “Fair Value” of Stock.

As to the method to be used in determining the “fair value” of the dissenting stockholder's stock, see Blasingame v. American Materials, Inc., 654 S.W.2d 659, 1983 Tenn. LEXIS 639 (Tenn. 1983), superseded by statute as stated in, Wakefield v. Crawley, 6 S.W.3d 442, 1999 Tenn. LEXIS 576 (Tenn. 1999), overruled in part, Athlon Sports Communs., Inc. v. Duggan, 549 S.W.3d 107, 2018 Tenn. LEXIS 310 (Tenn. June 8, 2018).

The Delaware Block method, rather than discounted cash flow method, was the appropriate method to use for finding the fair value of dissenting shareholders' preferred stock. Genesco, Inc. v. Scolaro, 871 S.W.2d 487, 1993 Tenn. App. LEXIS 579 (Tenn. Ct. App. 1993).

48-23-207. Failure to take action.

If the corporation does not effectuate the proposed action that gave rise to the dissenters' rights within two (2) months after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.
If, after returning deposited certificates and releasing transfer restrictions, the corporation effectuates the proposed action, it must send a new dissenters' notice under § 48-23-203 and repeat the payment demand procedure.

Acts 1986, ch. 887, § 13.26.

48-23-208. After-acquired shares.

A corporation may elect to withhold payment required by § 48-23-206 from a dissenter unless the dissenter was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to shareholders of the principal terms of the proposed corporate action.
To the extent the corporation elects to withhold payment under subsection (a), after effectuating the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter's demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under § 48-23-209.

Acts 1986, ch. 887, § 13.27.

48-23-209. Procedure if shareholder dissatisfied with payment or offer.

A dissenter may notify the corporation in writing of the dissenter's own estimate of the fair value of the dissenter's shares and amount of interest due, and demand payment of the dissenter's estimate (less any payment under § 48-23-206), or reject the corporation's offer under § 48-23-208 and demand payment of the fair value of the dissenter's shares and interest due, if:
1. The dissenter believes that the amount paid under § 48-23-206 or offered under § 48-23-208 is less than the fair value of the dissenter's shares or that the interest due is incorrectly calculated;
2. The corporation fails to make payment under § 48-23-206 within two (2) months after the date set for demanding payment; or
3. The corporation, having failed to effectuate the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within two (2) months after the date set for demanding payment.
A dissenter waives the dissenter's right to demand payment under this section unless the dissenter notifies the corporation of the dissenter's demand in writing under subsection (a) within one (1) month after the corporation made or offered payment for the dissenter's shares.

Acts 1986, ch. 887, § 13.28.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-302.

Part 3
Judicial Appraisal of Shares

48-23-301. Court action.

If a demand for payment under § 48-23-209 remains unsettled, the corporation shall commence a proceeding within two (2) months after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the two-month period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
The corporation shall commence the proceeding in a court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located. If the corporation is a foreign corporation without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or whose shares were acquired by the foreign corporation was located.
The corporation shall make all dissenters (whether or not residents of this state) whose demands remain unsettled, parties to the proceeding as in an action against their shares and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.
Each dissenter made a party to the proceeding is entitled to judgment:
1. For the amount, if any, by which the court finds the fair value of the dissenter's shares, plus accrued interest, exceeds the amount paid by the corporation; or
2. For the fair value, plus accrued interest, of the dissenter's after-acquired shares for which the corporation elected to withhold payment under § 48-23-208.

Acts 1986, ch. 887, § 13.30.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-302.

Law Reviews.

Valuation of Dissenters' Stock Under the Appraisal Remedy — Is the Delaware Block Method Right for Tennessee? (Don S. Clardy), 62 Tenn. L. Rev. 285 (1995).

NOTES TO DECISIONS

1. Valuation.

48-23-302. Court costs and counsel fees.

The court in an appraisal proceeding commenced under § 48-23-301 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under § 48-23-209.
The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable against:
1. The corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of part 2 of this chapter; or
2. Either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter.
If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.

Acts 1986, ch. 887, § 13.31.

NOTES TO DECISIONS

1. Evidence of Bad Faith.

Evidence was sufficient to find corporation's conduct was arbitrary, vexatious and in bad faith, warranting the award of attorney fees and costs to dissenting shareholder. Genesco, Inc. v. Scolaro, 871 S.W.2d 487, 1993 Tenn. App. LEXIS 579 (Tenn. Ct. App. 1993).

Decisions Under Prior Law

1. Payment of Fees.

The language in former section that “Costs and expenses of any such proceeding, including reasonable attorney fees, shall be determined and shall be assessed against the corporation…” meant that the corporation had to pay such fees as a part of the costs of the litigation. Elk Yarn Mills v. 514 Shares of Common Stock of Elk Yarn Mills, Inc., 742 S.W.2d 638, 1987 Tenn. App. LEXIS 2878 (Tenn. Ct. App. 1987).

Chapter 24
Dissolution

Part 1
Voluntary Dissolution

48-24-101. Dissolution by incorporators or initial directors.

A majority of the incorporators or initial directors of a corporation that has not issued shares or has not commenced business may dissolve the corporation by delivering to the secretary of state for filing articles of dissolution and termination that set forth:
1. The name of the corporation;
2. The date of its incorporation;
3. Either that:
  1. None of the corporation's shares has been issued; or
  2. The corporation has not commenced business;
4. That no debt of the corporation remains unpaid;
5. That the net assets of the corporation remaining after winding up have been distributed to the shareholders, if shares were issued; and
6. That a majority of the incorporators or initial directors authorized the dissolution and the date dissolution was thus authorized.
If the secretary of state finds that the articles of dissolution and termination of corporate existence comply with the requirements of subsection (a) and are accompanied by a tax clearance for termination or withdrawal relative to such corporation, then the secretary of state shall file the articles of dissolution and termination of corporate existence. Upon such filing, the existence of the corporation shall cease, except that the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or shareholders, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1986, ch. 887, § 14.01; 1989, ch. 451, § 18; 2010, ch. 741, § 3.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Monthly list of corporations surrendering charters, § 8-3-104.

Nonprofit corporations, dissolution, title 48, ch. 64.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-903.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Voluntary Bankruptcy.

This provision does not restrict the authority of a director to file a voluntary petition in bankruptcy for the corporation. In re De Camp Glass Casket Co., 272 F. 558, 1921 U.S. App. LEXIS 1650 (6th Cir. Tenn. 1921), cert. denied, Hamilton v. De Camp Glass Casket Co., 256 U.S. 703, 41 S. Ct. 624, 65 L. Ed. 1179, 1921 U.S. LEXIS 1563 (1921), cert. denied, Hamilton v. De Camp Glass Casket Co., 256 U.S. 703, 41 S. Ct. 624, 65 L. Ed. 1179, 1921 U.S. LEXIS 1563 (1921).

2. Equitable Dissolution.

For cases discussing equitable dissolution of corporation due to dissension among stockholders, see Nashville Packet Co. v. Neville, 144 Tenn. 698, 235 S.W. 64, 1921 Tenn. LEXIS 65 (1921); Wood v. Myers Paper Co., 3 Tenn. App. 128, 1926 Tenn. App. LEXIS 76 (1926).

48-24-102. Dissolution by board of directors and shareholders.

A corporation may be voluntarily dissolved by the written consent of its shareholders in accordance with § 48-17-104.
A corporation's board of directors may propose dissolution for submission to the shareholders.
For a proposal to dissolve to be adopted:
1. The board of directors shall recommend dissolution to the shareholders unless the board of directors determines that because of conflict of interest or other special circumstances, it should make no recommendation and communicates the basis for its determination to the shareholders; and
2. The shareholders entitled to vote shall approve the proposal to dissolve as provided in subsection (f).
The board of directors may condition its submission of the proposal for dissolution on any basis.
The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders' meeting in accordance with § 48-17-105. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider dissolving the corporation.
Unless the charter or the board of directors (acting pursuant to subsection (d)) requires a greater vote or a vote by voting groups, the proposal to dissolve to be adopted shall be approved by a majority of all the votes entitled to be cast on that proposal.

Acts 1986, ch. 887, § 14.02.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-901, 5-902.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

NOTES TO DECISIONS

1. Closely Held Corporations.

In the informal procedure of a closely held corporation, where the only two stockholders are the directors, the failure of the directors to formally meet and convey their action as directors to themselves as stockholders must be disregarded as harmless. Jackson ex rel. Bohan Group v. Bohan, 861 S.W.2d 241, 1993 Tenn. App. LEXIS 275 (Tenn. Ct. App. 1993).

48-24-103. Articles of dissolution.

At any time after dissolution is authorized, the corporation may dissolve by delivering to the secretary of state for filing articles of dissolution setting forth:
1. The name of the corporation;
2. The date dissolution was authorized;
3. That the resolution was duly adopted by the shareholders; and
4. A copy of the resolution or the written consent authorizing the dissolution.
Unless a delayed effective date is specified in the articles of dissolution, a corporation is dissolved when the articles of dissolution are filed.

Acts 1986, ch. 887, § 14.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-901.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

48-24-104. Revocation of dissolution.

A corporation may revoke its dissolution at any time prior to filing the articles of termination of corporate existence by the secretary of state.
Revocation of dissolution shall be authorized by shareholders in any manner that dissolution may be authorized under § 48-24-102, unless the authorization for dissolution permitted revocation by action by the board of directors alone, in which event the board of directors may revoke the dissolution without shareholder action.
After the revocation of dissolution is authorized, the corporation may revoke the dissolution by delivering to the secretary of state for filing articles of revocation of dissolution that set forth:
1. The name of the corporation;
2. The effective date of the dissolution that was revoked;
3. The date that the revocation of dissolution was authorized;
4. If the corporation's board of directors (or incorporators) revoked the dissolution, a statement to that effect;
5. If the corporation's board of directors revoked a dissolution authorized by the shareholders, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and
6. If shareholder action was required to revoke the dissolution, the information required by § 48-24-103(a)(3) and (4).
Revocation of dissolution is effective when the articles of revocation of dissolution are filed.
When the revocation of dissolution is effective, it relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its business as if dissolution had never occurred.

Acts 1986, ch. 887, § 14.04; 1989, ch. 451, § 19.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-904.

48-24-105. Effect of dissolution.

A dissolved corporation continues its corporate existence but may not carry on any business, except that appropriate to wind up and liquidate its business and affairs, including:
1. Collecting its assets;
2. Conveying and disposing of its properties that will not be distributed in kind to its shareholders;
3. Discharging or making provision for discharging its liabilities;
4. Distributing its remaining property among its shareholders according to their interests; and
5. Doing every other act necessary to wind up and liquidate its business and affairs.
Dissolution of a corporation does not:
1. Transfer title to the corporation's property;
2. Prevent transfer of its shares or securities, although the authorization to dissolve may provide for closing the corporation's share transfer records;
3. Subject its directors or officers to standards of conduct different from those prescribed in chapter 18 of this title;
4. Change quorum or voting requirements for its board of directors or shareholders; change provisions for selection, resignation, or removal of its directors or officers or both; or change provisions for amending its bylaws;
5. Prevent commencement of a proceeding by or against the corporation in its corporate name;
6. Abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or
7. Terminate the authority of the registered agent of the corporation.

Acts 1986, ch. 887, § 14.05.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-901.

NOTES TO DECISIONS

1. Bankruptcy.

A corporation whose corporate charter has been revoked administratively by the Tennessee Secretary of State does have standing as a corporation to file a Chapter 11 bankruptcy petition. In re H & K Plumbing & Heating, 187 B.R. 238, 1995 Bankr. LEXIS 1427 (Bankr. W.D. Tenn. 1995).

Personal representative who was appointed to administer a decedent's estate had the authority under T.C.A. § 31-2-103 to place a corporation the decedent established into bankruptcy, even though the corporation had been dissolved, and the bankruptcy court invalidated a foreclosure sale that occurred after the corporation was placed into bankruptcy, pursuant to 11 U.S.C. § 362, even though the buyer did not know that the corporation had been placed into bankruptcy at the time he purchased property at the foreclosure sale. The corporation had the right under 11 U.S.C. § 301 to declare bankruptcy because dissolved corporations were allowed under T.C.A. § 48-24-105(a) to carry on business that was appropriate to winding up their affairs. In re Benchmark Capital, Inc., 490 B.R. 566, 2013 Bankr. LEXIS 1478 (Bankr. E.D. Tenn. Apr. 9, 2013).

Decisions Under Prior Law

1. Completion of Corporate Affairs.

A corporation could not avoid its obligations by simply dissolving; its life was prolonged until its corporate affairs were completed. Continental Ins. Co. v. Knoxville, 488 S.W.2d 50, 1972 Tenn. LEXIS 315 (Tenn. 1972).

2. Creditor's Rights.

Creditors may continue to pursue their remedies against a dissolved corporation for any right or claim existing, or any liability incurred, prior to dissolution despite the formal nonexistence of the corporation. Great American Ins. Co. v. Byrd & Watkins Constr., Inc., 630 F.2d 460, 1980 U.S. App. LEXIS 13696 (6th Cir. Tenn. 1980).

48-24-106. Known claims against dissolved corporation.

A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
1. Describe information that must be included in a claim;
2. State whether the claim is admitted, or not admitted, and if admitted:
  1. The amount that is admitted, which may be as of a given date; and
  2. Any interest obligation if fixed by an instrument of indebtedness;
3. Provide a mailing address where a claim may be sent;
4. State the deadline, which may not be fewer than four (4) months from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
5. State that, except to the extent that any claim is admitted, the claim will be barred if written notice of the claim is not received by the deadline.
A claim against the dissolved corporation is barred to the extent that it is not admitted:
1. If the dissolved corporation delivered written notice to the claimant in accordance with subsection (b) and the claimant does not deliver a written notice of the claim to the dissolved corporation by the deadline; or
2. If the dissolved corporation delivered written notice to the claimant that the claimant's claim is rejected, in whole or in part, and the claimant does not commence a proceeding to enforce the claim within three (3) months from the effective date of the rejection notice.
For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.

Acts 1986, ch. 887, § 14.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-909 — 5-911.

Law Reviews.

How an Insolvent Business May Avoid Bankruptcy Court (and State Court, Too) (Tisha L. Federico), 35 Tenn. B.J. 20 (1999).

48-24-107. Unknown claims against dissolved corporation.

A dissolved corporation may also publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
The notice must:
1. Be published one (1) time in a newspaper of general circulation in the county where the dissolved corporation's principal office (or, if none in this state, its registered office) is or was last located;
2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
3. State that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within two (2) years after the publication of the notice.
If the dissolved corporation publishes a newspaper notice in accordance with subsection (b), the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within two (2) years after the publication date of the newspaper notice:
1. A claimant who did not receive written notice under § 48-24-106;
2. A claimant whose claim was timely sent to the dissolved corporation but not acted on; or
3. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
A claim may be enforced under this section:
1. Against the dissolved corporation, to the extent of its undistributed assets; or
2. If the assets have been distributed in liquidation, against a shareholder of the dissolved corporation to the extent of the shareholder's pro rata share of the claim or the corporate assets distributed to the shareholder in liquidation, whichever is less, but a shareholder's total liability for all claims under this section may not exceed the total amount of assets distributed to the shareholder.

Acts 1986, ch. 887, § 14.07.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-908.

Law Reviews.

How an Insolvent Business May Avoid Bankruptcy Court (and State Court, Too) (Tisha L. Federico), 35 Tenn. B.J. 20 (1999).

48-24-108. Articles of termination of corporate existence.

When a corporation has distributed all its assets to its creditors and shareholders and voluntary dissolution proceedings have not been revoked, it shall deliver to the secretary of state for filing articles of termination of corporate existence. The articles shall set forth:
1. The name of the corporation;
2. That all the assets of the corporation have been distributed to its creditors and shareholders; and
3. That the dissolution of the corporation has not been revoked.
If the secretary of state finds that the articles of termination of corporate existence comply with the requirements of subsection (a) and are accompanied by a tax clearance for termination or withdrawal relative to such corporation, then the secretary of state shall file the articles of termination of corporate existence. Upon such filing, the existence of the corporation shall cease, except that the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or shareholders, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1986, ch. 887, § 14.08; 1987, ch. 273, § 38; 2010, ch. 741, § 4.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-906.

48-24-109. Discharge or reasonable provision to be made for payment of claims — Liability of directors.

Directors shall cause a dissolved corporation to discharge or make reasonable provision for the payment of claims and make distributions of assets to shareholders after payment or provision for claims.
Directors of a dissolved corporation that has disposed of claims under § 48-24-106 or § 48-24-107 shall not be liable for breach of subsection (a) with respect to claims against the dissolved corporation that are barred or satisfied under § 48-24-106 or § 48-24-107.

Acts 2015, ch. 60, § 5.

Part 2
Administrative Dissolution

48-24-201. Grounds for administrative dissolution.

The secretary of state may commence a proceeding under § 48-24-202 to administratively dissolve a corporation if the:

Corporation does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
Corporation is without a registered agent or registered office in this state for two (2) months or more;
Name of a corporation contained in a document filed after January 1, 1988, fails to comply with § 48-14-101;
Corporation does not notify the secretary of state within two (2) months that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued;
Corporation's period of duration stated in its charter expires; or
Corporation submits to the secretary of state's office a check, bank draft, money order or other such instrument, for payment of any fee and it is dishonored upon presentation for payment.

Acts 1986, ch. 887, § 14.20; 1989, ch. 451, § 20.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

48-24-202. Procedure for and effect of administrative dissolution.

If the secretary of state determines that one (1) or more grounds exist under § 48-24-201 for dissolving a corporation, the secretary of state shall serve the corporation with notice of the secretary of state's determination under §§ 48-15-104 and 48-15-105, except that such determination may be sent by first class mail.
If the corporation does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the communication is perfected under §§ 48-15-104 and 48-15-105, the secretary of state shall administratively dissolve the corporation by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the corporation under §§ 48-15-104 and 48-15-105, except that the certificate may be sent by first class mail.
A corporation administratively dissolved continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs under § 48-24-105 and notify claimants under §§ 48-24-106 and 48-24-107.
The administrative dissolution of a corporation does not terminate the authority of its registered agent.
Nothing herein shall be deemed to repeal or modify § 67-4-2116 or any other provisions of law relating to the revocation of the charter of a corporation for failure to comply with the provisions thereof.

Acts 1986, ch. 887, § 14.21; 1989, ch. 451, § 21; 2012, ch. 1051, § 49.

NOTES TO DECISIONS

1. Bankruptcy.

With respect to certain limited liability company (LLC) accounts, administrative dissolution of LLC did not exclude LLC's accounts from bankruptcy estate of sole member of LLC because any assets belonging to LLC at dissolution devolved to its member trust and assets of trust were property of debtor's estate. In re Erskine, 550 B.R. 362, 2016 Bankr. LEXIS 1169 (Bankr. W.D. Tenn. Apr. 8, 2016).

48-24-203. Reinstatement following administrative dissolution.

A corporation administratively dissolved under § 48-24-202 may apply to the secretary of state for reinstatement. The application must:
1. Contain a confirmation of good standing relative to such foreign corporation;
2. Recite the name of the corporation at its date of dissolution;
3. State that the ground or grounds for dissolution either did not exist or have been eliminated; and
4. State a corporate name that satisfies the requirements of § 48-14-101.
1. If the secretary of state determines that the application contains the confirmation of good standing and information required by subsection (a), and that such information is correct, then the secretary of state shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation under § 48-15-104.
2. If the corporate name in subdivision (a)(4) is different than the corporate name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to the charter insofar as it pertains to the corporate name.
When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution, and the corporation resumes carrying on its business as if the administrative dissolution had never occurred.

Acts 1986, ch. 887, § 14.22; 1987, ch. 273, § 39; 1991, ch. 188, § 9; 1992, ch. 771, § 1; 2010, ch. 741, §§ 5, 6; 2011, ch. 99, § 1.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-905.

48-24-204. Appeal from denial of reinstatement.

If the secretary of state denies a corporation's application for reinstatement following administrative dissolution, the secretary of state shall serve the corporation under §§ 48-15-104 and 48-15-105 with a written notice that explains the reason or reasons for denial.
The corporation may appeal the denial of reinstatement to the chancery court of Davidson County within thirty (30) days after service of the notice of denial is perfected. The corporation appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the secretary of state's certificate of dissolution, the corporation's application for reinstatement, and the secretary of state's notice of denial.
The court may summarily order the secretary of state to reinstate the dissolved corporation or may take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.

Acts 1986, ch. 887, § 14.23.

48-24-205. Articles of termination following administrative dissolution or revocation.

When a corporation, which has been administratively dissolved or has had its charter revoked, wishes to terminate its corporate existence, it may do so without first being reinstated by delivering to the secretary of state for filing articles of termination following administrative dissolution or revocation setting forth:
1. The name of the corporation;
2. The date that termination of corporate existence was authorized;
3. That the resolution authorizing termination was duly adopted by the shareholders;
4. A copy of the resolution or the written consent authorizing the termination; and
5. That all the assets of the corporation have been distributed to its creditors and shareholders.
If the secretary of state finds that the articles of termination following administrative dissolution or revocation comply with the requirements of subsection (a) and are accompanied by a tax clearance for termination or withdrawal relative to the corporation, then the secretary of state shall file the articles of termination of corporate existence following administrative dissolution or revocation. Upon such filing, the existence of the corporation shall cease, except that the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or shareholders, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The shareholders, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1989, ch. 451, § 22; 2010, ch. 741, § 7.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-907.

48-24-206. Reinstatement within certain amount of time — Amendment of charter — Application for reinstatement.

A corporation that has been administratively dissolved by the expiration of its period of duration may reinstate within one (1) year of the expiration of the period of duration by:

Amending its charter to extend its period of duration or set the period of duration to perpetual; and
Filing an application for reinstatement following administrative dissolution pursuant to § 48-24-203.

Acts 2016, ch. 688, § 1.

Part 3
Judicial Dissolution

48-24-301. Grounds for judicial dissolution.

Any court of record with proper venue in accordance with § 48-24-302 may dissolve a corporation:

In a proceeding by the attorney general and reporter if it is established that the corporation:
1. Obtained its charter through fraud;
2. Has exceeded or abused the authority conferred upon it by law;
3. Has violated any provision of law resulting in the forfeiture of its charter; or
4. Has carried on, conducted, or transacted its business or affairs in a persistently fraudulent or illegal manner;
  provided, that the enumeration of these grounds for dissolution shall not exclude actions or special proceedings by the attorney general and reporter or other state officials for the dissolution of a corporation for other causes as provided in this chapter or in any other statute of this state;
In a proceeding by a shareholder if it is established that:
1. The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
2. The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;
3. The shareholders are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates, to elect directors; or
4. The corporate assets are being misapplied or wasted;
In a proceeding by a creditor if it is established that:
1. The creditor's claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or
2. The corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; or
In a proceeding by the corporation to have its voluntary dissolution continued under court supervision.

Acts 1986, ch. 887, § 14.30; 1989, ch. 451, § 23.

Textbooks. Gibson's Suits in Chancery (7th ed., Inman), § 354.

Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-23.06-1.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 96, 97.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Suit by Stockholder.

While a stockholder who was a creditor may file a winding-up bill, the other stockholders might in the suit show that the claim was invalid, though judgment was rendered in the stockholder/creditor's favor by pro confesso against the corporation. Crutchfield v. Mutual Gaslight Co., 3 Shannon's Cases 155, 2 S.W. 658, 1886 Tenn. LEXIS 178 (1886).

2. Parties.

Stockholders were proper parties to a general creditors' bill to wind up the corporation as an insolvent concern. Sugg v. Farmers' Mut. Ins. Ass'n, 63 S.W. 226, 1901 Tenn. Ch. App. LEXIS 66 (1901).

3. Bankruptcy.

Where a corporation conveys its property to the owner of its capital stock for a nominal consideration the right to set aside the deed for fraud passes to the trustee in bankruptcy who alone can sue to subject the proceeds to the corporation's obligations. State v. Allstadt, 166 Tenn. 349, 61 S.W.2d 473, 1932 Tenn. LEXIS 140 (1933), rehearing denied, 166 Tenn. 349, 62 S.W.2d 566 (1933).

48-24-302. Procedure for judicial dissolution.

Venue for a proceeding by the attorney general and reporter to dissolve a corporation lies in Davidson County. Venue for a proceeding brought by any other party named in § 48-24-301 lies in the county where the corporation's principal office (or, if none in this state, its registered office) is or was last located.
It is not necessary to make shareholders parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.
In a proceeding for dissolution under § 48-24-301(2), the petitioner shall execute and file in the proceeding a bond, with sufficient surety, to cover the defendant's probable costs, including reasonable attorney fees, in defending the petition. The court shall determine the amount of the bond and may award to any party its reasonable costs, including attorney fees, if it finds for such party in a proceeding brought under § 48-24-301.

Acts 1986, ch. 887, § 14.31.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-34.02-1.

Law Reviews.

Rescuing the Oppressed: The Equities of Business Dissolution and Oppressive Conduct in Closely Held Corporations, 50 Tenn. B.J. 22 (2014).

48-24-303. Receivership or custodianship.

A court of record having equity jurisdiction in a judicial proceeding brought to dissolve a corporation may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage the business and affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.
The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this state) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
1. The receiver may:
  1. Dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and
  2. Sue and defend in the receiver's own name as receiver of the corporation in all courts of this state;
2. The custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors.
The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation and its shareholders and creditors.
The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver's or custodian's counsel from the assets of the corporation or proceeds from the sale of the assets.

Acts 1986, ch. 887, § 14.32.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Recovery of Collateral.

The receiver of a corporation cannot recover collateral pledged by it while a going concern though at the time the pledge was made the corporation was actually insolvent. Where assets are pledged under authority of stockholders by officers who executed renewal notes which repledged the collateral, a receiver later appointed may not attack validity of the pledge. Fact that finance committee did not authorize pledge until after creditors' bill was filed did not affect validity of pledge. Julian v. American Nat'l Bank, 21 Tenn. App. 137, 106 S.W.2d 871, 1937 Tenn. App. LEXIS 15 (Tenn. Ct. App. 1937).

48-24-304. Decree of dissolution.

If after a hearing the court determines that one (1) or more grounds for judicial dissolution described in § 48-24-301 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the secretary of state, who shall file it.
After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's business and affairs in accordance with § 48-24-105 and the notification of claimants in accordance with §§ 48-24-106 and 48-24-107.

Acts 1986, ch. 887, § 14.33.

Chapter 25
Foreign Corporations

Part 1
Certificate of Authority

48-25-101. Authority to transact business required.

A foreign corporation, except a foreign insurance corporation subject to title 56, may not transact business in this state until it obtains a certificate of authority from the secretary of state.
The following activities, among others, do not constitute transacting business within the meaning of subsection (a):
1. Maintaining, defending, or settling any proceeding, claim, or dispute;
2. Holding meetings of the board of directors or shareholders or carrying on other activities concerning internal corporate affairs;
3. Maintaining bank accounts;
4. Maintaining offices or agencies for the transfer, exchange, and registration of the corporation's own securities or appointing and maintaining trustees or depositories with respect to those securities;
5. Selling through independent contractors;
6. Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;
7. Creating or acquiring indebtedness, deeds of trusts, mortgages, and security interests in real or personal property;
8. Securing or collecting debts or enforcing mortgages, deeds of trust, and security interests in property securing the debts;
9. Owning, without more, real or personal property; provided, that for a reasonable time the management and rental of real property acquired in connection with enforcing a mortgage or deed of trust shall also not be considered transacting business if the owner is attempting to liquidate the owner's investment and if no office or other agency therefor, other than an independent agency, is maintained in this state;
10. Conducting an isolated transaction that is completed within one (1) month and that is not one in the course of repeated transactions of a like nature; or
11. Transacting business in interstate commerce.
The list of activities in subsection (b) is not exhaustive, and is applicable solely to determine whether a foreign corporation must procure a certificate of authority and for no other purpose.

Acts 1986, ch. 887, § 15.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Foreign nonprofit corporations, title 48, ch. 65.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1001.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 105, 111, 116, 117; 16 Tenn. Juris., Interstate Commerce, § 14; 22 Tenn. Juris., Savings and Loan Associations, § 9.

Attorney General Opinions. A foreign corporation or limited liability company licensed as a nonresident seller or direct shipper must obtain a certificate of authority from the Tennessee Secretary of State only if the corporation or company transacts business in the State within the meaning of the relevant statutes, which depends on the character and extent of the corporation’s or the company’s transactions and business in the State. OAG 18-28, 2018 Tenn. AG LEXIS 27 (7/6/2018).

NOTES TO DECISIONS

1. Independent Contractor.

Company was not barred from bringing an action to enforce arbitration award against sole proprietorship due to lack of a certificate of authority to transact business in Tennessee because the sole proprietorship acted as an independent contractor for the company; 90 percent of the proprietorship's business was with the company, but the proprietorship was never instructed to work exclusively for the company. Alison Group, Inc. v. Ericson, 181 S.W.3d 670, 2005 Tenn. App. LEXIS 327 (Tenn. Ct. App. 2005), appeal denied, Alison Group v. Ericson, — S.W.3d —, 2005 Tenn. LEXIS 927 (Tenn. Oct. 24, 2005).

2. Applicability.

National bank was properly doing business in the State of Tennessee, and, because of federal preemption by the federal National Bank Act, 12 U.S.C.S. § 1 et seq., the bank was able to maintain an action in the State of Tennessee without maintaining a registered office within the State of Tennessee, maintaining a registered agent within the State of Tennessee, or obtaining a certificate of authority from the State of Tennessee to transact business within the State of Tennessee as a foreign corporation. Cadence Bank, N.A. v. Alpha Trust, 473 S.W.3d 756, 2015 Tenn. App. LEXIS 86 (Tenn. Ct. App. Feb. 25, 2015), appeal denied, Cadence Bank, NA v. Alpha Trust, — S.W.3d —, 2015 Tenn. LEXIS 506 (Tenn. June 11, 2015).

Decisions Under Prior Law

1. In General.

A state may not impose conditions upon the transaction of business by a foreign corporation within the state which require the relinquishment of rights guaranteed by the federal constitution. Williams v. Standard Oil Co., 278 U.S. 235, 49 S. Ct. 115, 73 L. Ed. 287, 1928 U.S. LEXIS 323, 60 A.L.R. 596 (1928), overruled in part, Olsen v. Nebraska, 61 S. Ct. 862, 313 U.S. 236, 85 L. Ed. 1305, 1941 U.S. LEXIS 1202, 133 A.L.R. 1500 (1941).

2. Applicability.

The sale of stock certificates was not regulated by law governing business corporations, but by the Blue Sky Law. Peoples Bank of Springfield v. Brown, 8 Tenn. App. 281, — S.W.2d —, 1928 Tenn. App. LEXIS 140 (Tenn. Ct. App. 1928).

3. Transacting Business in State.

Whether a foreign corporation was transacting business here was primarily a question of fact. Bouldin v. Taylor, 152 Tenn. 97, 275 S.W. 340, 1924 Tenn. LEXIS 107 (1924).

4. —Maintenance of Office.

The maintenance in this state of a repair shop and a branch office, and the selling of a machine to be installed, though that could be done by any mechanic, requires compliance. Lummus Cotton Gin Co. v. Arnold, 151 Tenn. 540, 269 S.W. 706, 1924 Tenn. LEXIS 85 (1925).

5. —Goods Shipped Into State.

A noncomplying corporation shipping its products in carload quantities to agent in the state for distribution was doing business in the state. Midland Linseed Products Co. v. Warren Bros. Co., 46 F.2d 870, 1925 U.S. App. LEXIS 2581 (6th Cir. Tenn. 1925).

A foreign corporation having entered into a contract out of the state calling for furnishing and installing materials for a building in the state, and having shipped part of the same to the state in interstate commerce, did not violate the statute when it met its requirements prior to its entry into the state for the purpose of performing the installation feature of its contract. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

Where United Artists retained title to motion pictures shipped into the state for a local theater to exhibit and receive a percentage of gross receipts from the sale of theater tickets, it was held that United Artists was doing business in the state. United Artists Corp. v. Board of Censors, 189 Tenn. 397, 225 S.W.2d 550, 1949 Tenn. LEXIS 446 (1949), cert. denied, 339 U.S. 952, 70 S. Ct. 839, 94 L. Ed. 1365, 1950 U.S. LEXIS 2031 (1950), cert. denied, United Artists Corp. v. Board of Censors, 339 U.S. 952, 70 S. Ct. 839, 94 L. Ed. 1365, 1950 U.S. LEXIS 2031 (1950).

6. —Consignment.

The fact that a local consignee of goods makes adjustments with purchasers, made necessary under a selling guaranty of goods out of the consigned stock in the hands of the local consignee, did not bring the consignor within the purview of the statute. I. J. Cooper Rubber Co. v. Johnson, 133 Tenn. 562, 182 S.W. 593, 1915 Tenn. LEXIS 119, L.R.A. (n.s.) 1917A282 (1916).

The stipulation in a contract that a local consignee of goods should keep same insured in the name of and for the protection of the interest of a noncomplying corporation, the cost of the policy to be paid by the consignee, did not constitute the consignee an agent doing business in the state for the consignor. I. J. Cooper Rubber Co. v. Johnson, 133 Tenn. 562, 182 S.W. 593, 1915 Tenn. LEXIS 119, L.R.A. (n.s.) 1917A282 (1916).

A noncomplying corporation, which consigned goods to a corporation engaged in business in this state to be sold on commission basis did not conduct a business or maintain an agency where the local concern chose its customers and sold the goods at its own risk and the consignor did not become entitled exclusively to the proceeds. I. J. Cooper Rubber Co. v. Johnson, 133 Tenn. 562, 182 S.W. 593, 1915 Tenn. LEXIS 119, L.R.A. (n.s.) 1917A282 (1916).

Shipment of goods on order by a foreign corporation to a consignee within the state is not such business activity as authorizes substituted service. Acuff v. Service Welding & Machine Co., 141 F. Supp. 294, 1956 U.S. Dist. LEXIS 3275 (D. Tenn. 1956).

7. —Loans.

Foreign corporation loaning money to persons in this state on application sent to it at its home office by loan brokers, who were agents of local borrowers, was not doing business in this state, and was entitled to enforce notes and mortgages taken for such loans. Norton v. Union Bank & Trust Co., 46 S.W. 544, 1898 Tenn. Ch. App. LEXIS 25 (1898).

Virginia trust company was not doing business in Tennessee within contemplation of Tennessee's foreign corporation laws when it had no agent or place of business in latter state, but merely loaned money on applications mailed to it by broker who was agent of Tennessee borrowers. Erwin Nat'l Bank v. Riddle, 18 Tenn. App. 561, 79 S.W.2d 1032, 1934 Tenn. App. LEXIS 58 (Tenn. Ct. App. 1934).

Evidence showing that a Kentucky bank had loaned substantial sums of money in the ordinary course of its banking business to numerous resident citizens of Tennessee and had never had an office or agent in Tennessee but had at times enforced such contracts in the courts of Tennessee was not sufficient to show a violation of former section. Deposit Bank of Monroe County v. Cherry, 20 Tenn. App. 305, 98 S.W.2d 521, 1936 Tenn. App. LEXIS 27 (Tenn. Ct. App. 1936).

The lending of money in this state by a foreign corporation upon a note after it has been sent to and accepted by the corporation in another state does not constitute doing intrastate business within the meaning of this state's statutes. Shoenterprise Corp. v. Butler, 46 Tenn. App. 302, 329 S.W.2d 361, 1959 Tenn. App. LEXIS 99 (Tenn. Ct. App. 1959).

8. —Owning Property.

A railroad corporation previously owning property when authorized to do business in the state was not denied power to sell same unless it complied. Chattanooga, R. & C. R. Co. v. Evans, 66 F. 809, 1895 U.S. App. LEXIS 2693 (6th Cir. Tenn. 1895).

The purchase or acquisition of realty was not carrying on business or a violation. Chattanooga, R. & C. R. Co. v. Evans, 66 F. 809, 1895 U.S. App. LEXIS 2693 (6th Cir. Tenn. 1895); Louisville Property Co. v. Nashville, 114 Tenn. 213, 84 S.W. 810, 1904 Tenn. LEXIS 83 (1905).

A noncomplying corporation might own or acquire property in the state without incurring the penalty. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

A foreign trust company which, as guardian of a nonresident minor ward, managed the ward's property in Tennessee through a real estate broker residing in Tennessee was not doing business in Tennessee. Colbert v. Toll, 31 F.2d 837, 1929 U.S. App. LEXIS 3566 (6th Cir. Tenn. 1929).

9. —Leases.

A noncomplying corporation executing lease and indemnity contracts as guardian, through a broker in this state where the leased property was located, was not doing business within the state. Colbert v. Toll, 31 F.2d 837, 1929 U.S. App. LEXIS 3566 (6th Cir. Tenn. 1929).

A foreign corporation was not “doing business” in Tennessee when it leased vending machines to a resident pursuant to negotiations conducted by correspondence resulting in a lease requiring the payment of a fixed monthly rental to the lessor at its New York office, the lease having been signed in Tennessee by leasee and delivered to lessor's New York office by mail where it was accepted by lessor. Rochester Capital Leasing Corp. v. Schilling, 223 Tenn. 478, 448 S.W.2d 64, 1969 Tenn. LEXIS 488 (1969).

10. —Isolated Transactions.

Two or three isolated transactions were not doing business, in the sense of the statute. Advance Lumber Co. v. Moore, 126 Tenn. 313, 148 S.W. 212, 1912 Tenn. LEXIS 56 (1912).

The penalty was applicable only where the noncomplying corporation transacted, or intended to transact within this state some substantial portion of its ordinary business, continuous in character as distinguished from casual or occasional transactions. The intention to continue business in this state might be inferred from a single transaction, but a single transaction unaccompanied by any other evidence to so continue did not suffice to penalize. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

Time required to execute a contract might evidence intention to do business here, but where the transaction called for material and labor in a single building, it should not be the governing test. Extras, agreed upon, were to be deemed incidental to the original contract. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

The fact that the corporation had some years previous engaged in a similar, but independent, transaction in the state, was not sufficient to show violation. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

The payment by a foreign corporation of a privilege tax was not evidence of doing business in the sense of the statute, where but a single transaction was involved. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

11. —Interstate Commerce.

Foreign corporations could not be prevented by state legislation from doing interstate commerce business within the limits of the state and they might, without complying with state laws for their domestication, do such business in this state; but they could not, without so complying with state laws, acquire a domicile or establish a place of business in this state. Milan Milling & Mfg. Co. v. Gorten, 93 Tenn. 590, 27 S.W. 971, 1894 Tenn. LEXIS 3, 26 L.R.A. 135 (1894).

Where installation of an article was, by reason of the nature of the contract, essential to the accomplishment of the transaction of sale and shipment into this state, it was protected as interstate commerce, and compliance was not requisite to recovery. Milan Milling & Mfg. Co. v. Gorten, 93 Tenn. 590, 27 S.W. 971, 1894 Tenn. LEXIS 3, 26 L.R.A. 135 (1894); Browning v. Waycross, 233 U.S. 16, 34 S. Ct. 578, 58 L. Ed. 828, 1914 U.S. LEXIS 1265 (1914); McCaskey Registering Co. v. Johnson, 8 Tenn. Civ. App. 311 (1918).

A foreign corporation, with no warehouse, office, or domicile in Tennessee, but doing an interstate commerce business through a commission broker in Tennessee, who sold for all who sought the broker's services, was not “doing business” in Tennessee, within the meaning of the statutes regulating foreign corporations. McBath v. Jones Cotton Co., 149 F. 383, 1906 U.S. App. LEXIS 4479 (6th Cir. Tenn. 1906).

A straight sale by a nonresident corporation to a merchant in Tennessee constituted an interstate transaction not subject to the statute requiring the registration of the charter of a foreign corporation as a prerequisite to doing business in this state. Coweta Fertilizer Co. v. Brown, 163 F. 162, 1908 U.S. App. LEXIS 4539 (6th Cir. Tenn. 1908).

Where a noncomplying corporation, engaged in booking theatrical companies in this state, sent its agents into this state from time to time and made contracts with local theaters under which a weekly fee and commission on actors' salaries were received, such corporation was not engaged in interstate commerce but was subject to the statute. Interstate Amusement Co. v. Albert, 128 Tenn. 417, 161 S.W. 488, 1913 Tenn. LEXIS 59 (1913), aff'd, 239 U.S. 560, 36 S. Ct. 168, 60 L. Ed. 439, 1916 U.S. LEXIS 1931 (1916), aff'd, Interstate Amusement Co. v. Albert, 239 U.S. 560, 36 S. Ct. 168, 60 L. Ed. 439, 1916 U.S. LEXIS 1931 (1916).

A foreign corporation did business within this state, as distinguished from interstate commerce, where it furnished and installed a heating plant. Peck-Williamson Heating & Ventilating Co. v. McKnight & Merz, 140 Tenn. 563, 205 S.W. 419, 1918 Tenn. LEXIS 56 (1918).

Whether a transaction by a foreign corporation was interstate commerce, as distinguished from doing business in this state, was a federal question on which the decisions by the federal Supreme Court must be followed by the state courts. Peck-Williamson Heating & Ventilating Co. v. McKnight & Merz, 140 Tenn. 563, 205 S.W. 419, 1918 Tenn. LEXIS 56 (1918); Lloyd Thomas Co. v. Grosvenor, 144 Tenn. 347, 233 S.W. 669, 1920 Tenn. LEXIS 78 (1921).

Although a foreign corporation was guilty of carrying on intrastate business within the state without complying with the statutes, it was not precluded from suing in the state courts on a contract constituting interstate business. Lloyd Thomas Co. v. Grosvenor, 144 Tenn. 347, 233 S.W. 669, 1920 Tenn. LEXIS 78 (1921).

Where a contract to appraise property in Tennessee was made in Tennessee by an Illinois corporation, but before becoming valid it had to be approved at the office of the Illinois corporation in Chicago, the transaction was interstate business, and was not a transaction of business in Tennessee within the statute respecting foreign corporations. Lloyd Thomas Co. v. Grosvenor, 144 Tenn. 347, 233 S.W. 669, 1920 Tenn. LEXIS 78 (1921).

A noncomplying corporation which maintained in this state a warehouse from which some goods were delivered or shipped to customers in this state, while other goods, the greater part, were shipped to customers out of this state on sales by traveling salesmen on orders — sent to the corporation out of this state for approval and filling by shipments in interstate commerce, action was maintainable on such contracts as interstate transactions. R. M. Hollingshead Co. v. Baker, 4 Tenn. App. 362, — S.W. —, 1926 Tenn. App. LEXIS 190 (Tenn. Ct. App. 1926).

48-25-102. Consequences of transacting business without authority.

A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
The successor to a foreign corporation that transacted business in this state without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding based on that cause of action in any court in this state until the foreign corporation or its successor obtains a certificate of authority.
A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign corporation or its successor obtains the certificate.
A foreign corporation which transacts business or conducts affairs in this state without a certificate of authority shall be liable to this state, for the years or parts thereof during which it transacted business or conducted affairs in this state without a certificate of authority, in an amount equal to treble the amount of all fees, penalties and taxes, plus interest, which would have been imposed by the laws of this state upon such corporation had it duly applied for and received a certificate of authority as required by this chapter, and thereafter had failed to file all reports required.
An application for a certificate of authority by a foreign corporation which has transacted business in this state without a certificate of authority shall not be filed by the secretary of state until all amounts due under subsection (d) shall have been paid.
Notwithstanding subsections (a) and (b), the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this state.

Acts 1986, ch. 887, § 15.02.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 1-9.01-1.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 107, 117.

NOTES TO DECISIONS

1. Independent Contractors.

Company was not barred from bringing action to enforce arbitration award against sole proprietorship for lack of a certificate of authority to transact business in Tennessee because the sole proprietorship acted as an independent contractor for the company; although 90 percent of the proprietorship's business was with the company, the proprietorship was never instructed to work exclusively for the company. Alison Group, Inc. v. Ericson, 181 S.W.3d 670, 2005 Tenn. App. LEXIS 327 (Tenn. Ct. App. 2005), appeal denied, Alison Group v. Ericson, — S.W.3d —, 2005 Tenn. LEXIS 927 (Tenn. Oct. 24, 2005).

2. Applicability.

Decisions Under Prior Law

1. Enforcement of Claims.

Under Tennessee case law, contracts entered into by nonqualifying foreign corporations are not void, but rather are unenforceable at the instance of the offending corporation in courts of the state. In re Leeds Homes, Inc., 222 F. Supp. 20, 1963 U.S. Dist. LEXIS 10346 (E.D. Tenn. 1963), aff'd, 332 F.2d 648, 1964 U.S. App. LEXIS 5129 (6th Cir. Tenn. 1964), aff'd, In re Leeds Homes, Inc., 332 F.2d 648, 1964 U.S. App. LEXIS 5129 (6th Cir. Tenn. 1964), cert. denied, Tate v. National Acceptance Co., 379 U.S. 836, 85 S. Ct. 71, 13 L. Ed. 2d 43, 1964 U.S. LEXIS 565 (1964), cert. denied, Tate v. National Acceptance Co., 379 U.S. 836, 85 S. Ct. 71, 13 L. Ed. 2d 43, 1964 U.S. LEXIS 565 (1964).

2. —Enforceable Claims.

Negotiable paper in the hands of an innocent holder, taken by a noncomplying corporation was not invalidated by failure of the corporation to comply. Lauter v. Jarvis-Conklin Mortg. Trust Co., 85 F. 894, 1897 U.S. App. LEXIS 2295 (6th Cir. Tenn. 1897); Edwards v. Hambly Fruit Products Co., 133 Tenn. 142, 180 S.W. 163, 1915 Tenn. LEXIS 81 (1915).

The maintenance of an office in charge of a resident agent who made no sales of goods in this state but looked after purchasing business in adjacent states, did not violate the statute; the company could recover on a contract to be performed in another state, though it appeared that it deposited funds in a bank in this state. Advance Lumber Co. v. Moore, 126 Tenn. 313, 148 S.W. 212, 1912 Tenn. LEXIS 56 (1912).

Where stock in a foreign corporation was not paid for and the relation of the holder was contractual and entered into in contemplation of the laws of another state, those laws governed and the courts of this state would enforce the remedy they provided against a single stockholder. Sullivan v. Farnsworth, 132 Tenn. 691, 179 S.W. 317, 1915 Tenn. LEXIS 65 (1915).

Bank of foreign state who purchased trade acceptances in course of its business was not required to file copy of its charter before suing in Tennessee on trade acceptances. American Trust Co. v. Smith, 4 Tenn. App. 683, — S.W. —, 1926 Tenn. App. LEXIS 207 (Tenn. Ct. App. 1926).

Making a contract in another state for furnishing and installing materials in a building in this state, where there is no evidence of intention on the part of the foreign corporation to continue in the state or transact other business there, did not require domestication as incident to maintenance of suit on such contract. Richmond Screw Anchor Co. v. E. W. Minter Co., 156 Tenn. 19, 300 S.W. 574, 1927 Tenn. LEXIS 82 (1927).

3. —Loans.

A contract for the lending of money by an association which had no office or agency in this state, which loan was made from a home office out of this state and evidenced by obligations payable there, though secured by mortgage on realty in this state, might have been enforced. Caesar v. Capell, 83 F. 403, 1897 U.S. App. LEXIS 2853 (C.C.W.D. Tenn. 1897); Neal v. New Orleans Loan, Bldg. & Sav. Ass'n, 100 Tenn. 607, 46 S.W. 755, 1898 Tenn. LEXIS 24 (1898); In re Tennessee River Coal Co., 206 F. 802, 1912 U.S. Dist. LEXIS 964 (E.D. Tenn. 1912).

Where a society lent money to churches in this state, but the loans were made and payable outside the state, the failure to comply did not affect its right to recover. Holston Nat'l Bank v. American Christian Missionary Soc., 11 Tenn. App. 72, — S.W.2d —, 1929 Tenn. App. LEXIS 75 (Tenn. Ct. App. 1929).

Contract between state resident and New York corporation engaged in building and loan business was valid where loan was consummated in New York as state cannot bar the making of contracts in other states by requiring corporation doing business in another state to file copy of charter before suing on contract. Eastern Bldg. & L. Asso. v. Bedford, 88 F. 7, 1898 U.S. App. LEXIS 2773 (C.C.D. Tenn. 1898), modified, Bedford v. Eastern Bldg. & Loan Ass'n, 181 U.S. 227, 21 S. Ct. 597, 45 L. Ed. 834, 1901 U.S. LEXIS 1361 (1901).

4. —Suits Relating to Realty.

Trust deed on property in this state to secure negotiable note taken by a noncomplying corporation and held by innocent purchaser for value was enforceable. Lauter v. Jarvis-Conklin Mortg. Trust Co., 85 F. 894, 1897 U.S. App. LEXIS 2295 (6th Cir. Tenn. 1897); Hamilton v. Fowler, 99 F. 18, 1899 U.S. App. LEXIS 2790 (6th Cir. Tenn. 1899), cert. denied, 176 U.S. 685, 20 S. Ct. 1027, 44 L. Ed. 639, 1900 U.S. LEXIS 2769 (1900), cert. denied, Hamilton v. Fowler, 176 U.S. 685, 20 S. Ct. 1027, 44 L. Ed. 639, 1900 U.S. LEXIS 2769 (1900).

Without compliance, the corporation might have maintained a suit for injury to its realty. Louisville Property Co. v. Nashville, 114 Tenn. 213, 84 S.W. 810, 1904 Tenn. LEXIS 83 (1905); Russell Grader Mfg. Co. v. Mercantile Nat'l Bank, 7 Tenn. Civ. App. (7 Higgins) 432 (1917).

A foreign corporation, without compliance with this state's statute as to domestication, may bring suits in ejectment concerning and for the recovery of lands lying within this state, which it claims to own. Bouldin v. Taylor, 152 Tenn. 97, 275 S.W. 340, 1924 Tenn. LEXIS 107 (1924). See Frankfort Land Co. v. Hughett, 137 Tenn. 32, 191 S.W. 530, 1916 Tenn. LEXIS 50 (1916).

5. —Unenforceable Claims.

Partnership, with noncomplying corporation a member, might not recover; all partners must join and be entitled to recover. Harris v. Columbia Water & Light Co., 108 Tenn. 245, 67 S.W. 811, 1901 Tenn. LEXIS 25 (1901).

A noncomplying corporation which had a distributing agency in this state, but discontinued it, and which was undertaking to establish another, which agency executed conditional sales contracts in vending automobiles shipped to it from without this state, was not allowed to reclaim an automobile so sold on petition against the bankrupt estate of the purchaser from the agency. In re Meyer & Judd, 1 F.2d 513, 1924 U.S. Dist. LEXIS 1011 (D. Tenn. 1924).

Suit by foreign corporation to recover for fixtures installed in theater was properly dismissed, where it appeared from the lists of foreign corporations qualified to do business in this state that complainant was not so qualified. National Plastic Relief Co. v. Signal Amusement Co., 151 Tenn. 235, 269 S.W. 40, 1924 Tenn. LEXIS 63 (1925).

6. Cure of Noncompliance.

Contracts of a foreign corporation unenforceable because of failure of the corporation to be admitted to do business in the state were not made enforceable by the qualification of such corporation, subsequently to the execution of such contracts, to do business in the state. Paisley Products, Inc., etc. v. Trojan Luggage Co., 293 F. Supp. 397, 1968 U.S. Dist. LEXIS 11862 (W.D. Tenn. 1968). But see American Bldgs. Co. v. White, 640 S.W.2d 569, 1982 Tenn. App. LEXIS 413 (Tenn. Ct. App. 1982).

A corporation in noncompliance may file its lawsuit, cure its noncompliance, and then continue its litigation. American Bldgs. Co. v. White, 640 S.W.2d 569, 1982 Tenn. App. LEXIS 413 (Tenn. Ct. App. 1982); CPB Mgmt. v. Everly, 939 S.W.2d 78, 1996 Tenn. App. LEXIS 366 (Tenn. Ct. App. 1996), rehearing denied, — S.W.2d —, 1996 Tenn. App. LEXIS 464 (Tenn. Ct. App. Aug. 14, 1996).

7. Liability of Individuals.

Shareholders, officers and directors of a nonqualifying foreign corporation are not individually liable for the debts of the corporation. United States v. Ryan, 599 F. Supp. 76, 1984 U.S. Dist. LEXIS 23215 (E.D. Tenn. 1984); United States v. Daugherty, 599 F. Supp. 671, 1984 U.S. Dist. LEXIS 21576 (E.D. Tenn. 1984).

Enactment of former business corporation law abrogated preexisting case law which held the shareholder, director, or officer of a nonqualifying corporation liable for the corporate debt. United States v. Daugherty, 599 F. Supp. 671, 1984 U.S. Dist. LEXIS 21576 (E.D. Tenn. 1984).

If an officer or agent of a corporation enters into a contract without disclosing the fact that the officer or agent is acting for the corporation, or otherwise than individually, the other party may, at the other party's election, either hold the corporation on the contract or hold the officer personally liable. Wescon, Inc. v. Morgan, 699 S.W.2d 556, 1985 Tenn. App. LEXIS 3072 (Tenn. Ct. App. 1985).

8. Federal Proceedings.

Federal courts, as to the enforcement or nonenforcement of contracts by foreign corporations, follow the law as declared by the courts of the particular state. In re Meyer & Judd, 1 F.2d 513, 1924 U.S. Dist. LEXIS 1011 (D. Tenn. 1924).

Inhibitions against enforcement of claims by nonqualifying foreign corporations, applicable to state courts, are not applicable to federal courts where jurisdiction is based on the Bankruptcy Act and not on diversity. In re Leeds Homes, Inc., 222 F. Supp. 20, 1963 U.S. Dist. LEXIS 10346 (E.D. Tenn. 1963), aff'd, 332 F.2d 648, 1964 U.S. App. LEXIS 5129 (6th Cir. Tenn. 1964), aff'd, In re Leeds Homes, Inc., 332 F.2d 648, 1964 U.S. App. LEXIS 5129 (6th Cir. Tenn. 1964), cert. denied, Tate v. National Acceptance Co., 379 U.S. 836, 85 S. Ct. 71, 13 L. Ed. 2d 43, 1964 U.S. LEXIS 565 (1964), cert. denied, Tate v. National Acceptance Co., 379 U.S. 836, 85 S. Ct. 71, 13 L. Ed. 2d 43, 1964 U.S. LEXIS 565 (1964).

Fact that state courts may refuse to enforce claim based on contract of nonqualifying foreign corporation, not void but merely unenforceable, has no bearing in bankruptcy proceeding where, once it is determined that a claim exists, federal law is applied to determine whether it should be allowed. In re Leeds Homes, Inc., 332 F.2d 648, 1964 U.S. App. LEXIS 5129 (6th Cir. Tenn. 1964), cert. denied, Tate v. National Acceptance Co., 379 U.S. 836, 85 S. Ct. 71, 13 L. Ed. 2d 43, 1964 U.S. LEXIS 565 (1964), cert. denied, Tate v. National Acceptance Co., 379 U.S. 836, 85 S. Ct. 71, 13 L. Ed. 2d 43, 1964 U.S. LEXIS 565 (1964).

9. Procedure.

10. —Burden of Proof.

Where defendants, being sued on promissory note, admitted the note but in avoidance of such note set up the fact that complainant was operating in violation of statute as to domestication of foreign corporation the burden was on defendant to prove such violation. Shoenterprise Corp. v. Butler, 46 Tenn. App. 302, 329 S.W.2d 361, 1959 Tenn. App. LEXIS 99 (Tenn. Ct. App. 1959).

11. —Pleading.

A foreign corporation, whose noncompliance with the requirements for domestication appeared in the proof, though not pleaded, would be denied from enforcement of contracts made in carrying on its business in this state. Cary-Lombard Lumber Co. v. Thomas, 92 Tenn. 587, 22 S.W. 743, 1893 Tenn. LEXIS 15 (1893); Interstate Amusement Co. v. Albert, 128 Tenn. 417, 161 S.W. 488, 1913 Tenn. LEXIS 59 (1913), aff'd, 239 U.S. 560, 36 S. Ct. 168, 60 L. Ed. 439, 1916 U.S. LEXIS 1931 (1916), aff'd, Interstate Amusement Co. v. Albert, 239 U.S. 560, 36 S. Ct. 168, 60 L. Ed. 439, 1916 U.S. LEXIS 1931 (1916).

In the absence of an allegation that the cause of action arose out of transactions with an office or agency in this state, a plea of noncompliance was insufficient. Jung Brewing Co. v. Levisy, 37 S.W. 889, 1896 Tenn. Ch. App. LEXIS 38 (1896).

Even if a foreign company has transacted business in Tennessee without a certificate of authority, the company may assert a counterclaim as a defense to an action filed in a Tennessee court. Arcata Graphics Co. v. Heidelberg Harris, 874 S.W.2d 15, 1993 Tenn. App. LEXIS 445 (Tenn. Ct. App. 1993), rehearing denied, Arcata Graphics Co. v. Heidelberg Harris, Inc., — S.W.2d —, 1993 Tenn. App. LEXIS 569 (Tenn. Ct. App. Aug. 26, 1993), appeal denied, Arcata Graphics Co. v. Heidelberg Harris, Inc., — S.W.2d —, 1994 Tenn. LEXIS 85 (Tenn. Mar. 7, 1994).

12. —Estoppel.

An employee of a noncomplying corporation could not defend a charge of embezzlement of the corporation's funds by showing its noncompliance. State v. O'Brien, 94 Tenn. 79, 28 S.W. 311, 1894 Tenn. LEXIS 27, 26 L.R.A. 252 (1894); Memphis & Arkansas City Packet Co. v. Agnew, 132 Tenn. 265, 177 S.W. 949, 1915 Tenn. LEXIS 19, L.R.A. (n.s.) 1916A640 (1915).

An employee of a noncomplying corporation, who made profits by use of its business for the employee's own purposes, was estopped to defend on this ground when called to account in an action by the corporation. Memphis & Arkansas City Packet Co. v. Agnew, 132 Tenn. 265, 177 S.W. 949, 1915 Tenn. LEXIS 19, L.R.A. (n.s.) 1916A640 (1915).

Where a foreign corporation, complainant, did not question the sufficiency of defendant's plea that it had not complied to do business in this state, it was precluded from contending that its transaction was interstate commerce. National Plastic Relief Co. v. Signal Amusement Co., 151 Tenn. 235, 269 S.W. 40, 1924 Tenn. LEXIS 63 (1925).

13. —Limitations.

A foreign corporation that had, for the period requisite for the running of the statute of limitations, continuously operated its business within this state, maintaining an office with officers and agents subject to service of process that bound the corporation, was entitled to plead and rely upon the defense of the statute of limitations to the same extent as a domestic corporation, although it had not complied with the requirements of this state's statute for its domestication and right to do or carry on business in this state. Turcott v. Yazoo & M. V. R. Co., 101 Tenn. 102, 45 S.W. 1067, 1898 Tenn. LEXIS 37, 70 Am. St. Rep. 661, 40 L.R.A. 768 (1898); Green v. Snyder, 114 Tenn. 100, 84 S.W. 808, 1904 Tenn. LEXIS 74 (1905); Boro v. Hidell, 122 Tenn. 80, 120 S.W. 961, 1909 Tenn. LEXIS 4, 135 Am. St. Rep. 857 (1909).

48-25-103. Application for certificate of authority.

A foreign corporation may apply for a certificate of authority to transact business in this state by delivering an application to the secretary of state for filing. The application must set forth:
1. The name of the foreign corporation and, if different, the name under which the certificate of authority is to be obtained pursuant to § 48-25-106;
2. The name of the state or country under whose law it is incorporated;
3. Its date of incorporation and period of duration, if other than perpetual;
4. The street address, including the zip code, of its principal office (and a mailing address such as a post office box if the United States postal service does not deliver to the principal office);
5. The street address, including the zip code, of its registered office in this state (and a mailing address such as a post office box if the United States postal service does not deliver to the registered office), the county in which the office is located, and the name of its registered agent at that office;
6. The names and business addresses, including the zip code, of its current directors and officers; and
7. A statement that it is a corporation for profit.
The foreign corporation shall deliver with the completed application a certificate of existence (or a document of similar import) duly authenticated by the secretary of state or other official having custody of corporate records in the state or country under whose law it is incorporated. The certificate shall not bear a date of more than two (2) months prior to the date the application is filed in this state.
If the secretary of state determines upon application that a foreign corporation has been transacting business in this state without a certificate of authority for a period of one (1) year or more, then the secretary of state shall not file the application until the foreign corporation submits a confirmation of good standing.

Acts 1986, ch. 887, § 15.03; 1987, ch. 273, § 48; 1989, ch. 451, § 24; 1991, ch. 188, § 7; 2010, ch. 741, § 8; 2012, ch. 1051, §§ 50, 51; 2014, ch. 783, §§ 4, 5.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1001.

48-25-104. Amended certificate of authority.

A foreign corporation authorized to transact business in this state must obtain an amended certificate of authority from the secretary of state if it changes:
1. Its corporate name;
2. The period of its duration; or
3. The state or country of its incorporation.
The requirements of § 48-25-103 for obtaining an original certificate of authority apply to obtaining an amended certificate under this section.

Acts 1986, ch. 887, § 15.04; 1989, ch. 451, § 25; 1991, ch. 188, § 5.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1002.

48-25-105. Effect of certificate of authority.

A certificate of authority authorizes the foreign corporation to which it is issued to transact business in this state subject, however, to the right of the state to revoke the certificate as provided in chapters 11-27 of this title.
A foreign corporation with a valid certificate of authority has the same but no greater rights and has the same but no greater privileges as, and except as otherwise provided by chapters 11-27 of this title, is subject to the same duties, restrictions, penalties, and liabilities now or later imposed on, a domestic corporation of like character.
Chapters 11-27 of this title do not authorize this state to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this state.
This state does hereby release its right of escheat by virtue of the alien origin of such foreign corporation, or the alienage or nonresidence of the shareholders of such foreign corporation, or any of them, in accordance with the Uniform Unclaimed Property Act, compiled in title 66, chapter 29.

Acts 1986, ch. 887, § 15.05; 2017, ch. 457, § 2.

NOTES TO DECISIONS

1. Application.

Decisions Under Prior Law

1. Construction with Blue Sky Law.

Domestication did not relieve a corporation from compliance with Blue Sky Law. Biddle v. Smith, 148 Tenn. 489, 256 S.W. 453, 1923 Tenn. LEXIS 37 (1923).

2. Presumption of Compliance.

For cases discussing the presumption of compliance with former laws governing transaction of business by foreign corporations, see Young v. South Tredegar Iron Co., 85 Tenn. 189, 2 S.W. 202, 1886 Tenn. LEXIS 29, 4 Am. St. Rep. 752 (1886); Cary-Lombard Lumber Co. v. Thomas, 92 Tenn. 587, 22 S.W. 743, 1893 Tenn. LEXIS 15 (1893). Compare Caesar v. Capell, 83 F. 403, 1897 U.S. App. LEXIS 2853 (C.C.W.D. Tenn. 1897); L. & N. Railroad v. M. & T. Railroad, 92 Tenn. 681, 22 S.W. 920, 1893 Tenn. LEXIS 24 (1893); State v. Missio, 105 Tenn. 218, 58 S.W. 216, 1900 Tenn. LEXIS 66 (1900); Barron G. Collier Inc. v. George Studios, 7 Tenn. Civ. App. (7 Higgins) 119 (1917).

3. Federal Jurisdiction.

Former law on domestication of foreign corporations did not make foreign companies corporations of this state so as to defeat jurisdiction of United States courts, as purpose of Tennessee legislature was merely to bring foreign corporations within jurisdiction of the state for taxation purposes. Markwood v. Southern R. Co., 65 F. 817, 1895 U.S. App. LEXIS 3034 (C.C.D. Tenn. 1895).

Compliance did not make the corporation a citizen of Tennessee so as to defeat jurisdiction of the federal courts claimed on the ground of diversity of citizenship. Doten v. Halby, 252 F. Supp. 830, 1965 U.S. Dist. LEXIS 8963 (E.D. Tenn. 1965).

4. Effect of Authorization.

Domestication by compliance did not create an entity distinct from the foreign corporation. It became domestic only as to transactions and property within the state. Adams v. Chattanooga Co., 128 Tenn. 505, 161 S.W. 1131, 1913 Tenn. LEXIS 65 (1913).

A foreign corporation which had complied with the provisions of the statute with reference to doing business in the state was on parity with local creditors with reference to the distribution of the local assets of an insolvent corporation. Crenshaw v. Texokola Pecan Shellers, Inc., 171 Tenn. 273, 102 S.W.2d 60, 1936 Tenn. LEXIS 90 (1937).

5. Powers.

Where the charter of a foreign corporation empowered it to purchase and hold stock in other corporations, it could have purchased and held stock in a street railroad corporation in this state. Clark v. Memphis S. R. Co., 123 Tenn. 232, 130 S.W. 751, 1910 Tenn. LEXIS 1 (1910).

6. —Situs of Stock.

Where a foreign corporation became a domestic corporation under the provisions of this state's laws, the stock in the same had its situs in this state, and was subject to attachment by bill in chancery against the nonresident owner thereof and the corporation, though the certificates might have been in the owner's possession, and beyond the limits of the state. Young v. South Tredegar Iron Co., 85 Tenn. 189, 2 S.W. 202, 1886 Tenn. LEXIS 29, 4 Am. St. Rep. 752 (1886); Street R.R. v. Morrow, 87 Tenn. 406, 11 S.W. 348, 1888 Tenn. LEXIS 73, 2 L.R.A. 853 (1888).

7. —Service of Process.

Foreign corporation domesticated in state and which did business and maintained agency in state was subject to suit in any court in Tennessee including federal court though it had not appointed a general agent for service of summons. International Union of Mine, etc. v. Tennessee Copper Co., 31 F. Supp. 1015, 1940 U.S. Dist. LEXIS 3529 (D. Tenn. 1940).

48-25-106. Corporate name of foreign corporation.

A foreign corporation may obtain or maintain a certificate of authority to transact business in this state under any of the following names:
1. The corporate name of the foreign corporation; provided, that such name complies with § 48-14-101;
2. An assumed corporate name which meets the requirements of § 48-14-101; or
3. The corporate name of the foreign corporation with the word “corporation,” “incorporated” or “company,” or the abbreviation “corp.,” “inc.” or “co.” added.
Except as authorized by subsections (c) and (d), the corporate name (including an assumed corporate name) of a foreign corporation must be distinguishable upon the records of the secretary of state from:
1. The corporate name or assumed corporate name of a corporation incorporated or authorized to transact business in this state;
2. A corporate name or assumed corporate name reserved or registered under § 48-14-102 or § 48-14-103;
3. The corporate name of a not for profit corporation incorporated or authorized to transact business in this state; and
4. A limited partnership name reserved or organized under the laws of the state of Tennessee or registered as a foreign limited partnership in Tennessee.
A foreign corporation may apply to the secretary of state for authorization to use in this state the name of another corporation (incorporated or authorized to transact business in this state) that is not distinguishable upon the secretary of state's records from the name applied for. The secretary of state shall authorize use of the name applied for if:
1. The other corporation or limited partnership consents to the use in writing and submits an undertaking in a form satisfactory to the secretary of state to change its name to a name that is distinguishable upon the records of the secretary of state from the name of the applying corporation; or
2. The applicant delivers to the secretary of state a certified copy of a final judgment of a court of record having competent jurisdiction, establishing the applicant's right to use the name applied for in this state.
A foreign corporation may use in this state the name (including the assumed corporate name) of another domestic or foreign corporation that is used in this state, if the other corporation is incorporated or authorized to transact business in this state and the foreign corporation has:
1. Merged with the other corporation;
2. Been formed by reorganization of the other corporation; or
3. Acquired all or substantially all of the assets, including the corporate name, of the other corporation.
If a foreign corporation authorized to transact business in this state changes its corporate name to one that does not satisfy the requirements of § 48-14-101, it may not transact business in this state under the changed name until it adopts a name satisfying the requirements of § 48-14-101 and obtains an amended certificate of authority under § 48-25-104.

Acts 1986, ch. 887, § 15.06; 1989, ch. 451, § 26; 1991, ch. 188, § 15.

Cross-References. Business corporations, corporate name, § 48-14-101.

Corporate name of foreign organizations, § 48-65-106.

Nonprofit corporations, corporate name, § 48-54-101.

48-25-107. Registered office and registered agent of foreign corporation.

Each foreign corporation authorized to transact business in this state shall continuously maintain in this state:

A registered office that may be the same as any of its places of business; and
A registered agent, who may be:
1. An individual who resides in this state and whose business office is identical with the registered office;
2. A domestic corporation or not for profit domestic corporation whose business office is identical with the registered office; or
3. A foreign corporation or foreign not for profit corporation authorized to transact business in this state whose business office is identical with the registered office.

Acts 1986, ch. 887, § 15.07.

NOTES TO DECISIONS

1. Applicability.

48-25-108. Change of registered office or registered agent of foreign corporation.

A foreign corporation authorized to transact business in this state may change its registered office or registered agent by delivering to the secretary of state for filing a statement of change that sets forth:
1. Its name;
2. If the current registered office is to be changed, the street address, including the zip code, of its new registered office (and a mailing address such as a post office box if the United States postal service does not deliver to the new registered office), and the county in which the office is located;
3. If the current registered agent is to be changed, the name of its new registered agent; and
4. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
If a registered agent changes the street address of such registered agent's business office, such registered agent may change the street address of the registered office of any foreign corporation for which such registered agent is the registered agent by notifying the corporation in writing of the change and signing (either manually or in facsimile), and delivering to the secretary of state for filing, a statement of change that complies with the requirements of subsection (a) and recites that the corporation has been notified of the change.
Each foreign corporation authorized to transact business in this state shall comply with § 48-15-101(b).

Acts 1986, ch. 887, § 15.08; 1987, ch. 273, §§ 40, 48; 1991, ch. 188, § 11; 2012, ch. 1051, § 52; 2014, ch. 783, § 6.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-601, 5-602, 5-604.

48-25-109. Resignation of registered agent of foreign corporation.

The registered agent of a foreign corporation may resign the agency appointment by signing and filing with the secretary of state, an original statement of resignation accompanied by the agent's certification that the agent has mailed a copy thereof to the principal office of the corporation by certified mail. The statement of resignation may include a statement that the registered office is also discontinued.
The agency appointment is terminated, and the registered office discontinued if so provided, on the date on which the statement is filed by the secretary of state.

Acts 1986, ch. 887, § 15.09.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-603.

48-25-110. Service on foreign corporation.

The registered agent of a foreign corporation authorized to transact business in this state is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the foreign corporation.
Service on a foreign corporation when the secretary of state is its agent for service of process may be obtained pursuant to § 48-15-105.
This section does not prescribe the only means, or necessarily the required means, of serving a foreign corporation.

Acts 1986, ch. 887, § 15.10; 1989, ch. 451, § 27.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 118, 119.

NOTES TO DECISIONS

Decisions Under Prior Law

1. In General.

Former similar law and Tenn. R. Civ. P. 4.04(4) were procedural rules for service of process on foreign corporations and did not relate to substantive jurisdiction. Williams v. Williams, 621 S.W.2d 567, 1981 Tenn. App. LEXIS 526 (Tenn. Ct. App. 1981), overruled, Davenport v. State Farm Mut. Auto. Ins. Co., 756 S.W.2d 678, 1988 Tenn. LEXIS 160 (Tenn. 1988), overruled in part, Ratledge v. Norfolk S. Ry. Co., 958 F. Supp. 2d 827, 2013 U.S. Dist. LEXIS 104006 (E.D. Tenn. July 25, 2013).

2. Appointment of Agent.

3. —Who Constitutes.

Persons whose dealings with a foreign lending corporation were mainly in their own interests and in the interests of borrowers, and whose services to such corporation were incidental to their own interests were not agents for service of process on the corporation. Harrell v. American Home Mortg. Co., 162 Tenn. 371, 36 S.W.2d 888, 1930 Tenn. LEXIS 100 (1931).

4. —Agent for Whole State.

Agent designated was one for the whole state, on whom process from any county might be served. McClearen v. United States Fidelity & Guaranty Co., 168 Tenn. 268, 77 S.W.2d 451, 1934 Tenn. LEXIS 51 (1935).

Service may be made upon the agent for all actions brought in state courts regardless of counties. Brandon v. Warmath, 198 Tenn. 38, 277 S.W.2d 408, 1955 Tenn. LEXIS 342 (1955).

5. Attachment.

The property of a foreign corporation which had filed a verified copy of its charter, and had an agent in this state upon whom process might be served, was not subject to attachment. Stonega Coke & Coal Co. v. Southern Steel Co., 123 Tenn. 428, 131 S.W. 988, 1910 Tenn. LEXIS 16, 31 L.R.A. (n.s.) 278 (1910).

Part 2
Withdrawal

48-25-201. Withdrawal of foreign corporation.

A foreign corporation authorized to transact business in this state may not withdraw from this state until it obtains a certificate of withdrawal from the secretary of state.
A foreign corporation authorized to transact business in this state may apply for a certificate of withdrawal by delivering an application to the secretary of state for filing. The application shall set forth:
1. The name of the foreign corporation and the name of the state or country under whose law it is incorporated;
2. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
3. That it either continues its registered agent in this state or revokes the authority of its registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
4. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (b)(3); and
5. A commitment to notify the secretary of state in the future of any change in its mailing address.
The foreign corporation shall provide any additional information in its application requested by the commissioner of revenue or the secretary of state in order to determine and assess any unpaid taxes and fees payable under the laws of this state.
The secretary of state shall not file an application for a certificate of withdrawal unless it is accompanied by a tax clearance for termination or withdrawal relative to such foreign corporation.
After the withdrawal of the corporation is effective, service of process on the secretary of state or the continued registered agent under this section is service on the foreign corporation. Upon receipt of process, the secretary of state shall mail a copy of the process to the foreign corporation at the mailing address set forth under subsection (b).

Acts 1986, ch. 887, § 15.20; 1987, ch. 273, § 41; 2010, ch. 741, § 9.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1003.

Part 3
Revocation of Certificate of Authority

48-25-301. Grounds for revocation.

The secretary of state may commence a proceeding under § 48-25-302 to revoke the certificate of authority of a foreign corporation authorized to transact business in this state if:

The foreign corporation does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
The foreign corporation is without a registered agent or registered office in this state for two (2) months or more;
The foreign corporation does not inform the secretary of state under § 48-25-108 or § 48-25-109 that its registered agent or registered office has changed, that its registered agent has resigned, or that its registered office has been discontinued within two (2) months of the change, resignation, or discontinuance;
The name of the foreign corporation contained in a document filed pursuant to chapters 11-27 of this title fails to comply with § 48-25-106;
An incorporator, director, officer, or agent of the foreign corporation signed a document knowing it was false in any material respect with intent that the document be delivered to the secretary of state for filing;
The secretary of state receives a duly authenticated certificate from the secretary of state or other official having custody of corporate records in the state or country under whose law the foreign corporation is incorporated, stating that it has been dissolved or has disappeared as the result of a merger;
The foreign corporation is exceeding the authority conferred upon it by this chapter; or
The foreign corporation submits to the secretary of state's office a check, bank draft, money order or other such instrument for payment of any fee and it is dishonored upon presentation for payment.

Acts 1986, ch. 887, § 15.30; 1987, ch. 273, § 42; 1989, ch. 451, § 28.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 114.

48-25-302. Procedure for and effect of revocation.

If the secretary of state determines that one (1) or more grounds exist under § 48-25-301 for revocation of a certificate of authority, the secretary of state shall serve the foreign corporation with notice of the secretary of state's determination under § 48-25-110, except that such determination may be sent by first class mail. Notice need not be sent if the grounds for revocation are pursuant to § 48-25-301(6) and a certificate of revocation may be sent without the two-month waiting period required by subsection (b).
If the foreign corporation does not correct each ground for revocation or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the communication is perfected under § 48-25-110, the secretary of state may revoke the foreign corporation's certificate of authority by signing a certificate of revocation that recites the ground or grounds for revocation and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the foreign corporation under § 48-25-110, except that the certificate may be sent by first class mail.
The authority of a foreign corporation to transact business in this state ceases on the date shown on the certificate revoking its certificate of authority.
The secretary of state's revocation of a foreign corporation's certificate of authority appoints the secretary of state the foreign corporation's agent for service of process in any proceeding based on a cause of action which arose during the time the foreign corporation was authorized to transact business in this state. Service of process on the secretary of state under this subsection (d) is service on the foreign corporation. Upon receipt of process, the secretary of state shall comply with § 48-15-105.
Revocation of a foreign corporation's certificate of authority does not terminate the authority of the registered agent of the corporation.
Nothing herein shall be deemed to repeal or modify § 67-4-2116 or any other provisions of law relating to the suspension of the certificate of authority of foreign corporations for failure to comply with the provisions thereof.

Acts 1986, ch. 887, § 15.31; 1989, ch. 451, § 29; 2012, ch. 1051, § 53.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 114.

48-25-303. Reinstatement following administrative revocation.

A foreign corporation whose certificate of authority is administratively revoked under § 48-25-302 may apply to the secretary of state for reinstatement. The application must:
1. Contain a confirmation of good standing relative to such foreign corporation;
2. Recite the name of the corporation at its date of revocation;
3. State that the ground or grounds for revocation either did not exist or have been eliminated; and
4. State a corporate name that satisfies the requirements of § 48-14-101.
1. If the secretary of state determines that the application contains the confirmation of good standing and information required by subsection (a), and that such information is correct, then the secretary of state shall reinstate the certificate of authority, prepare a certificate that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation under § 48-15-104.
2. If the corporate name in subdivision (a)(4) is different than the corporate name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to its certificate of authority insofar as it pertains to the corporate name.
When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative revocation and the corporation resumes carrying on its business as if the administrative revocation had never occurred.

Acts 1986, ch. 887, § 15.32; 1987, ch. 273, § 43; 1989, ch. 451, § 30; 1991, ch. 188, § 10; 2000, ch. 572, § 1; 2010, ch. 741, §§ 10, 11; 2011, ch. 99, § 2.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-905.

48-25-304. Appeal from denial of reinstatement.

If the secretary of state denies a foreign corporation's application for reinstatement following administrative revocation, the secretary of state shall serve the corporation under §§ 48-15-104 and 48-15-105 with a notice that explains the reason or reasons for denial.
The corporation may appeal the denial of reinstatement to the chancery court of Davidson County within one (1) month after service of the communication of denial is perfected. The corporation appeals by petitioning the court to set aside the revocation and attaching to the petition copies of the secretary of state's communication of denial.
The court may summarily order the secretary of state to reinstate the revoked corporation or may take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.

Acts 1986, ch. 887, § 15.33; 2012, ch. 1051, § 54.

48-25-305. Certificate of withdrawal following administrative revocation.

When a foreign corporation, which has had its certificate of authority revoked, wishes to withdraw from the state, it may do so without first being reinstated by delivering to the secretary of state for filing an application for a certificate of withdrawal following administrative revocation of the certificate of authority. The application shall set forth:
1. The name of the foreign corporation and the name of the state or country under whose law it is incorporated;
2. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
3. That it either continues its registered agent in this state or revokes the authority of its registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
4. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (a)(3); and
5. A commitment to notify the secretary of state in the future of any change in its mailing address.
The foreign corporation shall provide any additional information in its application requested by the commissioner or the secretary of state in order to determine and assess any unpaid taxes and fees payable under the laws of this state.
The secretary of state shall not file an application for a certificate of withdrawal following administrative revocation unless it is accompanied by a tax clearance for termination or withdrawal relative to such foreign corporation.
After the withdrawal of the corporation is effective, service of process on the secretary of state or the continued registered agent under this section is service on the foreign corporation. Upon receipt of process, the secretary of state shall mail a copy of the process to the foreign corporation at the mailing address set forth under subsection (a).

Acts 1989, ch. 451, § 31; 2010, ch. 741, § 12.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1004.

Chapter 26
Records and Reports

Part 1
Records

48-26-101. Corporate records.

A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.
A corporation shall maintain appropriate accounting records.
A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class and series, if any, of shares showing the number, class, and series, if any, of shares held by each shareholder.
A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
A corporation shall keep a copy of the following records at its principal office:
1. Its charter or restated charter and all amendments thereto currently in effect;
2. Its bylaws or restated bylaws and all amendments to them currently in effect;
3. Resolutions adopted by its board of directors creating one (1) or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding;
4. The minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years;
5. All written communications to shareholders generally within the past three (3) years, including any financial statements prepared for the past three (3) years under § 48-26-201;
6. A list of the names and business addresses of its current directors and officers; and
7. Its most recent annual report delivered to the secretary of state under § 48-26-203.

Acts 1986, ch. 887, § 16.01.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Nonprofit corporations, records and reports, title 48, ch. 66.

NOTES TO DECISIONS

1. Shareholder Rights.

While shareholders of a corporation were entitled to inspect all of the records of the corporation of which they were shareholders encompassed by T.C.A. §§ 48-26-101 and 48-26-102, the shareholders were not entitled to inspect the records of the corporation's subsidiaries of which they were not shareholders. Panitz v. F. Perlman & Co., 173 S.W.3d 421, 2004 Tenn. App. LEXIS 652 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 277 (Tenn. Mar. 21, 2005).

In its civil contempt order, the trial court did not err in allowing a shareholder to inspect the corporate documents located at a law firm because he had a statutory right to inspect corporate records pertinent to the time period during which he was a shareholder whether he could specifically identify them without seeing them or not. Boren v. Hill Boren, P.C., — S.W.3d —, 2018 Tenn. App. LEXIS 607 (Tenn. Ct. App. Oct. 17, 2018).

48-26-102. Inspection of records by shareholders.

A shareholder of a corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, any of the records of the corporation described in § 48-26-101(e), if the shareholder gives the corporation written notice of the shareholder's demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy.
A shareholder of a corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation, if the shareholder meets the requirements of subsection (c) and gives the corporation written notice of the shareholder's demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy:
1. Excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors while acting in place of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting, to the extent not subject to inspection under subsection (a);
2. Accounting records of the corporation; and
3. The record of shareholders.
A shareholder may inspect and copy the records described in subsection (b) only if:
1. The shareholder's demand is made in good faith and for a proper purpose;
2. The shareholder describes with reasonable particularity the shareholder's purpose and the records the shareholder desires to inspect; and
3. The records are directly connected with the shareholder's purpose.
The right of inspection granted by this section may not be abolished or limited by a corporation's charter or bylaws.
This section does not affect:
1. The right of a shareholder to inspect records under § 48-17-201 or, if the shareholder is in litigation with the corporation, to the same extent as any other litigant; or
2. The power of a court, independently of chapters 11-27 of this title, to compel the production of corporate records for examination.
For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or by a nominee on the shareholder's behalf.

Acts 1986, ch. 887, § 16.02; 2012, ch. 1051, § 55.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 43.

NOTES TO DECISIONS

1. Records of Subsidiaries.

48-26-103. Scope of inspection right.

A shareholder's agent or attorney has the same inspection and copying rights as the shareholder the agent or attorney represents.
The right to copy records under § 48-26-102 includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means.
The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records.
The corporation may comply with a shareholder's demand to inspect the record of shareholders under § 48-26-102(b)(3) by providing the shareholder with a list of its shareholders that was compiled no earlier than the date of the shareholder's demand.

Acts 1986, ch. 887, § 16.03.

48-26-104. Court-ordered inspection.

If a corporation does not allow a shareholder who complies with § 48-26-102(a) to inspect and copy any records required by that subsection to be available for inspection, a court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located may summarily order inspection and copying of the records demanded at the corporation's expense upon application of the shareholder.
If a corporation does not within a reasonable time allow a shareholder to inspect and copy any other record, the shareholder who complies with § 48-26-102(b) and (c) may apply to the court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located for an order to permit inspection and copying of the records demanded. The court shall dispose of an application under this subsection (b) on an expedited basis.
If the court orders inspection and copying of the records demanded, it shall also order the corporation to pay the shareholder's costs (including reasonable counsel fees) incurred to obtain the order if the shareholder proves that the corporation refused inspection without a reasonable basis for doubt about the right of the shareholder to inspect the records demanded.
If the court orders inspection and copying of the records demanded, it may impose reasonable restrictions on the use or distribution of the records by the demanding shareholder.

Acts 1986, ch. 887, § 16.04.

NOTES TO DECISIONS

1. Construction.

Chancery court did not err in denying shareholders' motion for findings of fact in their action requesting inspection of a corporation's records, because the facts were not in dispute and so there was no evidentiary hearing, and an evidentiary hearing is not contemplated by T.C.A. § 48-26-104. Further Tenn. R. Civ. P. 52.01 applies only to actions tried upon the facts. Panitz v. F. Perlman & Co., 173 S.W.3d 421, 2004 Tenn. App. LEXIS 652 (Tenn. Ct. App. 2004), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 277 (Tenn. Mar. 21, 2005).

48-26-105. Inspection of record by directors.

A director of a corporation is entitled to inspect and copy the books, records and documents of the corporation at any reasonable time to the extent reasonably related to the performance of the director's duties as a director, including duties as a member of a committee, but not for any other purpose or in any manner that would violate any duty to the corporation.
The chancery court of the county where the corporation's principal office (or if none in this state, its registered officer) is located may order inspection and copying of the books, records and documents at the corporation's expense, upon application of a director who has been refused such inspection rights, unless the corporation establishes that the director is not entitled to such inspection rights. The court shall dispose of an application under this subsection (b) on an expedited basis.
If an order is issued, the court may include provisions protecting the corporation from undue burden or expense, and prohibiting the director from using information obtained upon exercise of the inspection rights in a manner that would violate a duty to the corporation, and may also order the corporation to reimburse the director for the director's expenses incurred in connection with the application.

Acts 2012, ch. 1051, § 56.

48-26-106. Exception to notice requirements.

Whenever notice would otherwise be required to be given under chapters 11-27 of this title to a shareholder, such notice need not be given if:
1. Notices to shareholders of two (2) consecutive annual meetings, and all notices of meetings during the period between such two (2) consecutive annual meetings, have been sent to such shareholder at such shareholder's address as shown on the records of the corporation and have been returned undeliverable and could not be delivered; or
2. All, but not less than two (2), payments of dividends on securities during a twelve-month period, or two (2) consecutive payments of dividends on securities during a period of more than twelve (12) months, have been sent to such shareholder at such shareholder's address as shown on the records of the corporation and have been returned undeliverable or could not be delivered.
If any such shareholder delivers to the corporation a written notice setting forth such shareholder's then current address, the requirement that notice be given to such shareholder shall be reinstated.

Acts 2012, ch. 1051, § 56.

Part 2
Reports

48-26-201. Financial statements for shareholders.

A corporation shall prepare annual financial statements, which may be consolidated or combined statements of the corporation and one (1) or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of changes in shareholders' equity for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. If requested in writing by any shareholder, the corporation shall furnish such statements to the shareholder as set out in subsection (c).
If the annual financial statements are reported upon by a public accountant, the public accountant's report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records:
1. Stating the president's or other person's reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
2. Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.
A corporation shall mail the annual financial statements to each requesting shareholder within one (1) month after notice of the request; provided, that with respect to the financial statements for the most recently completed fiscal year, the statements shall be mailed to the shareholder within four (4) months after the close of the fiscal year.

Acts 1986, ch. 887, § 16.20.

48-26-202. Other reports to shareholders.

If a corporation indemnifies or advances expenses to a director under § 48-18-502, § 48-18-503, § 48-18-504 or § 48-18-505 in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting.
If a corporation issues or authorizes the issuance of shares for promissory notes or for promises to render services in the future, the corporation shall report in writing to the shareholders the number of shares authorized or issued, and the consideration received by the corporation, with or before the notice of the next shareholders' meeting.

Acts 1986, ch. 887, § 16.21.

48-26-203. Filing annual report with secretary of state.

Each domestic corporation, and each foreign corporation authorized to transact business in this state, shall deliver to the secretary of state for filing an annual report that sets forth:
1. The name of the corporation and the state or country under whose law it is incorporated;
2. The street address, including the zip code, of its registered office (and a mailing address such as a post office box if the United States postal service does not deliver to the registered office), the county in which the office is located, and the name of its registered agent at that office in this state;
3. The street address, including the zip code, of its principal office (and a mailing address such as a post office box if the United States postal service does not deliver to the principal office);
4. The names and business addresses, including the zip code, of its directors and principal officers; and
5. The federal employer identification number (FEIN) of the corporation, or its corporation control number as assigned by the secretary of state.
Information in the annual report shall be current as of the date the annual report is executed on behalf of the corporation. An annual report of a domestic corporation that sets forth a change of the principal office of the domestic corporation shall be deemed to be an amendment to the charter of the domestic corporation, and the domestic corporation shall not be required to take any further action to amend the charter of the domestic corporation under chapter 20 of this title with respect to such amendment. An annual report of a foreign corporation that sets forth a change of the principal executive office of the foreign corporation shall be deemed to be an amendment to the certificate of authority of the foreign corporation, and the foreign corporation shall not be required to take any further action to amend the certificate of authority of the foreign corporation under § 48-25-104 with respect to such amendment. An annual report of a domestic or foreign corporation that sets forth a change of the registered office or registered agent of the domestic or foreign corporation shall be deemed to be a statement of change for purposes of §§ 48-15-102 and 48-25-108, respectively, and the domestic or foreign corporation shall not be required to take any further action under §§ 48-15-102 and 48-25-108, respectively, with respect to such change.
Every corporation shall file the annual report with the secretary of state on or before the first day of the fourth month following the close of the corporation's fiscal year, or upon a date set by rule by the secretary of state, if a domestic corporation or a foreign corporation.
State and national banks shall not be required to file annual reports pursuant to this section.
The secretary of state shall make a report to the commissioner of revenue, by the fifteenth day of each month, of any and all new corporations that have been licensed or authorized to operate in the state during the preceding month, giving the name and address of each new corporation, foreign or domestic.
The secretary of state shall furnish the commissioner of revenue, by the fifteenth day of each month, a list of all corporations that have surrendered their charters, have had their charters revoked, or have ceased to do business in the state during the preceding month.

Acts 1986, ch. 887, § 16.22; 1987, ch. 273, §§ 44, 45, 48; 1989, ch. 451, § 32; 1990, ch. 848, §§ 1, 2, 5; 1991, ch. 188, § 14; 2012, ch. 1051, §§ 57-60; 2014, ch. 783, §§ 7, 8; 2020, ch. 719, § 7.

Amendments. The 2020 amendment inserted “or upon a date set by rule by the secretary of state,” in (c).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Chapter 27
Transition Provisions

48-27-101. Application to existing domestic corporations.

Chapters 11-27 of this title apply to all domestic corporations for profit in existence on January 1, 1988, that were incorporated under any general statute of this state providing for incorporation of corporations for profit. Chapters 11-27 shall, however, not apply to corporations, the charters of which were granted by special legislative act prior to the adoption of the Constitution of 1870. Such corporations may amend their charters for any purposes consistent with chapters 11-27 of this title and in the manner set out in chapters 11-27 of this title. Such amendments and the particular rights, obligations, duties, and privileges conferred or imposed by the amendments shall be subject to § 48-11-102.
Section 48-12-102(a) does not apply to the charter of any corporation existing on January 1, 1988, unless and until a charter amendment is filed. The first charter amendment filed by a corporation following January 1, 1988, shall include any information required by § 48-12-102(a) not otherwise on file in the office of the secretary of state, except that the name and address of each incorporator may be excluded, and the information required by § 48-12-102(a)(3) shall be provided for the current registered agent and registered office. Until such a charter amendment is filed, a corporation's registered agent shall be that agent specified in the office of the secretary of state on January 1, 1988, and such corporation's registered office shall be deemed to be that office specified as the address of its registered agent unless such agent or office is changed thereafter pursuant to chapter 15 or 25 of this title.
Acts 1968, ch. 523, § 1 (11.01 — 11.11), as amended, in effect on January 1, 1988, shall govern the rights and obligations of any shareholder who exercises the shareholder's right to dissent thereunder if the corporate action creating the right to dissent shall have been approved, by the shareholders (or by the board of directors, if no shareholder approval is required) before January 1, 1988.
Acts 1968, ch. 523, § 1 (3.06 — 3.11), as amended, in effect on January 1, 1988, shall apply to any claims, applications, or proceedings for indemnification, or any corporate action authorizing indemnification, made or begun before January 1, 1988.
Acts 1968, ch. 523, § 1 (12.01 — 12.12, 12.14) and Acts 1969, ch. 66, §§ 1 and 2, in effect on January 1, 1988, shall apply to any dissolution as to which a statement of intent to dissolve has been filed or a court proceeding filed before January 1, 1988.
Any domestic corporation for-profit in existence on January 1, 1988, that was incorporated under any general statute of this state providing for the incorporation of corporations for-profit may convert to a nonprofit public benefit corporation if such corporation filed a restated charter with the secretary of state on or before January 1, 1996, reciting that the corporation is a nonprofit public benefit corporation.

Acts 1986, ch. 887, § 17.01; 1987, ch. 273, §§ 46, 49; 1998, ch. 624, § 1.

Cross-References. Transition provisions, nonprofit corporations, title 48, ch. 68.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-706, 5-707.

NOTES TO DECISIONS

1. Retroactive Application.

Where accident victim was injured by dissolved corporation's equipment in 1994, the Tennessee General Corporation Act (which was replaced by the Tennessee Business Corporation Act in 1995) governed the propriety of the corporation's dissolution in 1986 and the scope of the accident victim's remedies against the corporation. Kradel v. Piper Indus., 60 S.W.3d 744, 2001 Tenn. LEXIS 803 (Tenn. 2001).

48-27-102. Application to qualified foreign corporations.

A foreign corporation authorized to transact business in this state on January 1, 1988, is subject to chapters 11-27 of this title, but is not required to obtain a new certificate of authority to transact business under chapters 11-27 of this title.

Acts 1986, ch. 887, § 17.02; 1987, ch. 273, § 49.

48-27-103. Saving provisions.

Except as provided in subsection (b), the repeal of a statute by chapters 11-27 of this title does not affect:
1. The operation of the statute or any action taken under it before its repeal and if any certificate or document is required to be filed in any public office of this state relating to such action, it may be filed after January 1, 1988, in accordance with the prior statute; provided, that such certificate or document is received by the secretary of state or other recording official on or before April 30, 1988. Any certificate or document recorded or filed pursuant to this subdivision (a)(1) shall pay the fee required by § 48-11-303 for such recording or filing;
2. Any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal;
3. Any violation of the statute, or any penalty, forfeiture, or punishment incurred because of the violation, before its repeal; or
4. Any proceeding commenced, or reorganization or dissolution authorized by the board of directors, under the statute before its repeal, and the proceeding, reorganization, or dissolution may be completed in accordance with the statute as if it had not been repealed.
If a penalty or punishment imposed for violation of a statute repealed by chapters 11-27 of this title is reduced by chapters 11-27 of this title, the penalty or punishment if not already imposed shall be imposed in accordance with chapters 11-27 of this title.

Acts 1986, ch. 887, § 17.03; 1987, ch. 273, §§ 49, 50.

Chapter 28
For-Profit Benefit Corporation Act

48-28-101. Short title.

This chapter shall be known and may be cited as the “For-Profit Benefit Corporation Act.”

Acts 2015, ch. 497, § 1.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 3.

48-28-102. Applicability — Governing law.

This chapter applies to all for-profit benefit corporations. If a corporation, organized under the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, elects to become a for-profit benefit corporation under this chapter in the manner prescribed in this chapter, the corporation shall continue to be subject in all respects to the Tennessee Business Corporation Act, except to the extent that this chapter imposes additional or different requirements, in which case the requirements of this chapter shall apply.

Acts 2015, ch. 497, § 1.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 2.

48-28-103. Chapter definitions.

As used in this chapter:

“For-profit benefit corporation” means a domestic business corporation organized under and subject to the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title that intends to pursue a public benefit or public benefits;
“Foreign for-profit benefit corporation” means a for-profit corporation incorporated under a law other than the laws of this state that intends, as stated in its charter or similar governing instrument, to pursue a public benefit or public benefits and has, under that law, the status of a for-profit benefit corporation or its substantial equivalent;
“Public benefit” means a positive effect or reduction of negative effects on one (1) or more categories of persons, entities, communities, or interests, other than shareholders in their capacities as shareholders, including, but not limited to, an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific, or technological effect; and
“Public benefit provisions” means the provisions of a charter as described in § 48-28-104(d).

Acts 2015, ch. 497, § 1.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 3.

48-28-104. Restriction on merger, share exchange or conversion of for-profit corporation that is not for-profit benefit corporation with or into for-profit benefit corporation — Limitations upon mergers, share exchanges or conversions of for-profit benefit corporation — Management in best interests — Statement of public benefits.

1. Notwithstanding the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, a domestic for-profit corporation that is not a for-profit benefit corporation shall not, without the approval of two-thirds (2/3) of the outstanding shares of each class of the stock of the corporation of which there are outstanding shares, whether voting or nonvoting:
  1. Amend its charter to include a provision authorized by subsection (e); or
  2. Merge with or into, or consummate a plan of share exchange under § 48-21-103 with, a for-profit benefit corporation or foreign for-profit benefit corporation if, as a result of the merger or share exchange, the shares in the domestic for-profit corporation would become, or be converted into or exchanged for the right to receive, shares or other equity interests in a for-profit benefit corporation or foreign for-profit benefit corporation.
2. The restrictions of this subsection (a) shall not apply prior to the time that the corporation has received payment for any of its capital stock.
Any shareholder of a domestic for-profit corporation that holds shares of stock of the domestic for-profit corporation immediately prior to the effective time of the following actions shall be entitled to dissent and obtain payment for the shareholder's shares under chapter 23 of this title; provided, that such shareholder has neither voted in favor of the amendment or the merger or plan of share exchange nor consented to in writing pursuant to § 48-17-104:
1. An amendment to the corporation's charter to include a provision authorized by subsection (e); or
2. A merger or consummation of a plan of share exchange under § 48-21-103 that would result in the conversion of the domestic for-profit corporation's stock into or the exchange of the corporation's stock for the right to receive shares or other equity interests in a foreign for-profit benefit corporation.
Notwithstanding the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, a corporation that is a for-profit benefit corporation shall not, without the approval of two-thirds (2/3) of the outstanding shares of each class of the stock of the corporation of which there are outstanding shares, whether voting or nonvoting:
1. Amend its charter to delete or amend a public benefit provision authorized by subsection (e);
2. Merge with or into another entity if the surviving entity of the merger is not a for-profit benefit corporation or foreign for-profit benefit corporation;
3. Merge with or into another entity that is a for-profit benefit corporation or foreign for-profit benefit corporation unless the charter or similar governing instrument of the surviving entity states that one (1) or more of its public benefit purposes is the same or substantially the same as the public benefit purpose or purposes of the for-profit benefit corporation merging with or into such other entity as of immediately prior to the merger;
4. Consummate a plan of share exchange under § 48-21-103 with another entity that is not a for-profit benefit corporation or foreign for-profit benefit corporation; or
5. Convert under § 48-21-109 to another form of entity.
A for-profit benefit corporation shall be managed in a manner that considers the best interests of those materially affected by the corporation's conduct, including the pecuniary interests of shareholders, and the public benefit or public benefits identified in its charter.
The charter of a for-profit benefit corporation shall:
1. Notwithstanding § 48-12-102(b)(2)(A), include a statement regarding the purpose or purposes for which the corporation is organized including one (1) or more public benefits to be pursued by the corporation; and
2. State within its heading that it is a for-profit benefit corporation.

Acts 2015, ch. 497, § 1.

48-28-105. Conspicuous notice of status of corporation as for-profit benefit corporation.

Any stock certificate issued by a for-profit benefit corporation shall conspicuously note that the corporation is a for-profit benefit corporation subject to this chapter.
Any notice sent by a for-profit benefit corporation pursuant to § 48-11-202, shall conspicuously state that the corporation is a for-profit benefit corporation subject to this chapter.

Acts 2015, ch. 497, § 1.

48-28-106. Duties of director.

In discharging the duties of the position of director of a for-profit benefit corporation, a director shall consider the effects of any contemplated, proposed, or actual transaction or other conduct on the interests of those materially affected by the corporation's conduct, including the pecuniary interests of shareholders, and the public benefit or public benefits identified in its charter and shall not give regular, presumptive, or permanent priority to the interests of any individual constituency or limited group of constituencies materially affected by the corporation's conduct, including the pecuniary interests of shareholders.
A director of a for-profit benefit corporation shall not, by virtue of the public benefit provisions authorized by § 48-28-104(d), have any duty to any person on account of any interest of such person in the public benefit or public benefits identified in the charter. A director who performs the duties of a director stated in subsection (a) is not liable by reason of being or having been a director of a for-profit benefit corporation under § 48-18-301.
The charter of a for-profit benefit corporation may include a provision that any disinterested failure to satisfy this section shall not, for the purposes of §§ 48-18-301 and 48-18-302 or §§ 48-18-501 – 48-18-509, constitute an act or omission not in good faith, or a breach of the duty of loyalty.

Acts 2015, ch. 497, § 1.

Compiler's Notes. Section 48-18-303, previously referred to in this section, was repealed by Acts 2012, ch. 1051, § 30, effective January 1, 2013.

Law Reviews.

To “B” or not to “B”: Duties of Directors and Rights of Stakeholders in Benefit Corporations, 70 Vand. L. Rev. En Banc 87 (2017).

48-28-107. Notice of meetings — Annual benefit reports — Use of third-party standard or certification addressing promotion of public benefit or benefits.

A for-profit benefit corporation shall include in every notice of a meeting of shareholders a statement to the effect that it is a for-profit benefit corporation subject to this chapter.
No later than four (4) months after the close of a for-profit benefit corporation's fiscal year, the for-profit benefit corporation shall deliver to its shareholders an annual benefit report covering the immediately preceding fiscal year. The annual benefit report shall state the name of the for-profit benefit corporation and contain, with regard to the period covered by the report, a narrative description of:
1. The ways in which the corporation pursued the public benefit or public benefits stated in its charter;
2. The extent to which that public benefit purpose or purposes were pursued and achieved; and
3. Any material circumstances that hindered efforts to pursue or achieve the public benefit or public benefits.
A for-profit benefit corporation is not required to have its annual benefit report audited, certified, or otherwise evaluated by a third party.
A for-profit benefit corporation shall post its annual benefit reports on the public portion of its website, if any; provided, the compensation paid to directors and financial or proprietary information may be omitted from the posted annual benefit reports.
If a for-profit benefit corporation does not have a website, the for-profit benefit corporation shall provide a copy of its most recent annual benefit report, without charge, to any person who requests a copy; provided, the compensation paid to directors and financial or proprietary information may be omitted from the provided annual benefit reports.
The charter or bylaws of a for-profit benefit corporation may require that the corporation use a third-party standard in connection with or attain a periodic third-party certification addressing the corporation's promotion of the public benefit or public benefits identified in the charter or the best interests of those materially affected by the corporation's conduct.

Acts 2015, ch. 497, § 1.

48-28-108. Standing to maintain derivative suit.

Shareholders of a for-profit benefit corporation owning individually or collectively, as of the date of instituting the derivative suit, at least two percent (2%) of the corporation's outstanding shares or, in the case of a corporation with shares listed on a national securities exchange, the lesser of that percentage or shares having at least two million dollars ($2,000,000) in aggregate market value, may maintain a derivative lawsuit to enforce a director's duties set forth in § 48-28-106(a). For purposes of this section, “aggregate market value” means the average of the high and low trading values multiplied by the number of shares issued and outstanding determined as of the last trading day immediately preceding the date of filing the derivative suit.

Acts 2015, ch. 497, § 1.

48-28-109. Applicability of chapter as to business corporations that are not for-profit benefit corporations.

This chapter shall not affect a statute or other rule of law applicable to a domestic business corporation that is not a for-profit benefit corporation, except as provided in § 48-28-104. Specifically, no implication is made by, and no inference may be drawn from, the enactment of this chapter as to whether, in exercising their duties, the officers or directors of a domestic business corporation that is not a for-profit benefit corporation may consider the impact of the corporation's transactions or other conduct on:

The interests of those materially affected by the corporation's conduct, including the pecuniary interests of shareholders; or
Any public benefit or public benefits identified in its charter.

Acts 2015, ch. 497, § 1.

Chapters 29-50
[Reserved]

Nonprofit Corporations

Chapter 51
General Provisions

Part 1
Short Title and Reservation of Power

48-51-101. Short title.

Chapters 51-68 of this title shall be known and may be cited as the “Tennessee Nonprofit Corporation Act.”

Acts 1987, ch. 242, § 1.01.

Cross-References. Acts of incorporation left unrepealed, § 1-2-105.

Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, general provisions, title 48, ch. 11.

Chancery jurisdiction of controversies, § 16-11-105.

Charitable fundraisers — Immunity from suit, § 29-34-204.

Corporations created by general law, Tenn Const., art. XI, § 8.

Elective technical prep high school curriculum credits in association with nonprofit organizations, § 49-6-1207.

Fraternal and patriotic organizations, title 48, ch. 102.

Nonprofit boards, immunity of members, § 48-58-601.

Ownership and conveyance of land by religious societies, title 66, ch. 2, part 2.

Sales and leases by municipalities to and from nonprofit corporations, title 12, ch. 2, part 3.

Solicitation of charitable funds, title 48, ch. 101, part 5.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1503, 5-1603.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 79, 81, 96; 21 Tenn. Juris., Religious Societies, § 2.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

To Pay or Not to Pay: A Primer on the Federal Unrelated Business Income Tax (UBIT) for Non-tax Lawyers (Sean P. Scally), 37 Tenn. B.J. 12 (2001).

NOTES TO DECISIONS

1. Applicability.

Suit seeking to compel a condominium association to produce the ballots of a board of directors election was properly dismissed because written election ballots were not included in the documents available to condominium unit owners on demand under T.C.A. § 66-27-417; the election of the association's board of directors was governed by the by-laws, which stated specifically that they were to comply with the requirements of T.C.A. § 66-27-101 et seq., and, thus, the Tennessee Nonprofit Corporation Act did not apply. The term “minutes” in T.C.A. § 66-27-503(5) did not include the association's written election ballots. Sigel v. Monarch Condo. Ass'n, — S.W.3d —, 2012 Tenn. App. LEXIS 444 (Tenn. Ct. App. June 29, 2012).

48-51-102. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of chapters 51-68 of this title at any time, and all domestic and foreign corporations subject to chapters 51-68 of this title shall be governed by the amendment or repeal.

Acts 1987, ch. 242, § 1.02.

48-51-103. Eminent domain.

Chapters 51-68 of this title do not repeal or affect the right or power of eminent domain under other existing laws, and any corporation which shall have the power of eminent domain under existing laws shall have the power to the same extent and in the same manner as if organized under chapters 51-68 of this title, and all statutes of this state granting the power of eminent domain and making compensation shall remain in force and effect and applicable to the appropriate existing corporations and to the appropriate corporations organized under chapters 51-68 of this title.

Acts 1987, ch. 242, § 1.03.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 3.

48-51-104. Applicability.

Chapters 51-68 of this title shall apply to every nonprofit corporation now existing or hereafter formed; provided, that if there are other specific statutory provisions which govern the formation of, impose restrictions or requirements on, confer special powers, privileges or authorities on, or fix special procedures or methods for, special categories of corporations, then to the extent such provisions are inconsistent with or different from chapters 51-68 of this title, such provisions shall prevail.

Acts 1987, ch. 242, § 1.04.

Attorney General Opinions. Merger of telephone cooperative and for-profit Tennessee corporation, OAG 99-070, 1999 Tenn. AG LEXIS 70 (3/22/99).

Domestic nonprofit water cooperative merging with or transferring assets to municipality, OAG 06-176, 2006 Tenn. AG LEXIS 196 (12/19/06).

Part 2
Definitions

48-51-201. Definitions for chapters 51 through 68.

As used in chapters 51-68 of this title, unless the context otherwise requires:

“Approved by (or approval by) the members” means approved or ratified by affirmative votes that exceed the number of negative votes represented and voting at a duly held meeting at which a quorum is present or by a written ballot or written consent in conformity with chapters 51-68 of this title or by the affirmative vote, written ballot or written consent of such greater proportions, including the votes of all the members of any class, unit or grouping as may be provided in the charter, bylaws or chapters 51-68 of this title for any specified member action;
“Board” or “board of directors” means the governing board of a corporation, whether denominated the board of directors or otherwise, except that no person or group of persons is the board of directors because of powers delegated to that person or group pursuant to § 48-58-101;
“Bylaws” means the code or codes of rules (other than the charter) adopted pursuant to chapters 51-68 of this title for the regulation or management of the affairs of the corporation irrespective of the name or names by which such rules are designated;
“Charitable purpose” means a purpose that:
1. Would make a corporation operated exclusively for that purpose eligible to be exempt from taxation under Section 501(c)(3) of the Internal Revenue Code;
2. Is for the public benefit; or
3. Is considered charitable under law in this state other than in chapters 51-68 of this title;
“Charter” includes amended and restated charters and articles of merger;
“Class” refers to a group of memberships which have the same rights with respect to voting, dissolution, redemption and transfer. For the purpose of this section, rights shall be considered the same if they are determined by a formula applied uniformly;
“Confirmation of good standing” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that at the time such confirmation is issued a domestic or foreign corporation is current on all taxes and penalties to the satisfaction of the commissioner;
“Conspicuous” means so written that a reasonable person against whom the writing is to operate should have noticed it. For example, printing in italics or boldface or contrasting color, or typing in capitals or underlined is “conspicuous”;
“Corporation” or “domestic corporation” means a public benefit or mutual benefit corporation which is not a foreign corporation, incorporated under or subject to chapters 51-68 of this title;
“Delegates” means those persons elected or appointed to vote in a representative assembly for the election of a director or directors or on other matters;
“Deliver” or “delivery” means any method of delivery used in conventional commercial practice, including delivery by hand, mail, commercial delivery, or electronic transmission, except that delivery to the attorney general and reporter means actual receipt by the attorney general;
“Directors” means natural persons, designated in the charter or bylaws or elected or appointed by the incorporators, and their successors and natural persons elected or appointed to act as members of the board, irrespective of the names or titles by which such persons are described;
“Distribution” means the direct or indirect transfer of assets or any part of the income or profit of a corporation, to its members, directors or officers. “Distribution” does not include:
1. The payment of compensation in a reasonable amount and the reimbursement of reasonable expenses to its members, directors, or officers for services rendered;
2. Conferring benefits on its members in conformity with its purposes;
3. Repayment of debt obligations in the normal and ordinary course of conducting activities;
4. The incurrence of indebtedness, whether directly or indirectly, including through a guaranty, for or on behalf of a member, director or officer;
5. A sale on credit in the ordinary course of business or a life insurance policy loan; or
6. Any item in § 48-58-303(c);
“Document” means:
1. Any tangible medium on which information is inscribed, and includes any writing or written instrument; or
2. An electronic record;
“Effective date of notice,” has the same meaning as provided in § 48-51-202;
“Electronic” means relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities;
“Electronic record” means information that is stored in an electronic or other medium and is retrievable in paper form through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with § 48-51-202;
“Electronic transmission” or “electronically transmitted” means any form or process of communication not directly involving physical transfer of paper or another tangible medium that is:
1. Suitable for the retention, retrieval, and reproduction of information by the recipient; and
2. Is retrievable in paper form by the recipient through an automated process used in conventional commercial practice, unless otherwise authorized in accordance with § 48-51-202(l );
“Emergency” exists when a quorum of the corporation's directors cannot readily be assembled because of some catastrophic event;
“Employee” includes an officer but not a director. A director may accept duties that make the director also an employee;
“Entity” includes domestic and foreign business corporation; domestic and foreign nonprofit corporation; estate; trust; business trust, partnership, and two (2) or more persons having a joint or common economic interest; domestic and foreign unincorporated entity; and this state, United States and foreign government;
“Foreign corporation” means a nonprofit corporation incorporated under a law other than the law of this state, which would be a nonprofit corporation if formed under the laws of this state;
“Governmental subdivision” includes authority, county, district and municipality;
“Includes” denotes a partial definition;
“Individual” includes the estate of an incompetent or deceased individual;
“Interest” means either or both of the following rights under the organic law of an unincorporated entity:
1. The right to receive distributions from the entity either in the ordinary course or upon liquidation; or
2. The right to receive notice or vote on issues involving its internal affairs, other than as an agent, assignee, proxy, or person responsible for managing its business and affairs;
“Interest holder” means a person who holds of record an interest;
“Means” denotes an exhaustive definition;
1. “Member” means, without regard to what a person is called in the charter or bylaws, any person who on more than one (1) occasion, pursuant to a provision of a corporation's charter or bylaws, has the right to vote for the election or appointment of a director or directors;
2. A person is not a member by virtue of any of the following:
  1. Any rights such person has as a delegate;
  2. Any rights such person has to designate a director or directors;
  3. Any rights such person has to appoint a director or directors of a public benefit corporation; or
  4. Any rights such person has as a director;
“Membership” means the rights and obligations a member has pursuant to a corporation's charter, bylaws and chapters 51-68 of this title;
“Month” means the time from any day of any month to the corresponding day of the succeeding month, if any, and if none, the last day of the succeeding month;
“Mutual benefit corporation” means a domestic corporation which becomes by operation of law a mutual benefit corporation pursuant to § 48-68-104 or is formed as a mutual benefit corporation pursuant to chapter 52 of this title;
“Notice,” has the same meaning as provided in § 48-51-202;
“Organic document” means a public organic document or a private organic document;
“Organic law” means the statute governing the internal affairs of a domestic or foreign business or nonprofit corporation or unincorporated entity;
“Person” includes individual and entity;
“Principal office” means the office (in or out of this state) so designated in the charter or certificate of authority where the principal executive offices of a domestic or foreign corporation are located;
“Private organic document” means any document, other than the public organic document, if any, that determines the internal governance of an unincorporated entity; where a private organic document has been amended or restated, “private organic document” means the private organic document as last amended or restated;
“Proceeding” includes civil suit and criminal, administrative, and investigatory action;
“Public benefit corporation” means a domestic corporation which becomes by operation of law a public benefit corporation pursuant to § 48-68-104 or is formed as a public benefit corporation pursuant to chapter 52 of this title;
“Public organic document” means the document, if any, that is filed of public record to create an unincorporated entity; where a public organic document has been amended or restated, “public organic document” means the public organic document as last amended or restated;
“Record date” means the date established under chapter 56 or 57 of this title on which a corporation determines the identity of its members for purposes of chapters 51-68 of this title;
“Religious corporation” means a public benefit or mutual benefit corporation organized and operating primarily or exclusively for religious purposes;
“Share” means the unit into which the proprietary interests in a corporation are divided;
“Sign” or “signature” means, with present intent to authenticate or adopt a document:
1. To execute or adopt a tangible symbol to a document, and includes any manual, facsimile, or conformed signature; or
2. To attach to or logically associate with an electronic transmission an electronic sound, symbol, or process, and includes an electronic signature in an electronic transmission;
“State,” when referring to a part of the United States, includes a state and commonwealth (and their agencies and governmental subdivisions) and a territory and insular possession (and their agencies and governmental subdivisions) of the United States;
“Tax clearance for termination or withdrawal” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that a domestic or foreign corporation has filed all applicable reports, including, but not limited to, a final report, and has paid all fees, penalties and taxes as required by the revenue laws of this state;
“Unincorporated entity” means an organization or artificial legal person that either has a separate legal existence or has the power to acquire an estate in real property in its own name and that is not any of the following: a domestic or foreign business or nonprofit corporation, an estate, a trust, a state, the United States, or a foreign government; “unincorporated entity” includes a general partnership, limited liability company, limited partnership, business trust, joint stock association, and unincorporated nonprofit association;
“United States” includes district, authority, bureau, commission, department and any other agency of the United States; and
“Voting power” means the total number of votes entitled to be cast for the election of directors at the time the determination of voting power is made, excluding a vote which is contingent upon the happening of a condition or event that has not occurred at the time. When a class is entitled to vote as a class for directors, the determination of voting power of the class shall be based on the percentage of the number of directors the class is entitled to elect out of the total number of authorized directors.

Acts 1987, ch. 242, § 1.20; 2010, ch. 741, § 13; 2014, ch. 899, §§ 1-7; 2015, ch. 60, § 6.

Cross-References. Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 97.

48-51-202. Notice.

Notice under chapters 51-68 of this title shall be in writing unless oral notice is reasonable in circumstances and not prohibited by the charter or bylaws, and written notice is not expressly required by chapters 51-68 of this title. Unless otherwise agreed to between sender and the recipient, words in a notice or other communication under chapters 51-68 of this title shall be in English.
A notice or other communication may be given or sent by any method of delivery, except that electronic transmissions shall be in accordance with this section. If these methods of delivery are impracticable, a notice or other communication may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication.
Notice in the form of a document by a corporation having members is effective:
1. Upon deposit in the United States mail or with a commercial delivery service, if the postage or delivery charge is paid and the notice is correctly addressed to the member's address shown in the corporation's current record of the member; or
2. When given, if the notice is delivered in any other manner that the member has authorized.
A written notice or report delivered as part of a newsletter, magazine or other publication regularly sent to members shall constitute a written notice or report if addressed or delivered to the member's address shown in the corporation's current record of members, or in the case of members who are residents of the same household and who have the same address in the corporation's current record of members, if addressed or delivered to one (1) of such members, at the address appearing on the current list of members.
Notice or other communication to a domestic or foreign corporation (authorized to transact business in this state) may be delivered to its registered agent at its registered office or to the secretary of the corporation at its principal office shown in its most recent annual report (or to a designated mailing address such as a post office box if the United States Postal Service does not deliver to the corporation's principal office) or, in the case of a foreign corporation that has not yet delivered an annual report, in its application for a certificate of authority.
Notice or other communications may be delivered by electronic transmission if consented to by the recipient or if authorized by subsection (l ).
1. Any consent under subsection (f) may be revoked by the person who consented by written or electronic notice to the person to whom the consent was delivered. Any such consent is deemed revoked if:
  1. The corporation is unable to deliver two (2) consecutive electronic transmissions given by the corporation in accordance with the consent; and
  2. Such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice or other communication.
2. The inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Unless otherwise agreed between the sender and the recipient, an electronic transmission is received when:
1. It enters an information processing system that the recipient has designated or uses for the purposes of receiving electronic transmissions or information of the type sent, and from which the recipient is able to retrieve the electronic transmission; and
2. It is in a form capable of being processed by that system.
Receipt of an electronic acknowledgement from an information processing system described in subdivision (h)(1) establishes that an electronic transmission was received but, by itself, does not establish that the content sent corresponds to the content received.
An electronic transmission is received under this section even if no individual is aware of its receipt.
Notice or other communication, if in a comprehensible form or manner, is effective at the earliest of the following:
1. If in a physical form, the earliest of when it is actually received, or when it is left at:
  1. A member's address shown on the corporation's record of members maintained by the corporation under § 48-66-101(c);
  2. A director's residence or usual place of business; or
  3. The corporation's principal place of business;
2. If mailed first class postage prepaid and correctly addressed to a member, upon deposit in the United States mail;
3. If mailed by United States mail postage prepaid and correctly addressed to a recipient other than a member, the earliest of when it is actually received; or
  1. If sent by registered or certified mail, return receipt requested, the date shown on the return receipt signed by or on behalf of the addressee; or
  2. Five (5) days after it is deposited in the United States mail;
4. If an electronic transmission, when it is received as provided in subsection (h); or
5. If oral, when communicated, if communicated in a comprehensible manner.
A notice or other communication may be in the form of an electronic transmission that cannot be directly reproduced in paper form by the recipient through an automated process used in conventional commercial practice only if:
1. The electronic transmission is otherwise retrievable in perceivable form; and
2. The sender and the recipient have consented in writing to the use of such form of electronic transmission.
If chapters 51-68 of this title prescribe requirements for notices or other communications in particular circumstances, those requirements govern. If the charter or bylaws prescribe requirements for notices or other communications, not inconsistent with this section or other provisions of chapters 51-68 of this title, those requirements govern. The charter or bylaws may authorize or require delivery of notices of meetings of directors by electronic transmission.

Acts 1987, ch. 242, § 1.21; 2014, ch. 899, § 8.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

English deemed official and legal language, § 4-1-404.

Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2005, 5-2006, 5-2105, 5-2106, 5-2201, 5-2202, 5-2302, 5-2303, 5-2506, 5-2602.

Part 3
Filing Documents

48-51-301. Filing requirements.

The form and filing of a document must satisfy the requirements of this section, and of all other applicable sections or rules that add to these requirements, to be entitled to filing by the secretary of state.
Chapters 51-68 of this title must require or permit filing the document in the office of the secretary of state.
The document must contain the information required by chapters 51-68 of this title or required by rule. It may contain other information as well.
The document must be capable of being printed in ink in a clear and legible fashion on one (1) side of letter size paper.
The document must be in the English language. A corporate name need not be in English if written in English letters, or Arabic or Roman numerals, and the certificate of existence required of foreign corporations need not be in English if accompanied by a reasonably authenticated English translation.
The document must be executed:
1. By the chair of the board of directors of a domestic or foreign corporation, by its president, or by another of its authorized officers;
2. If directors have not been selected or the corporation has not been formed, by an incorporator; or
3. If the corporation is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
The person executing the document must sign it and state beneath or opposite the person's signature the person's name and the capacity in which the person signs. The document may, but need not, contain:
1. The corporate seal;
2. An attestation by the secretary or an assistant secretary;
3. An acknowledgement, verification, or proof; or
4. The date the document is signed, except that the date is required for the annual report for the secretary of state.
If the secretary of state has prescribed a mandatory form for the document under § 48-51-302, then the document must be in or on the prescribed form.
The document must be delivered to the office of the secretary of state for filing in the manner and form prescribed by the secretary of state and must be accompanied by the correct filing fee, and any corporate tax, license fee, interest, or penalty required by chapters 51-68 of this title.
Whenever this title permits any of the terms of a plan or a filed document to be dependent on facts objectively ascertainable outside the plan or filed document, the following apply:
1. The manner in which the facts will operate upon the terms of the plan or filed document must be set forth in the plan or filed document;
2. The facts may include, but are not limited to:
  1. Any of the following that is available in a nationally recognized news or information medium either in print or electronically: statistical or market indices, market prices of any security or group of securities, interest rates, currency exchange rates, or similar economic or financial data;
  2. A determination or action by any person or body, including the corporation or any other party to a plan or filed document; or
  3. The terms of, or actions taken under, an agreement to which the corporation is a party, or any other agreement or document;
3. As used in this subsection (j):
  1. “Filed document” means a document filed with the secretary of state under chapters 51-68 of this title, except chapter 65 or § 48-66-203; and
  2. “Plan” means a plan of domestication, for-profit conversion, entity conversion, merger, or membership exchange;
4. None of the following provisions of a plan or filed document are made dependent on facts outside the plan or filed document:
  1. The name and address of any person required in a filed document;
  2. The registered office of any entity required in a filed document;
  3. The registered agent of any entity required in a filed document;
  4. The number of authorized shares and designation of each class or series of shares or the number of authorized memberships and designation of each class or series of memberships;
  5. The effective date of a filed document; and (F) Any required statement in a filed document of the date on which the underlying transaction was approved or the manner in which that approval was given; and
5. If a provision of a filed document is made dependent on a fact ascertainable outside of the filed document, and that fact is not ascertainable by reference to a source described in subdivision (j)(2)(A) or a document that is a matter of public record, or the affected shareholders have not received notice of the fact from the corporation, then the corporation shall file with the secretary of state articles of amendment setting forth the fact promptly after the time when the fact referred to is first ascertainable or thereafter changes. Articles of amendment under this subdivision (j)(5) are deemed to be authorized by the authorization of the original filed document or plan to which they relate and may be filed by the corporation without further action by the board of directors or the shareholders.
The secretary of state may promulgate appropriate rules establishing acceptable methods for execution of any document to be filed with the secretary of state.
All documents submitted to the secretary of state for filing shall contain a statement that makes it clear that the documents are being filed pursuant to chapters 51-68 of this title.
The secretary of state may establish procedures for the filing of documents with the secretary of state by means of electronic transmission.
Notwithstanding any other law to the contrary, whenever this title requires that an application or other document submitted to the secretary of state for filing be accompanied by a confirmation of good standing, tax clearance for termination, or withdrawal, or other similar communication of taxpayer status by the commissioner of revenue, then that requirement is met, and a paper certificate need not accompany the application or other document, if the commissioner provides to the secretary of state electronic verification of the required information. Upon request of the person seeking certificate information, the commissioner shall provide to the secretary of state electronic verification in lieu of a paper certificate.

Acts 1987, ch. 242, § 1.30; 1989, ch. 445, § 1; 1991, ch. 188, § 1; 1999, ch. 80, § 2; 2010, ch. 741, § 14; 2014, ch. 899, § 9; 2020, ch. 719, § 8.

Amendments. The 2020 amendment rewrote (a), which read: “A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the secretary of state.”; added “or required by rule” at the end of the first sentence of (c); substituted “capable of being printed” for “typewritten or printed” in (d); in the first sentence of (g), substituted “must sign” for “shall sign” and substituted “the” for “such” three times; substituted “the date is required for” for “such date shall be required for” in (g)(4); inserted “in the manner and form prescribed by the secretary of state” in the middle of (i); inserted “then” in (h); substituted “must be” for “shall be” in (j)(1); substituted “are made” for “shall be made” in (j)(4); substituted “may promulgate appropriate rules” for “has the power to promulgate rules and regulations” in the middle of (k); in (l), substituted “shall contain a statement that” for “should contain a statement which” and substituted “the documents” for “they”; substituted “may established” for “has the power to establish” near the beginning of (m); and substituted “that requirement is met” for “such requirement shall be met” in the first sentence of (n).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Cross-References. Filing requirements, §§ 48-11-301 and 48-247-101.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1401.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 8.

48-51-302. Forms and filing methods.

The secretary of state may prescribe and furnish forms and filing methods for all filings required by this title.
If the secretary of state so requires, then use of these forms is mandatory.

Acts 1987, ch. 242, § 1.31; 2014, ch. 899, § 10; 2020, ch. 719, § 9.

Amendments. The 2020 amendment rewrote the section, which read: “(a)(1) The secretary of state may prescribe and shall furnish on request forms for: “(A) An application for a certificate of existence; “(B) A foreign corporation's application for a certificate of authority to transact business in this state; “(C) A foreign corporation's application for a certificate of withdrawal; and “(D) The annual report.“(2) If the secretary of state so requires, use of these forms is mandatory.“(b) The secretary of state may prescribe and shall furnish upon request forms for other documents required or permitted to be filed by chapters 51-68 of this title. If the secretary of state has prescribed a mandatory form for the document, the document must be in or on the prescribed form or a conformed copy thereof.”

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-51-303. Filing, service, and copying fees.

The secretary of state shall collect the following fees when the documents described in this subsection (a) are delivered to the secretary of state for filing:
Document Fee
1. Charter (including designation of initial registered office and agent) $100.00
2. Application for use of indistinguishable name 20.00
3. Application for reserved name 20.00
4. Notice of transfer or cancellation of reserved name 20.00
5. Application for registered name 20.00
6. Application for renewal of registered name 20.00
7. Application for or change, cancellation, or renewal of assumed name 20.00
8. Corporation's statement of change of registered agent or registered office, or both 20.00
9. Agent's statement of change of registered office 5.00 per corporation but not less than 20.00
10. Agent's statement of resignation 20.00
11. Charter amendment 20.00
12. Restatement of charter 20.00
13. Amended and restated charter 20.00
14. Articles of entity conversion 100.00
15. Articles of charter surrender 20.00
16. Statement of abandonment of merger, conversion, or membership exchange 20.00
17. Articles of merger or membership exchange 100.00
18. Articles of dissolution and termination by incorporators or directors 20.00
19. Articles of dissolution 20.00
20. Articles of revocation of dissolution 20.00
21. Articles of termination of corporate existence 20.00
22. Certificate of administrative dissolution No fee
23. Application for reinstatement following administrative dissolution 70.00
24. Certificate of reinstatement No fee
25. Articles of termination following administrative dissolution or revocation 100.00
26. Certificate of judicial dissolution No fee
27. Application for certificate of authority (including designation of initial registered office and agent) 600.00
28. Application for amended certificate of authority 20.00
29. Application for certificate of withdrawal 20.00
30. Certificate of revocation of authority to transact business No fee
31. Application for reinstatement following administrative revocation 70.00
32. Application for certificate of withdrawal following administrative revocation 100.00
33. Annual report 20.00
34. Articles of correction 20.00
35. Application for certificate of existence or authorization 20.00
36. Any other document required or permitted to be filed by chapters 51-68 of this title 20.00
The secretary of state shall collect a fee of twenty dollars ($20.00) each time process is served on the secretary of state under chapters 51-68 of this title. The party to a proceeding causing service of process is entitled to recover this fee as costs if such party prevails in the proceeding.
The secretary of state shall collect a fee of twenty dollars ($20.00) for copying all filed documents relating to a domestic or foreign corporation. All such copies will be certified or validated by the secretary of state.
In addition to the other filing requirements of chapters 51-68 of this title, a copy of all documents specified in subdivisions (a)(1), (11), (12), (17), (19)-(21) shall also be filed in the office of the register of deeds in the county wherein a corporation has its principal office, if such principal office is in Tennessee, and in the case of a merger, in the county in which the new or surviving corporation shall have its principal office, if such principal office is in Tennessee. The register of deeds may charge five dollars ($5.00) plus fifty cents (50¢) per page in excess of five (5) pages for such filing.

Acts 1987, ch. 242, § 1.32; 1989, ch. 445, §§ 2, 27; 1991, ch. 188, § 6; 1998, ch. 784, § 2; 1998, ch. 890, § 2; 2000, ch. 568, § 2; 2014, ch. 899, §§ 11, 12.

Cross-References. Business corporations, fees for filing with secretary of state, § 48-11-303.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1401.

48-51-304. Effective time and date of document.

Except as provided in subsection (b) and § 48-51-305(c), a document accepted for filing is effective:
1. At the time of filing on the date it is filed by the secretary of state, as evidenced by the secretary of state's date and time endorsement on the original document; or
2. At the time specified in the document as its effective time on the date it is filed.
A document may specify a delayed effective time and date and, if it does so, the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed by the secretary of state. Notwithstanding the foregoing, documents specified in § 48-51-303(a)(3)-(7), (16), (20), (21), (25), (31), (33), (34), may not specify a delayed effective time and date.
The secretary of state shall not file any charter or application for a certificate of authority unless that document designates the registered agent and registered office of such domestic or foreign corporation in accordance with chapters 55 and 65 of this title. The secretary of state shall not file any other document under chapters 51-68 of this title if at the time of filing the domestic or foreign corporation does not have a registered agent or registered office designated at such time, unless at the time such document is received for filing the secretary of state also receives for filing a statement designating such registered agent or registered office, or both.

Acts 1987, ch. 242, § 1.33; 1991, ch. 188, § 13; 2014, ch. 899, § 13.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1701.

48-51-305. Correcting filed document.

A domestic or foreign corporation may correct a document filed by the secretary of state if the document:
1. Contains an incorrect statement; or
2. Was defectively executed, attested, sealed, verified, or acknowledged.
A document is corrected by:
1. Preparing articles of correction that:
  1. Describe the document (including its filing date) or attach a copy of it to the articles;
  2. Specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
  3. Correct the incorrect statement or defective execution; and
2. Delivering the articles to the secretary of state for filing.
Articles of correction are effective on the effective time and date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

Acts 1987, ch. 242, § 1.34.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2001.

48-51-306. Filing duty of secretary of state.

If the form and filing of a document delivered to the office of the secretary of state for filing satisfies the requirements of § 48-51-301, and of all other applicable sections or rules that add to these requirements, then the secretary of state must file it.
The secretary of state files a document by stamping or otherwise endorsing “Filed”, together with the secretary of state's name and official title and the date and time of receipt, on the document. After filing a document, except for filings pursuant to §§ 48-55-103, 48-65-109, and 48-66-203, the secretary of state shall deliver the document, with the filing fee receipt, or acknowledgement of receipt if no fee is required, attached, to the domestic or foreign corporation or its representative in due course. A domestic or foreign corporation or its representative may present to the secretary of state an exact or conformed copy of the document presented for filing, together with the document and, in that event, the secretary of state shall stamp or otherwise endorse the exact or conformed copy “Filed”, together with the secretary of state's name and official title and the date and time of receipt, and immediately return the exact or conformed copy to the party filing the original of the document.
If the secretary of state refuses to file a document, then the secretary of state must return the document to the domestic or foreign corporation or its representative within a reasonable time after the document was received for filing, together with a brief, written explanation of the reason for the secretary of state's refusal.
The secretary of state's duty to file documents under this section is ministerial. The secretary of state's filing or refusing to file a document does not:
1. Affect the validity or invalidity of the document in whole or part;
2. Relate to the correctness or incorrectness of information contained in the document;
3. Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect; or
4. Establish that a document purporting to be an exact or conformed copy is in fact an exact or conformed copy.
Any corporate document that meets the requirements of chapters 51-68 of this title and any applicable rules for filing and recording must be received, filed, and recorded by the appropriate office, notwithstanding any contrary requirements found in any other laws of this state.

Acts 1987, ch. 242, § 1.35; 2014, ch. 899, §§ 14, 15; 2020, ch. 719, § 10.

Amendments. The 2020 amendment in (a), inserted “the form and filing of” near the beginning, inserted “and of all other applicable sections or rules that add to these requirements, then”, and substituted “must file” for “shall file” near the end; in (b), substituted “the document” for “such document” three times and made modifications to capitalization and punctuation; substituted “then the secretary of state must return the document” for “the secretary of state shall return it” near the beginning of (c); and, in (e), substituted “that meets” for “which meets”, inserted “and any applicable rules”, substituted “must be received” for “shall be received”, and deleted “provisions of the” preceding “laws” near the end.

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Cross-References. Filing duty, §§ 48-11-306, 48-247-105.

48-51-307. Appeal from secretary of state's refusal to file document.

If the secretary of state refuses to file a document delivered to the secretary of state's office for filing, the domestic or foreign corporation may appeal the refusal to the chancery court of Davidson County. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the secretary of state's explanation of the secretary of state's refusal to file.
The court may summarily order the secretary of state to file the document or take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.
Any judicial review of the secretary of state's refusal to file a document shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1987, ch. 242, § 1.36.

48-51-308. Evidentiary effect of copy of filed document.

A certificate attached, or certification affixed, to a copy of a document filed by the secretary of state, bearing the secretary of state's signature (which may be in facsimile) and the seal of this state, is conclusive evidence that the original document is on file with the secretary of state.

Acts 1987, ch. 242, § 1.37.

48-51-309. Certificate of existence.

Any person may apply to the secretary of state to furnish a certificate of existence for a domestic corporation or a certificate of authorization for a foreign corporation authorized to transact business in this state.
A certificate of existence or authorization sets forth:
1. The domestic corporation's corporate name or the foreign corporation's corporate name used in this state;
2. That:
  1. The domestic corporation is duly incorporated under the laws of this state, the effective date of its incorporation, and the period of its duration if less than perpetual; or
  2. The foreign corporation is authorized to conduct affairs in this state;
3. That all fees, taxes and penalties owed to this state have been paid, if:
  1. Payment is reflected in the records of the secretary of state or the department of revenue; and
  2. Nonpayment allows:
    1. Administrative dissolution of a domestic corporation; or
    2. Administrative revocation of the certificate of authority of a foreign corporation;
4. That its most recent annual report required by § 48-66-203 has been filed with the secretary of state;
5. 1. For a domestic corporation:
    1. That articles of termination of existence have not been filed;
    2. Whether or not articles of dissolution have been filed and remain effective;
    3. Whether or not a certificate of dissolution has been filed and remains effective; and
    4. That a decree of judicial dissolution has not been filed;
  2. For a foreign corporation:
    1. That a certificate of withdrawal has not been filed; and
    2. Whether or not a certificate of revocation of certificate of authority has been filed and remains effective;
6. That the certificate of existence or authorization is effective as of the date of the issuance of the certificate; and
7. Other facts of record in the office of the secretary of state that may be requested by the applicant.
Subject to any qualification stated in the certificate, a certificate of existence or authorization issued by the secretary of state is effective as of the date on the certificate and may be relied upon as conclusive evidence that the domestic or foreign corporation is in existence or is authorized to transact business in this state and is in good standing.

Acts 1987, ch. 242, § 1.38; 1991, ch. 188, § 12; 2010, ch. 742, § 2; 2011, ch. 99, § 26.

48-51-310. Penalty for signing false document.

A person who signs a document, knowing it to be false in any material respect, with intent that the document be delivered to the secretary of state for filing, commits a Class A misdemeanor.

Acts 1987, ch. 242, § 1.39; 1989, ch. 591, §§ 1, 6.

Code Commission Notes.

The misdemeanor in this section has been designated as a Class A misdemeanor by authority of § 40-35-111, which provides that an offense designated a misdemeanor without specification as to category is a Class A misdemeanor. See also § 39-11-114.

Cross-References. Forgery, false entries on books, penalty, § 39-14-114.

Penalty for Class A misdemeanor, § 40-35-111.

Part 4
Secretary of State

48-51-401. Powers.

The secretary of state has the power reasonably necessary to perform the duties required of the secretary of state by chapters 51-68 of this title, including, without limitation, the power to promulgate necessary and appropriate rules and regulations consistent with chapters 51-68 of this title, and the power to destroy any records in the secretary of state's office concerning the domestic or foreign corporation ten (10) years after such corporation has dissolved, withdrawn from the state, or has had its certificate of authority revoked.

Acts 1987, ch. 242, § 1.40.

Cross-References. Monthly list of newly licensed corporations, § 8-3-104.

48-51-402. Deputies of secretary of state.

An act of a duly authorized deputy of the secretary of state in the secretary of state's behalf under chapters 51-68 of this title is the equivalent of the act of the secretary of state; provided, that the name of the secretary of state is signed by such deputy as deputy.

Acts 1987, ch. 242, § 1.41.

Part 5
Private Foundations

48-51-501. Private foundations.

1. Except when otherwise determined by a court of competent jurisdiction, a corporation which is a “private foundation,” as defined in § 509(a) of the Internal Revenue Code of 1986 (26 U.S.C. § 509(a)):
  1. Shall distribute such amounts for each taxable year at such time and in such manner as not to subject the corporation to tax under § 4942 of the Code (26 U.S.C. § 4942);
  2. Shall not engage in any act of self-dealing as defined in § 4941(d) of the Code (26 U.S.C. § 4941(d));
  3. Shall not retain any excess business holdings as defined in § 4943(c) of the Code (26 U.S.C. § 4943(c));
  4. Shall not make any taxable expenditures as defined in § 4944 of the Code (26 U.S.C. § 4944); and
  5. Shall not make any taxable expenditures as defined in § 4945(d) of the Code (26 U.S.C. § 4945(d)).
2. All references in this section to sections of the Code shall be to such sections of the Internal Revenue Code of 1986 (26 U.S.C.), as amended from time to time, or to corresponding provisions of subsequent internal revenue laws of the United States.
Subsection (a) shall not apply to any corporation to the extent that a court of record having equity jurisdiction shall determine that such application would be contrary to the terms of the charter or other instrument governing such corporation or governing the administration of charitable funds held by it and that the same may not be properly changed to conform to such sections.

Acts 1987, ch. 242, § 1.50.

Cross-References. Elective technical prep high school curriculum credits in association with nonprofit organizations, § 49-6-1207.

Part 6
Judicial Relief

48-51-601. Judicial relief.

If for any reason it is impractical or impossible for any corporation to call or conduct a meeting of its members, delegates, or directors, or otherwise obtain their consent, in the manner prescribed by its charter, bylaws, or chapters 51-68 of this title, then upon petition of a director, officer, delegate, member or the attorney general and reporter, any court of record having equity jurisdiction in the county where the corporation's principal office is located (and if not in this state, in Davidson County) may order that such a meeting be called or that a written ballot or other form of obtaining the vote of members, delegates, or directors be authorized, in such a manner as the court finds fair and equitable under the circumstances.
The court shall, in an order issued pursuant to this section, provide for a method of notice reasonably designed to give actual notice to all persons who would be entitled to notice of a meeting held pursuant to the charter, bylaws and chapters 51-68 of this title, whether or not the method results in actual notice to all such persons or conforms to the notice requirements that would otherwise apply. In a proceeding under this section, the court may determine who the members or directors are.
The order issued pursuant to this section may dispense with any requirement relating to the holding of or voting at meetings or obtaining votes, including any requirement as to quorums or as to the number or percentage of votes needed for approval, that would otherwise be imposed by the charter, bylaws, or chapters 51-68 of this title.
Whenever practical, any order issued pursuant to this section shall limit the subject matter of meetings or other forms of consent authorized to items, including amendments to the charter or bylaws, the resolution of which will or may enable the corporation to continue managing its affairs without further resort to this section; provided, that an order under this section may also authorize the obtaining of whatever votes and approvals are necessary for a dissolution, merger or sale of assets.
Any meeting or other method of obtaining the vote of members, delegates, or directors conducted pursuant to an order issued under this section, and which complies with all the provisions of such order, is for all purposes a valid meeting or vote, as the case may be, and shall have the same force and effect as if it complied with every requirement imposed by the charter, bylaws and chapters 51-68 of this title.

Acts 1987, ch. 242, § 1.60.

Cross-References. Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Part 7
Attorney General and Reporter

48-51-701. Attorney general and reporter.

The attorney general and reporter shall be given notice of the commencement of any proceeding which chapters 51-68 of this title authorize the attorney general and reporter to bring but which has been commenced by another person.
Whenever any provision of chapters 51-68 of this title requires that notice be given to the attorney general and reporter or permits the attorney general and reporter to commence a proceeding:
1. If no proceeding has been commenced, the attorney general and reporter may take appropriate action including, but not limited to, seeking injunctive relief;
2. If a proceeding has been commenced by a person other than the attorney general and reporter, the attorney general and reporter, as of right, may intervene in such proceeding.
Whenever any provision of chapters 51-68 of this title requires or authorizes any act or transaction upon a corporation providing written notice to the attorney general and reporter or obtaining prior review, approval, consent, or waiver of the attorney general and reporter, with respect to such act or transaction, then:
1. The party seeking such approval, consent, or waiver shall make full, true and timely disclosure with respect to the proposed act or transaction, including the production of any relevant data, documents, and detailed statements of any and all collateral or oral understandings or agreements;
2. The party seeking consent, approval, or waiver is obligated to produce in a timely fashion any additional information or documents the attorney general and reporter may thereafter request in order to review the matter, and the attorney general and reporter may also conduct whatever independent investigation the attorney general and reporter believes is appropriate;
3. No oral clearance, release, or other oral statement purporting to bind the attorney general and reporter may be given, and the requesting party may rely only upon a written consent, approval, or waiver signed by the attorney general and reporter or the attorney general and reporter's designee;
4. The attorney general and reporter may decline to consider the request for consent, approval, or waiver, and inaction by the attorney general and reporter, within the statutory period of notice, or otherwise, shall not be construed as consent to or approval of the act or transaction, or construed to waive, estop, or in any other way restrict the attorney general and reporter from exercising the attorney general and reporter's authority under chapters 51-68 of this title; and
5. Any written consent, approval, or waiver given by the attorney general and reporter under chapters 51-68 of this title shall be deemed only to state the enforcement intention of the attorney general and reporter as of the date of such written statement. The attorney general and reporter retains the right to bring whatever action or proceeding the attorney general and reporter subsequently comes to believe is required by the public interest; provided, that if the attorney general and reporter in writing approves, consents to, or waives enforcement with respect to an act or transaction, the attorney general and reporter will not exercise the attorney general and reporter's right to bring an enforcement action hereunder when:
  1. There has been full and true disclosure at the time the request was presented; and
  2. Each request, if any, for additional information or documents by the attorney general and reporter as set forth in this section has been met fully, truthfully and timely.

Acts 1987, ch. 242, § 1.70.

NOTES TO DECISIONS

1. Challenge to Sale of Corporation.

The attorney general and reporter and directors or members of the nonprofit corporation are the only persons with standing to bring a legal challenge to the sale of a public benefit corporation based on either the reasonableness of the price or the corporation's power to sell. State ex rel. Adventist Health Care Sys./Sunbelt Health Care Corp. v. Nashville Memorial Hosp., 914 S.W.2d 903, 1995 Tenn. App. LEXIS 534 (Tenn. Ct. App. 1995).

Chapter 52
Incorporation

48-52-101. Incorporators.

One (1) or more persons may act as the incorporator or incorporators of a corporation by delivering a charter to the secretary of state for filing. If any incorporator dies or is for any reason unable to act, the other incorporators, if any, may act. If there is no incorporator able to act, any person for whom an incorporator was acting as agent may act in the incorporator's stead or, if such other person also dies or is for any reason unable to act, or the incorporator was not acting as an agent, the incorporator's legal representative may act.

Acts 1987, ch. 242, § 2.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, incorporation, title 48, ch. 12.

Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Trusts for perpetual care of private cemeteries, title 46, ch. 7.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 8.

48-52-102. Charter.

The charter must set forth:
1. A corporate name for the corporation that satisfies the requirements of § 48-54-101;
2. One (1) of the following statements:
  1. This corporation is a public benefit corporation; or
  2. This corporation is a mutual benefit corporation;
3. If the corporation is a religious corporation, a statement to that effect;
4. The street address and zip code of the corporation's initial registered office, the county in which the office is located, and the name of its initial registered agent at that office;
5. The name, address and zip code of each incorporator;
6. The street address and zip code of the initial principal office, and a mailing address if the United States Postal Service does not deliver to the principal office, of the corporation;
7. A statement that the corporation is not for profit;
8. A statement that the corporation will or will not have members; and
9. Provisions not inconsistent with law regarding the distribution of assets upon dissolution.
The charter may set forth:
1. The names and addresses of the individuals who are to serve as the initial directors;
2. Provisions not inconsistent with law:
  1. Stating the purpose or purposes for which the corporation is organized;
  2. Regarding the management of the business and regulating the affairs of the corporation; and
  3. Defining, limiting and regulating the powers and rights of the corporation, its board of directors and members or any class thereof;
3. 1. A provision eliminating or limiting the personal liability of a director to the corporation or its members for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director:
    1. For any breach of the director's duty of loyalty to the corporation or its members;
    2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
    3. Under § 48-58-302;
  2. 1. No such provision shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective;
    2. All references in this subsection (b) to a “director” are also deemed to refer to a member of the governing body of a corporation which dispenses with or limits the authority of the board of directors pursuant to § 48-58-101(c);
4. Any provision that under chapters 51-68 of this title is required or permitted to be set forth in the bylaws;
5. 1. A provision permitting or making obligatory indemnification of a director for liability to any person for any action taken, or any failure to take any action, as a director, except liability for:
    1. Receipt of a financial benefit to which the director is not entitled;
    2. An intentional infliction of harm;
    3. A violation of § 48-58-302; or
    4. An intentional violation of criminal law; and
  2. For purposes of subdivision (b)(5)(A):
    1. “Liability” means the obligation to pay a judgment, settlement, penalty, fine, including excise tax assessed with respect to an employee benefit plan, as reasonable expenses incurred with respect to a proceeding; and
    2. “Proceeding” includes a threatened, pending or completed proceeding;
6. That the liability of a director of a corporation that is not a public benefit corporation may be eliminated or limited by a provision of the charter that a director shall not be liable to the corporation or its members for money damages for any action taken, or any failure to take any action, as a director, except liability for:
  1. The amount of a financial benefit received by the director to which the director is not entitled;
  2. An intentional infliction of harm;
  3. A violation of § 48-58-302; or
  4. An intentional violation of criminal law.
The charter need not set forth any of the corporate powers enumerated in chapters 51-68 of this title.

Acts 1987, ch. 242, § 2.02; 1991, ch. 188, § 2; 2014, ch. 899, §§ 16–19.

Cross-References. Applicability to corporations existing on January 1, 1988, § 48-68-101.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1401, 8-502.

Attorney General Opinions. Amending a nonprofit corporation's charter, OAG 00-029, 2000 Tenn. AG LEXIS 29 (2/22/00).

48-52-103. Incorporation.

Unless a delayed effective date is specified, the corporate existence begins when the charter is filed by the secretary of state.
The secretary of state's filing of the charter is conclusive proof that the incorporators satisfied all conditions precedent to incorporation, except in a proceeding by the state to cancel or revoke the incorporation or involuntarily dissolve the corporation.

Acts 1987, ch. 242, § 2.03.

Cross-References. Proof of incorporation in criminal cases, § 40-17-117.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1401.

48-52-104. Liability for preincorporation transactions.

All persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under chapters 51-68 of this title, are jointly and severally liable for all liabilities created while so acting, except for any liability to any person who knew or reasonably should have known that there was no incorporation.

Acts 1987, ch. 242, § 2.04.

48-52-105. Organization of corporation.

After incorporation:
1. If initial directors are named in the charter, the initial directors shall hold an organizational meeting, at the call of a majority of the directors, to complete the organization of the corporation by appointing officers, adopting bylaws, and carrying on any other business brought before the meeting;
2. If initial directors are not named in the charter, the incorporator or incorporators shall hold an organizational meeting at the call of a majority of the incorporators and upon two (2) days' notice of the date, time, and place of the meeting to:
  1. Elect directors and complete the organization of the corporation; or
  2. Elect a board of directors who shall complete the organization of the corporation.
Action required or permitted by chapters 51-68 of this title to be taken by incorporators at an organizational meeting may be taken without a meeting. If all incorporators consent to taking such action without a meeting, the affirmative vote of the number of incorporators that would be necessary to authorize or take such action at a meeting is the act of the incorporators. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each incorporator in one (1) or more counterparts, indicating each signing incorporator's vote or abstention on the action, and shall be included in the minutes or filed with the corporate records reflecting the action taken.
An organizational meeting may be held in or out of this state.

Acts 1987, ch. 242, § 2.05.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1501, 5-1601.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 8.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Failure to Hold Organizational Meeting.

An association was legally constituted and empowered to file a lawsuit to challenge TVA's compliance with the Environmental Policy Act with respect to a particular project where the incorporators failed to hold an organizational meeting but instead held a general membership meeting at which the constitution and bylaws were approved and directors elected and where the directors met and ratified the actions of the general membership meeting after the lawsuit was commenced. Duck River Preservation Asso. v. Tennessee Valley Authority, 410 F. Supp. 756, 1974 U.S. Dist. LEXIS 12792 (E.D. Tenn. 1974).

48-52-106. Bylaws — Limitations on liability.

The incorporators or board of directors of a corporation shall adopt initial bylaws for the corporation.
The bylaws of a corporation may contain any provision for managing the business and regulating the affairs of the corporation that is not inconsistent with law or the charter.
1. The bylaws may contain a provision permitting or requiring indemnification of a director for liability to any person for any action taken, or any failure to take any action, as a director, except liability for:
  1. Receipt of a financial benefit to which the director is not entitled;
  2. An intentional infliction of harm;
  3. A violation of § 48-58-302 (unlawful distribution); or
  4. An intentional violation of criminal law; and
2. For purposes of this subsection (c):
  1. “Liability” means the obligation to pay a judgment, settlement, penalty, fine, including excise tax assessed with respect to an employee benefit plan, as reasonable expenses incurred with respect to a proceeding; and
  2. “Proceeding” includes a threatened, pending or completed proceeding.
The liability of a director of a nonprofit corporation that is not a public benefit corporation may be eliminated or limited by a provision of the bylaws that a director shall not be liable to the corporation or its members for money damages for any action taken, or any failure to take any action, as a director, except liability for:
1. The amount of a financial benefit received by the director to which the director is not entitled;
2. An intentional infliction of harm;
3. A violation of § 48-58-302; or
4. An intentional violation of criminal law.

Acts 1987, ch. 242, § 2.06; 2014, ch. 899, § 20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1502, 5-1503, 5-1602, 5-1603.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 17.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Force of Bylaws.

Bylaws consistent with the charter were as much the law of the corporation as though they were a part of its charter. State ex rel. College of Bishops v. Board of Trust, 129 Tenn. 279, 164 S.W. 1151, 1913 Tenn. LEXIS 102 (1914).

48-52-107. Emergency bylaws.

Unless the charter provides otherwise, the board of directors or the incorporators of a corporation may adopt bylaws to be effective only in an emergency. The emergency bylaws, which are subject to amendment or repeal by the members, may make all provisions necessary for managing the corporation during the emergency, including:
1. Procedures for calling a meeting of the board of directors;
2. Quorum requirements for the meeting; and
3. Designation of additional or substitute directors.
All provisions of the regular bylaws consistent with the emergency bylaws remain effective during the emergency. The emergency bylaws are not effective after the emergency ends.
Corporate action taken in good faith in accordance with the emergency bylaws:
1. Binds the corporation; and
2. May not be used to impose liability on a corporate director, officer, employee or agent.

Acts 1987, ch. 242, § 2.07.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 17.

Chapter 53
Purposes and Powers

Part 1
Purposes and Powers of Nonprofit Corporations

48-53-101. Purposes.

Every corporation incorporated under chapters 51-68 of this title has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the charter.
A corporation engaging in an activity that is subject to regulation under another statute of this state may incorporate under chapters 51-68 of this title only if permitted by, and subject to all limitations of, the other statute.

Acts 1987, ch. 242, § 3.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, purposes and powers, title 48, ch. 13.

48-53-102. General powers.

Unless its charter provides otherwise, every corporation has perpetual duration and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its affairs, including, without limitation, power to:
1. Sue and be sued, complain, and defend in its corporate name;
2. Have a corporate seal, which may be altered at will, and to use it, or a facsimile of it, by impressing or affixing it or in any other manner reproducing it;
3. Make and amend bylaws, not inconsistent with its charter or with the laws of this state, for regulating and managing the affairs of the corporation;
4. Purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
5. Sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of, or grant a security interest in, all or any part of its property;
6. Purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, or grant a security interest in; and deal in and with shares of other interests in, or obligations of, any other entity;
7. Make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations, (which may be convertible into or include the option to purchase other securities of the corporation), and secure any of its obligations or those of any other person by mortgage, pledge of, or security interest in, any of its property, franchises, or income;
8. Lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
9. Be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
10. Conduct its activities, locate offices, and exercise the powers granted by chapters 51-68 of this title within or without this state;
11. Elect, appoint, and designate directors and appoint officers, employees, and agents of the corporation, define their duties, and fix their compensation;
12. Pay pensions and establish pension plans, pension trusts, profit sharing plans, and benefit or incentive plans for any or all of the current or former directors, officers, employees, and agents;
13. Make donations for the public welfare or for charitable, scientific, or educational purposes;
14. Make payments or donations, or do any other act, not inconsistent with law, that furthers the corporate interest;
15. Accept gifts, devises, and bequests subject to any conditions or limitations contained in such gift, devise, or bequest, so long as such conditions or limitations are not contrary to chapters 51-68 of this title or the purposes for which the corporation is organized;
16. Impose dues, assessments, admission, service and transfer fees upon its members;
17. Establish conditions for admission to membership, admit members, and issue memberships;
18. Carry on a business; and
19. Do all things necessary or convenient, not inconsistent with law, to further the activities and affairs of the corporation.
A nonprofit corporation shall not have or issue shares of stock.

Acts 1987, ch. 242, § 3.02.

Cross-References. Authentication of corporate instruments, § 66-22-108.

Ownership and conveyance of land by religious societies, title 66, ch. 2, part 2.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

Attorney General Opinions. Domestic nonprofit water cooperative merging with or transferring assets to municipality, OAG 06-176, 2006 Tenn. AG LEXIS 196 (12/19/06).

48-53-103. Emergency powers.

In anticipation of or during an emergency, the board of directors of a corporation may:
1. Modify lines of succession to accommodate the incapacity of any director, officer, employee or agent; and
2. Relocate the principal office, designate alternative principal offices or regional offices, or authorize the officers to do so.
During an emergency, unless emergency bylaws provide otherwise:
1. Notice of a meeting of the board of directors need be given only to those directors whom it is practicable to reach and may be given in any practicable manner, including by publication and radio; and
2. One (1) or more officers of the corporation present at a meeting of the board of directors may be deemed to be directors for the meeting, in order of rank and within the same rank in order of seniority, as necessary to achieve a quorum.
Corporate action taken in good faith during an emergency under this section to further the ordinary affairs of the corporation:
1. Binds the corporation; and
2. May not be used to impose liability on a corporate director, officer, employee, or agent.

Acts 1987, ch. 242, § 3.03.

48-53-104. Ultra vires actions.

Except as provided in subsection (b), the validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act.
A corporation's power to act may be challenged in a proceeding against the corporation to enjoin an act where a third party has not acquired rights. The proceedings may be brought by the attorney general and reporter, a director, or by a member or members in a derivative proceeding.
A corporation's power to act may be challenged in a proceeding against an incumbent or former director, officer, employee or agent of the corporation. The proceeding may be brought by a director, the attorney general and reporter, or the corporation, directly, derivatively, or through a receiver, a trustee or other legal representative.

Acts 1987, ch. 242, § 3.04.

Cross-References. For-profit business corporations, Ultra vires actions, § 48-13-104.

Limited liability companies, Ultra vires actions, § 48-213-101.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 72, 86.

NOTES TO DECISIONS

1. Challenge to Sale of Corporation.

2. Standing.

Homeowners had no standing to pursue derivative claims against a developer because the homeowners controlled less than five percent of the voting power of a homeowners' association. Hughes v. New Life Dev. Corp., 387 S.W.3d 453, 2012 Tenn. LEXIS 819 (Tenn. Nov. 19, 2012).

Trial court's ruling that a homeowner association's (HOA) had the authority to bring an action against the owners of a lot in the subdivision because pursuant to the Tennessee Non-Profit Corporation Act, the owners could not challenge the HOA's power to enforce the declaration of covenants, conditions, and restrictions; the owners were not members of the HOA, and they did not file a derivative action. Royalton Woods Homeowner Ass'n v. Soholt, — S.W.3d —, 2019 Tenn. App. LEXIS 46 (Tenn. Ct. App. Jan. 29, 2019), appeal denied, — S.W.3d —, 2019 Tenn. LEXIS 262 (Tenn. June 20, 2019).

Condominium unit owner's challenges to the authority of the board of managers of a nonprofit development management association failed because the owner did not initiate the challenges to the board's authority in the form of derivative proceeding and because the owner did not have standing to bring such a proceeding as the owner's ownership interest only comprised 4.7 percent of the total voting power within the association. Kirby Parkway Prof'l Condo. Ass'n v. Cindy-Jarvis Ltd. L.P., — S.W.3d —, 2020 Tenn. App. LEXIS 598 (Tenn. Ct. App. Dec. 30, 2020).

Decisions Under Prior Law

1. Ratification.

An association was legally constituted and empowered to file a lawsuit to challenge TVA's compliance with the Environmental Policy Act with respect to a particular project even though the incorporators failed to hold an organizational meeting but instead held a general membership meeting at which the constitution and bylaws were approved and directors elected and where the directors met and ratified the actions of the general membership meeting after the lawsuit was commenced. Duck River Preservation Asso. v. Tennessee Valley Authority, 410 F. Supp. 756, 1974 U.S. Dist. LEXIS 12792 (E.D. Tenn. 1974).

2. Suit by Members.

One or more stockholders of a corporation could maintain a suit in chancery in behalf of themselves and all other stockholders against the corporation and its officers and all others participating in any unauthorized and ultra vires action, to declare such action ultra vires and to enjoin its consummation, where the complainant stockholders had first demanded of the corporation that it bring the suit for the purpose, and the demand was refused. Knapp v. Supreme Commandery, U. O. G. C. W., 121 Tenn. 212, 118 S.W. 390, 1908 Tenn. LEXIS 17 (1908).

Part 2
Nonprofit Fair Asset Protection Act

48-53-201. Short title.

This part shall be known and may be cited as the “Nonprofit Fair Asset Protection Act.”

Acts 2018, ch. 769, § 1.

Compiler's Notes. For the Preamble to the act concerning protecting assets of nonprofit corporations, see Acts 2018, ch. 769.

48-53-202. Nonprofit fair asset protection.

Notwithstanding any provision of law to the contrary, it is unlawful for:

A national nonprofit corporation that has received a charter under 36 U.S.C. Subt. II, Pt. B, to terminate, revoke, suspend, or fail to renew a license or charter affiliating a Tennessee nonprofit corporation with the national nonprofit corporation absent good cause;
A national nonprofit corporation that has received a charter under 36 U.S.C. Subt. II, Pt. B, to discriminate against a licensed or chartered affiliated Tennessee nonprofit corporation by imposing requirements not imposed on other similarly situated affiliates of the national nonprofit corporation; or
A national nonprofit corporation that has received a charter under 36 U.S.C. Subt. II, Pt. B, to act indirectly to accomplish what would be otherwise prohibited under this part.

Acts 2018, ch. 769, § 1.

Compiler's Notes. For the Preamble to the act concerning protecting assets of nonprofit corporations, see Acts 2018, ch. 769.

48-53-203. “Good cause” defined.

For the purpose of this part, “good cause” means to exclude any refusal or failure by the Tennessee nonprofit corporation to make purchases of or to contract to make purchases of goods or services where the board of directors of the Tennessee nonprofit corporation determines, according to the standards set forth in § 48-58-301, that making a purchase or contracting to make a purchase is not in the best interest of the Tennessee nonprofit corporation or is commercially unreasonable.

Acts 2018, ch. 769, § 1.

Compiler's Notes. For the Preamble to the act concerning protecting assets of nonprofit corporations, see Acts 2018, ch. 769.

48-53-204. Violations — Remedies.

Any condition, stipulation, provision, or term of any agreement that is in conflict with this part or that would purport to waive or restrict the application of any provision of this part is void and unenforceable.
Nothing in this part abrogates or amends the standards for directors set forth in § 48-58-301.
In addition to any other remedies or rights of actions, a Tennessee nonprofit corporation that is injured by a violation or threatened violation of this part may bring a private right of action for injunctive relief and to recover costs and reasonable attorneys' fees if the Tennessee nonprofit corporation is the prevailing party in the action.
All ordinances, resolutions, rules, or requirements of any type that are in conflict with this part are void and unenforceable.

Acts 2018, ch. 769, § 1.

Compiler's Notes. For the Preamble to the act concerning protecting assets of nonprofit corporations, see Acts 2018, ch. 769.

Chapter 54
Name

48-54-101. Corporate name.

A corporate name may not contain language stating or implying that the corporation:
1. Transacts or has power to transact any affairs for which authorization in whatever form and however denominated is required under the laws of this state, unless the appropriate commission or officer has granted such authorization and certifies that fact in writing;
2. Is organized as, affiliated with, or sponsored by, any fraternal, veterans', service, religious, charitable or professional organization, unless that fact is certified in writing by the organization with which affiliation or sponsorship is claimed;
3. Is an agency or instrumentality of, affiliated with, or sponsored by the United States or the state of Tennessee or a subdivision or agency thereof, unless such fact is certified in writing by the appropriate official of the United States or the state of Tennessee or subdivision or agency thereof; or
4. Is organized for a purpose other than that permitted by § 48-53-101 and its charter.
Except as authorized by subsection (c), the name of a corporation shall be distinguishable upon the records of the secretary of state from the respective names of or for every other entity, whether true, assumed, reserved or registered, to the extent the use or reservation of such names is evidenced by a filing with the secretary of state under applicable law.
A domestic corporation, or person acting on behalf of a corporation not yet formed, may apply to the secretary of state for authorization to use a name that is not distinguishable upon the secretary of state's records from one (1) or more of the names described in subsection (b). The secretary of state shall authorize use of the indistinguishable name applied for, if:
1. The person holding the right to use the previously filed name described in subsection (b) consents to the use in writing and submits an undertaking, in a form satisfactory to the secretary of state, to cancel its reservation of such name or change such name to a name that is distinguishable upon the records of the secretary of state from the name of the applicant;
2. The applicant delivers to the secretary of state a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state; or
3. The person holding the right to use the previously filed name described in subsection (b) consents in writing to the use of such name by the applicant, and both the other person and the applicant consent in a form satisfactory to the secretary of state to use the same registered agent.
1. A domestic corporation or a foreign corporation authorized to conduct affairs or applying for a certificate of authority to conduct affairs may elect to adopt an assumed corporate name that complies with the requirements of subsections (a), (b) and (c).
2. As used in chapters 51-68 of this title, “assumed corporate name” means any name used by the corporation other than its true corporate name, except that the following shall not constitute the use of an assumed corporate name under chapters 51-68 of this title:
  1. The identification by a corporation of its business with a trademark or service mark of which it is the owner or licensed user; and
  2. The use of a name of a division, not separately incorporated; provided, that the corporation also clearly discloses its corporate name.
3. Before conducting affairs in this state under an assumed corporate name or names, the corporation shall, for each assumed corporate name, pursuant to resolution by its board of directors, execute and file in accordance with chapter 51, part 3 of this title, an application setting forth:
  1. The true corporate name;
  2. The state or country under the laws of which it is organized;
  3. That it intends to transact business under an assumed corporate name; and
  4. The assumed corporate name which it proposes to use.
4. The right to use an assumed corporate name shall be effective for five (5) years from the date of filing by the secretary of state.
5. A corporation shall renew the right to use its assumed corporate name or names, if any, within the two (2) months preceding the expiration of such right, for a period of five (5) years, by filing an application to renew each assumed name and paying the renewal fee as prescribed by § 48-51-303(a).
Any domestic or foreign corporation may, pursuant to resolution by its board of directors, change or cancel any or all of its assumed corporate names by executing and filing, in accordance with chapter 51, part 3 of this title, an application setting forth:
1. The true corporate name;
2. The state or country under the laws of which it is organized;
3. That it intends to cease conducting affairs under an assumed corporate name by changing or cancelling it;
4. The assumed corporate name to be changed from or cancelled; and
5. If the assumed corporate name is to be changed, the assumed corporate name which the corporation proposes to use.
Upon the filing of an application to change an assumed corporate name, the corporation shall have the right to use such assumed corporate name for the period authorized by subsection (d).
The right to use an assumed corporate name shall be cancelled by the secretary of state:
1. If the corporation fails to renew an assumed corporate name;
2. If the corporation has filed an application to change or cancel an assumed corporate name;
3. If a domestic corporation has been dissolved; or
4. If a foreign corporation has had its certificate of authority to conduct affairs in this state revoked or has withdrawn its certificate of authority.
Nothing in this section or in § 48-54-102, § 48-54-103 or § 48-65-106 shall abrogate or limit the law as to unfair competition or unfair trade practice, or derogate from the common law, the principles of equity, or the statutes of this state or of the United States with respect to the right to acquire and protect trade names and trademarks.

Acts 1987, ch. 242, § 4.01; 1989, ch. 445, §§ 3, 26; 2010, ch. 743, §§ 3, 4; 2017, ch. 333, § 1.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, title 48, ch. 68.

Business corporations, name, title 48, ch. 14.

Corporate name of foreign corporations, § 48-65-106.

Foreign corporations, Corporate name, § 48-25-106.

Savings and loan associations, Corporate name, § 45-3-209.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1804 — 5-1806, 5-2307.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 16.

48-54-102. Reserved name.

A person may reserve the exclusive use of a corporate name, including an assumed corporate name for a foreign corporation whose corporate name is not available, by delivering an application to the secretary of state for filing. The application must set forth the name and address of the applicant and the name proposed to be reserved. If the secretary of state finds that the corporate name applied for meets the requirements of § 48-54-101 and is available, the secretary of state shall reserve the name for the applicant's exclusive use for a four-month period. Upon the expiration of the four-month period, the same or any other party may apply to reserve the same name.
The owner of a reserved corporate name, including an assumed corporate name, may transfer the reservation to another person by delivering to the secretary of state a notice of the transfer signed by the owner that states the name and address of the transferee.
The reservation of a specific name may be cancelled by filing with the secretary of state a notice, executed by the applicant or transferee, specifying the name reservation to be cancelled and the name and address of the applicant or transferee.

Acts 1987, ch. 242, § 4.02; 1989, ch. 445, § 4.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1801 — 5-1803.

48-54-103. Registered name.

A foreign corporation may register its corporate name, or an assumed corporate name under which it conducts affairs, if the name is distinguishable upon the records of the secretary of state from the corporate names that are not available under § 48-54-101(b).
A foreign corporation registers its corporate name, or its assumed corporate name, or its corporate name with any changes required by § 48-65-106, by delivering to the secretary of state for filing an application:
1. Setting forth its corporate name, or its corporate name with any changes required by § 48-65-106, the state or country and date of its incorporation, and a brief description of the activities in which it is engaged; and
2. Accompanied by a certificate of existence (or a document of similar import) from the state or country of incorporation. The certificate shall not bear a date of more than one (1) month prior to the date the application is filed in this state.
The name is registered for the applicant's exclusive use upon the effective date of the application and until the end of the calendar year in which such registration occurs.
A foreign corporation whose registration is effective may renew it for successive years by delivering to the secretary of state for filing a renewal application, which complies with the requirements of subsection (b), between October 1 and December 31 of the preceding year. The renewal application renews the registration for the following calendar year.
A foreign corporation whose registration is effective may thereafter qualify as a foreign corporation under that name or consent in writing to the use of that name by a corporation thereafter incorporated under chapters 51-68 of this title or by another foreign corporation thereafter authorized to transact business in this state. The registration terminates when the domestic corporation is incorporated or the foreign corporation qualifies or consents to the qualification of another foreign corporation under the registered name.

Acts 1987, ch. 242, § 4.03.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1807, 5-1808.

Chapter 55
Office and Agent

48-55-101. Registered office and registered agent.

Each corporation must continuously maintain in this state:
1. A registered office that may be the same as any of its places of business; and
2. A registered agent, who may be:
  1. An individual who resides in this state and whose business office is identical with the registered office;
  2. A for-profit domestic corporation or nonprofit domestic corporation whose business office is identical with the registered office; or
  3. A for-profit foreign corporation or nonprofit foreign corporation authorized to transact business or conduct affairs in this state whose business office is identical with the registered office.
If a registered agent resigns or is unable to perform the registered agent's duties, the designating corporation shall promptly designate another registered agent to the end that it shall at all times have a registered agent in this state.

Acts 1987, ch. 242, § 5.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, office and agent, tile 48, ch. 15.

Long-arm statutes, title 20, ch. 2, part 2.

Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1904.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 8.

48-55-102. Change of registered office or registered agent.

A corporation may change its registered office or registered agent by delivering to the secretary of state for filing a statement of change that sets forth:
1. The name of the corporation;
2. If the current registered office is to be changed, the street address of the new registered office and the zip code for such office and the county in which the office is located;
3. If the current registered agent is to be changed, the name of the new registered agent; and
4. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
If a registered agent changes the street address of such registered agent's business office, such registered agent may change the street address of the registered office of any corporation for which such registered agent is the registered agent by notifying the corporation in writing of the change and signing (either manually or in facsimile) and delivering to the secretary of state for filing a statement that complies with the requirements of subsection (a) and recites that the corporation has been notified of the change.

Acts 1987, ch. 242, § 5.02; 1991, ch. 188, § 11.

Cross-References. Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1901, 5-1902.

48-55-103. Resignation of registered agent.

A registered agent may resign the registered agent's agency appointment by signing and filing with the secretary of state an original statement of resignation, accompanied by the registered agent's certification that the registered agent has mailed a copy thereof to the principal office of the corporation by certified mail. The statement may include a statement that the registered office is also discontinued.
The agency appointment is terminated, and the registered office discontinued if so provided, on the date on which the statement is filed by the secretary of state.

Acts 1987, ch. 242, § 5.03.

Cross-References. Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1903.

48-55-104. Service on corporation.

A corporation's registered agent is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the corporation.
Whenever a domestic or foreign corporation authorized to transact business or conduct affairs in this state fails to appoint or maintain a registered agent in this state, whenever its registered agent cannot be found with reasonable diligence, whenever a foreign corporation shall transact business or conduct affairs in this state without first procuring a certificate of authority to do so from the secretary of state, or whenever the certificate of authority of a foreign corporation shall have been withdrawn or revoked, then the secretary of state shall be an agent of such corporation upon whom any such process, notice, or demand may be served.
This section does not prescribe the only means, or necessarily the required means, of serving a corporation.

Acts 1987, ch. 242, § 5.04.

Cross-References. Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-55-105. Procedure for service on domestic or foreign corporation by service on secretary of state.

Service on the secretary of state, when the secretary of state is an agent for a domestic or foreign corporation as provided in § 48-55-104(b), of any process, notice, or demand shall be made by delivering to the secretary of state the original and one (1) copy of such process, notice, or demand, duly certified by the clerk of the court in which the suit or action is pending or brought, together with the proper fee. A statement which identifies which of the grounds, as listed in § 48-55-104(b), for service on the secretary of state is applicable, must be included. The secretary of state shall endorse the time of receipt upon the original and copy and immediately shall send the copy, along with a written notice that service of the original was also made, by registered or certified mail, with return receipt requested, addressed to such corporation at its registered office or principal office as shown in the records on file in the secretary of state's office or as shown in the official registry of the state or country in which such corporation is incorporated. If none of the previously mentioned addresses are available to the secretary of state, service may be made on any one (1) of the incorporators at the address set forth in the charter. The secretary of state may require the plaintiff (or complainant as the case may be) or such person's attorney to furnish the latter address.
The refusal or failure of such corporation to accept delivery of the registered or certified mail provided for in subsection (a), or the refusal or failure to sign the return receipt, shall not affect the validity of such service; and any such corporation refusing or failing to accept delivery of such registered or certified mail shall be charged with knowledge of the contents of any process, notice, or demand contained therein.
When the registered or certified mail return receipt is received by the secretary of state or when a corporation refuses or fails to accept delivery of the registered or certified mail and it is returned to the secretary of state, the secretary of state shall forward the receipt or such refused or undelivered mail to the clerk of the court in which the suit or action is pending, together with the original process, notice, or demand, a copy of the notice sent to the defendant corporation and the secretary of state's affidavit setting forth the secretary of state's compliance with this section. Upon receipt thereof, the clerk shall copy the affidavit on the rule docket of the court and shall mark it, the receipt or refused or undelivered mail, and the copy of notice as of the day received and place them in the file of the suit or action where the process and pleadings are kept, and such receipt or refused or undelivered mail, affidavit, and copy of notice shall be and become a part of the technical record in the suit or action and thereupon service on the defendant shall be complete. Service made under this section shall have the same legal force and validity as if the service had been made personally in this state.
Subsequent pleadings or papers permitted or required to be served on such defendant domestic or foreign corporation may be served on the secretary of state as agent for such defendant corporation in the same manner, at the same cost and with the same effect as process, notice, or demand are served on the secretary of state as agent for such defendant corporation under this section.
No appearance shall be required in the suit or action by the defendant domestic or foreign corporation nor shall any judgment be taken against the defendant domestic or foreign corporation in less than one (1) month after the date service is complete under this section.
The secretary of state shall keep a record of all processes, notices, and demands served upon the secretary of state under this section, which record shall include the time of such service and the secretary of state's action with reference thereto.

Acts 1987, ch. 242, § 5.05; 1989, ch. 445, § 5.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Chapter 56
Members and Memberships

Part 1
Admission of Members

48-56-101. Admission.

A corporation may admit any person as a member. If there are to be criteria or procedures for admission as a member, then such criteria or procedures shall be established by the charter or bylaws.
No person shall be admitted as a member without the person's consent.
A corporation may issue certificates evidencing membership therein, but such certificates shall not include provisions inconsistent with the charter, bylaws, or chapters 51-68 of this title.

Acts 1987, ch. 242, § 6.01.

Cross-References. Application of nonprofit corporation law, chs. 51-67 of this title, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, shareholders, title 48, ch. 17.

Business corporations, shares and distributions, title 48, ch. 16.

48-56-102. Consideration.

Except as provided in its charter or bylaws, a corporation may admit members for no consideration or for such consideration as is determined by the board.

Acts 1987, ch. 242, § 6.02.

48-56-103. No members required.

A corporation is not required to have members.

Acts 1987, ch. 242, § 6.03.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Part 2
Types of Memberships — Members' Rights and Obligations

48-56-201. Differences in rights and obligations of members.

All members have the same rights and obligations with respect to voting, dissolution, redemption and transfer, unless the charter or bylaws establish classes of membership with different rights or obligations. All members have the same rights and obligations with respect to any other matters, except as set forth in or authorized by the charter or bylaws.

Acts 1987, ch. 242, § 6.20.

48-56-202. Transfers.

Except as set forth in or authorized by the charter or bylaws, no member of a corporation may transfer a membership or any right arising therefrom.
Where transfer rights have been provided, no restriction on them shall be binding with respect to a member holding a membership issued prior to the adoption of the restriction unless the restriction is approved by the members and the affected member.

Acts 1987, ch. 242, § 6.21.

48-56-203. Member's liability to third parties.

A member of a corporation is not, as such, personally liable for the acts, debts, liabilities, or obligations of the corporation.

Acts 1987, ch. 242, § 6.22.

NOTES TO DECISIONS

1. Applicability.

Had the city and county designated themselves as “members” of the Waste Authority Corporation, which they created, T.C.A. § 48-56-203 would have relieved them of all contractual liability. Where the city and county opted to form the corporation without members, however, they cannot invoke T.C.A. § 48-56-203 to insulate themselves from liability. Foster Wheeler Energy Corp. v. Metropolitan Knox Solid Waste Authority, Inc., 970 F.2d 199, 1992 U.S. App. LEXIS 16712 (6th Cir. Tenn. 1992), rehearing denied, 970 F.2d 199, 1992 U.S. App. LEXIS 20940 (6th Cir. 1992).

48-56-204. Member's liability for dues, assessments and fees.

A member may become liable to the corporation for dues, assessments or fees by consenting (expressly or impliedly) to such obligation; provided, that a charter or bylaw provision or a resolution adopted by the board authorizing or imposing dues, assessments or fees does not, of itself, create liability.
Nothing in this section shall prevent a corporation from terminating or suspending a member's membership for nonpayment of dues, assessments or fees, even though the member is not liable to the corporation, pursuant to this section, for payment of such dues, assessments or fees.

Acts 1987, ch. 242, § 6.23.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-56-205. Creditor's action against member.

No proceeding may be brought by a creditor of a corporation to reach the liability, if any, of a member to the corporation unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part or unless such proceeding would be useless.
All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any creditor's proceeding brought under subsection (a) to reach and apply unpaid amounts due the corporation. Any or all members who owe amounts to the corporation may be joined in such proceeding.
Nothing provided in subsection (a) or (b) is intended to preclude the availability of other remedies to a creditor.

Acts 1987, ch. 242, § 6.24.

NOTES TO DECISIONS

1. Nonprofit Corporations.

No law prevents the corporate veil of a nonprofit corporation from being pierced to reach its members for the same reasons that the veil of a business corporation can be pierced to reach its stockholders, and T.C.A. § 48-56-205 recognizes that such a suit can be maintained. Foster Wheeler Energy Corp. v. Metropolitan Knox Solid Waste Authority, Inc., 970 F.2d 199, 1992 U.S. App. LEXIS 16712 (6th Cir. Tenn. 1992), rehearing denied, 970 F.2d 199, 1992 U.S. App. LEXIS 20940 (6th Cir. 1992).

Part 3
Resignation and Termination

48-56-301. Resignation.

A member may resign at any time.
The resignation of a member does not relieve the member from any obligations the member may have to the corporation.

Acts 1987, ch. 242, § 6.30.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2505.

48-56-302. Termination.

Unless the charter provides for the removal of a member and termination of a membership without cause, no member may be expelled or suspended, and no membership or memberships may be terminated or suspended except pursuant to a procedure which is fair and reasonable and is carried out in good faith.
A procedure is fair and reasonable when either:
1. The charter or bylaws set forth a procedure which provides:
  1. Not less than fifteen (15) days' prior written notice of the expulsion, suspension, or termination and the reasons therefor; and
  2. An opportunity for the member to be heard, orally or in writing, not less than five (5) days before the effective date of the expulsion, suspension, or termination by a person or persons authorized to decide that the proposed expulsion, suspension, or termination not take place; or
2. It is fair and reasonable taking into consideration all of the relevant facts and circumstances.
A procedure is not necessarily unfair nor unreasonable:
1. If a member's attorney is excluded from the hearing;
2. If the member is not allowed to cross-examine adverse witnesses; or
3. If the person or persons authorized to make the decision consider matters and evidence which would be inadmissible in a court of law.
Any written notice given by mail must be given by first class or certified mail sent to the last address of the member shown on the corporation's records.
Any proceeding challenging an expulsion, suspension or termination, including a proceeding in which defective notice is alleged, must be commenced within one (1) year after the effective date of the expulsion, suspension or termination.
A member who has been expelled or suspended may be liable to the corporation for dues, assessments or fees.
This section shall not apply to any amendment of the charter or bylaws meeting the requirements of chapters 51-68 of this title and § 48-60-302.

Acts 1987, ch. 242, § 6.31.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

NOTES TO DECISIONS

1. Power of Board of Directors.

Where the corporate charter did not provide otherwise, the board of directors of a nonprofit corporation had the power to decide the issue of termination of a member, and the corporation itself, acting through its board of directors, was the best judge of what causes justify expelling a member. Original Lawrence County Farm Org. v. Tennessee Farm Bureau Fed'n, 907 S.W.2d 419, 1995 Tenn. App. LEXIS 288 (Tenn. Ct. App. 1995).

48-56-303. Purchase of memberships.

A public benefit corporation may not purchase any of its memberships or any right arising therefrom.
A mutual benefit corporation may purchase the membership of a member who resigns or whose membership is terminated for the amount and pursuant to the conditions set forth in or authorized by its charter. No payment shall be made in violation of chapter 63 of this title.

Acts 1987, ch. 242, § 6.32.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Part 4
Derivative Suits

48-56-401. Derivative suits.

A proceeding may be brought in the right of a domestic or foreign corporation to procure a judgment in its favor by:
1. Any member or members having five percent (5%) or more of the voting power or by fifty (50) members, whichever is less; or
2. Any director.
In any such proceeding, each plaintiff shall be a member or director at the time of bringing the proceeding.
A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the directors and either why the plaintiffs could not obtain the action or why they did not make the demand. If a demand for action was made and the corporation's investigation of the demand is in progress when the proceeding is filed, the court may stay the suit until the investigation is completed.
A proceeding commenced under this section may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation's members or a class of members, the court shall direct that notice be given the members affected. If notice is so directed to be given, the court may determine which party or parties to the suit shall bear the expense of giving such notice, in such proportion as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the suit and recoverable in the same manner as other taxable costs.
On termination of the proceeding, the court may require the plaintiffs to pay any defendant's reasonable expenses (including counsel fees) incurred in defending the suit if it finds that the proceeding was commenced frivolously or in bad faith.
If the proceeding on behalf of the corporation results in the corporation taking some action requested by the plaintiffs or otherwise was successful, in whole or in part, or if anything was received by the plaintiffs as a result of a judgment, compromise, or settlement of an action or claim, the court may award the plaintiffs reasonable expenses (including counsel fees).
The plaintiffs shall notify the attorney general and reporter within ten (10) days after commencing any proceedings under this section if the proceeding involves a public benefit corporation or assets held in charitable trust by a mutual benefit corporation.

Acts 1987, ch. 242, § 6.40.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 90.

NOTES TO DECISIONS

1. Standing.

In a dispute between homeowners and a developer, it was error for a trial court to order the developer from violating the tax limitations of the developer's charter because the homeowners had no standing to allege a violation. Hughes v. New Life Dev. Corp., 387 S.W.3d 453, 2012 Tenn. LEXIS 819 (Tenn. Nov. 19, 2012).

Chancery court properly granted summary judgment to an intervening nonprofit organization and its directors and dismissed all of the members' claims because the members lacked standing inasmuch as they could not fairly and adequately represent the interest of the organization's remaining members where they voluntarily surrendered their memberships in the organization according to the organization's constitution, and exhibited an overriding antagonistic relationship between the members and the organization, and the trial court allowed the members a reasonable opportunity to engage in discovery related to the issue of standing both before and after the organization intervened in the case. United Supreme Council AASR SJ v. McWilliams, 586 S.W.3d 373, 2019 Tenn. App. LEXIS 142 (Tenn. Ct. App. Mar. 21, 2019), appeal denied, United Supreme Council v. McWilliams, — S.W.3d —, 2019 Tenn. LEXIS 432 (Tenn. Aug. 20, 2019).

Decisions Under Prior Law

1. In General.

Members of a not-for-profit corporation can bring a derivative action in Tennessee. Bourne v. Williams, 633 S.W.2d 469, 1981 Tenn. App. LEXIS 596 (Tenn. Ct. App. 1981); Hannewald v. Fairfield Communities, Inc., 651 S.W.2d 222, 1983 Tenn. App. LEXIS 701 (Tenn. Ct. App. 1983), superseded by statute as stated in, Brady v. Calcote, — S.W.3d —, 2005 Tenn. App. LEXIS 8 (Tenn. Ct. App. Jan. 11, 2005), superseded by statute as stated in, House v. Edmondson, — S.W.3d —, 2006 Tenn. App. LEXIS 320 (Tenn. Ct. App. May 16, 2006), superseded by statute as stated in, House v. Estate of Edmondson, 245 S.W.3d 372, 2008 Tenn. LEXIS 16 (Tenn. Jan. 25, 2008).

2. Construction with Other Laws.

Tenn. R. Civ. P. 23.06 was broader than former similar section, but they were not in conflict; former section did not affirmatively bar derivative suits, while Tenn. R. Civ. P. 23.06 does include them. Hannewald v. Fairfield Communities, Inc., 651 S.W.2d 222, 1983 Tenn. App. LEXIS 701 (Tenn. Ct. App. 1983), superseded by statute as stated in, Brady v. Calcote, — S.W.3d —, 2005 Tenn. App. LEXIS 8 (Tenn. Ct. App. Jan. 11, 2005), superseded by statute as stated in, House v. Edmondson, — S.W.3d —, 2006 Tenn. App. LEXIS 320 (Tenn. Ct. App. May 16, 2006), superseded by statute as stated in, House v. Estate of Edmondson, 245 S.W.3d 372, 2008 Tenn. LEXIS 16 (Tenn. Jan. 25, 2008).

3. Attorney's Fees.

Former section, read as a whole and in conjunction with Tenn. R. Civ. P. 23.06, did not bar members of not-for-profit corporations from recovering attorney's fees in successful derivative actions. Hannewald v. Fairfield Communities, Inc., 651 S.W.2d 222, 1983 Tenn. App. LEXIS 701 (Tenn. Ct. App. 1983), superseded by statute as stated in, Brady v. Calcote, — S.W.3d —, 2005 Tenn. App. LEXIS 8 (Tenn. Ct. App. Jan. 11, 2005), superseded by statute as stated in, House v. Edmondson, — S.W.3d —, 2006 Tenn. App. LEXIS 320 (Tenn. Ct. App. May 16, 2006), superseded by statute as stated in, House v. Estate of Edmondson, 245 S.W.3d 372, 2008 Tenn. LEXIS 16 (Tenn. Jan. 25, 2008).

Part 5
Delegates

48-56-501. Delegates.

A corporation may provide in its charter or bylaws for delegates having some or all of the authority of members.
The charter or bylaws may set forth provisions relating to:
1. The characteristics, qualifications, rights, limitations and obligations of delegates, including their selection and removal;
2. Calling, noticing, holding and conducting meetings of delegates; and
3. Carrying on corporate activities during and between meetings of delegates.

Acts 1987, ch. 242, § 6.50.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Chapter 57
Meetings and Voting

Part 1
Meetings and Action Without Meetings

48-57-101. Annual meeting.

At a time stated in or fixed in accordance with the bylaws, a corporation with members shall hold annually a meeting of its members.
Annual membership meetings may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held at the corporation's principal office.
At the annual meeting:
1. The president and chief financial officer shall report on the activities and financial condition of the corporation; and
2. The members shall consider and act upon such other matters as may be raised consistent with the notice requirements of § 48-57-105.
The failure to hold an annual meeting at a time stated in or fixed in accordance with a corporation's bylaws does not affect the validity of any corporate action.

Acts 1987, ch. 242, § 7.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, shareholders' meetings, title 48, ch. 17, part 1.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 44.

48-57-102. Special meeting.

A corporation with members shall hold a special meeting of members:
1. On call of its board of directors or the person or persons authorized to do so by the charter or bylaws; or
2. Unless the charter otherwise provides, if the holders of at least ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date, and deliver to the corporation's secretary one (1) or more written demands for the meeting describing the purpose or purposes for which it is to be held.
If not otherwise fixed under § 48-57-103 or § 48-57-107, the record date for determining the members entitled to demand a special meeting is the date the first member signs the demand.
If a notice for a special meeting demanded under subdivision (a)(2) is not given pursuant to § 48-57-105 within one (1) month after the effective date of the written demand or demands under § 48-51-202, regardless of the requirements of subsection (d), any person or persons signing the demand or demands may set the time and place of the meeting and give notice pursuant to § 48-57-105.
Special meetings of members may be held in or out of this state at the place stated in or fixed in accordance with the bylaws. If no place is stated in or fixed in accordance with the bylaws, special meetings shall be held at the corporation's principal office.
Only business within the purpose or purposes described in the meeting notice required by § 48-57-105 may be conducted at a special meeting of members.

Acts 1987, ch. 242, § 7.02; 1989, ch. 445, § 6.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-103. Court-ordered meeting.

A court of record having equity jurisdiction in the county where a corporation's principal office (or, if none in this state, its registered office) is located may summarily order a meeting to be held on application of:
1. Any member or other person entitled to participate in the annual meeting, and in the case of a public benefit corporation, the attorney general and reporter, if an annual meeting was not held within the earlier of six (6) months after the end of the corporation's fiscal year or fifteen (15) months after its last annual meeting; or
2. A member who signed a demand for a special meeting valid under § 48-57-102, or a person or persons entitled to call a special meeting and in the case of a public benefit corporation, the attorney general and reporter, if:
  1. Notice of the special meeting was not given within one (1) month after the date the demand was delivered to the corporation's secretary; or
  2. The special meeting was not held in accordance with the notice.
The court may fix the time and place of the meeting, determine the members entitled to participate and vote at the meeting, specify a record date for determining members entitled to notice of the meeting, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action on those matters), and enter other orders necessary to accomplish the purpose or purposes of the meeting.
If the court orders a meeting, it may also order the corporation to pay the member's costs (including reasonable counsel fees) incurred to obtain the order.

Acts 1987, ch. 242, § 7.03.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-104. Action by written consent.

Action required or permitted by chapters 51-68 of this title to be taken at a meeting of members may be taken without a meeting if all members entitled to vote on the action consent in writing to taking such action without a meeting. If all members entitled to vote on the action consent in writing to taking such action without a meeting, the affirmative vote of the number of votes that would be necessary to authorize or take such action at a meeting shall be the act of the members. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each member entitled to vote on the action in one (1) or more counterparts, indicating each signing member's vote or abstention on the action and delivered to the corporation for inclusion in the minutes or filing with the corporate records.
The charter may provide that any action required or permitted by chapters 51-68 of this title to be taken at a members' meeting may be taken without a meeting, and without prior notice, if consents in writing setting forth the action so taken are signed by the members having not less than the minimum number of votes that would be required to authorize or take the action at a meeting at which all memberships entitled to vote on the action were present and voted. The written consent shall bear the date of signature of the member who signs the consent and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
If not otherwise determined under § 48-57-103 or § 48-57-107, the record date for determining members entitled to take such action without a meeting is the date the first member signs the consent under subsection (a).
A consent signed under this section has the effect of a meeting vote and may be described as such in any document. Unless the charter, bylaws or a resolution of the board of directors provides for a reasonable delay to permit tabulation of written consents, the action taken by written consent shall be effective when written consents signed by sufficient members to take the action are delivered to the corporation.
If chapters 51-68 of this title or the charter requires that notice of proposed action be given to nonvoting members and the action is to be taken by consent of the voting members, then the corporation must give its nonvoting members written notice of the proposed action at least ten (10) days before the action is taken. The notice must contain or be accompanied by the same material that under chapters 51-68 of this title would have been required to be sent to nonvoting members in a notice of meeting at which the proposed action would have been submitted to the members for action.
1. If action is taken by less than unanimous written consent of the voting members, the corporation must give its nonconsenting voting members written notice of the action not more than ten (10) days after:
  1. Written consents sufficient to take the action have been delivered to the corporation; or
  2. Such later date that tabulation of consents is completed pursuant to an authorization under subsection (d).
2. The notice must reasonably describe the action taken and contain or be accompanied by the same material of this title, as would have been required to be sent to voting members in a notice of a meeting at which the action would have been submitted to the members for action.
The notice requirements in subsections (e) and (f) shall not delay the effectiveness of actions taken by written consent, and a failure to comply with such notice requirements shall not invalidate actions taken by written consent; provided, that this subsection (g) shall not be deemed to limit judicial power to fashion any appropriate remedy in favor of a member adversely affected by a failure to give such notice within the required time period.
An electronic transmission may be used to consent to an action, if the electronic transmission contains or is accompanied by information from which the corporation can determine the date on which the electronic transmission was signed and that the electronic transmission was authorized by the member, the member's agent or the member's attorney-in-fact.
Delivery of a written consent to the corporation under this section is delivery to the corporation's registered agent at its registered office or to the secretary of the corporation at its principal office (or to a designated mailing address such as a post office box if the United States Postal Service does not deliver to the corporation's principal office).

Acts 1987, ch. 242, § 7.04; 2014, ch. 899, §§ 21, 22.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-105. Notice of meeting.

A corporation shall give notice consistent with its charter or bylaws of meetings of members in a fair and reasonable manner.
Any notice which conforms to the requirements of subsection (c) is fair and reasonable, but other means of giving notice may also be fair and reasonable when all the circumstances are considered.
Notice is fair and reasonable if:
1. The corporation notifies its members of the place, date and time of each annual and special meeting of members no fewer than ten (10) days nor more than two (2) months before the meeting date;
2. Notice of an annual meeting includes a description of any matter or matters which must be approved by the members under § 48-58-302, § 48-58-507, § 48-60-103, § 48-60-202, § 48-61-103, § 48-62-102 or § 48-64-102; and
3. Notice of a special meeting includes a description of the matter or matters for which the meeting is called.
Unless the bylaws require otherwise, if an annual or special meeting of members is adjourned to a different date, time or place, notice need not be given of the new date, time or place, if the new date, time or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under § 48-57-107, however, notice of the adjourned meeting must be given under this section to the members of record of the new record date.
When giving notice of an annual or special meeting of members, a corporation shall give notice of a matter a member intends to raise at the meeting if:
1. Requested in writing to do so by a person entitled to call a special meeting; and
2. The request is received by the secretary or president of the corporation at least ten (10) days before the corporation gives notice of the meeting.
A certificate of the secretary or other person giving the notice that the notice required by this section has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

Acts 1987, ch. 242, § 7.05.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2006, 5-2106, 5-2202, 5-2303, 5-2506.

48-57-106. Waiver of notice.

A member may waive any notice required by chapters 51-68 of this title, the charter, or bylaws before or after the date and time stated in the notice. The waiver must be in writing, be signed by the member entitled to the notice, and be delivered to the corporation for inclusion in the minutes or filing with the corporate records.
A member's attendance at a meeting:
1. Waives objection to lack of notice or defective notice of the meeting, unless the member at the beginning of the meeting (or promptly upon the member's arrival) objects to holding the meeting or transacting business at the meeting; and
2. Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the member objects to considering the matter when it is presented.

Acts 1987, ch. 242, § 7.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2601.

48-57-107. Record date — Determining members entitled to notice and vote.

The bylaws may fix or provide the manner of fixing the record date for determining the members entitled to notice of a members' meeting. If the bylaws do not fix or provide for fixing such a record date, the board may fix a future date as such a record date. If no such record date is fixed, members at the close of business on the business day preceding the day on which notice is given, or if notice is waived, at the close of business on the business day preceding the day on which the meeting is held, are entitled to notice of the meeting.
The bylaws may fix or provide the manner of fixing a date as the record date for determining the members entitled to vote at a member's meeting. If the bylaws do not fix or provide for fixing such a record date, the board may fix a future date as such a record date. If no such record date is fixed, members on the date of the meeting who are otherwise eligible to vote are entitled to vote at the meeting.
The bylaws may fix or provide the manner for determining a date as the record date for the purpose of determining the members entitled to exercise any rights in respect of any other lawful action. If the bylaws do not fix or provide for fixing such a record date, the board may fix in advance such a record date. If no such record date is fixed, members at the close of business on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action, whichever is later, are entitled to exercise rights.
A record date fixed under this section may not be more than seventy (70) days before the meeting or action requiring a determination of members occurs.
A determination of members entitled to notice of or to vote at a membership meeting is effective for any adjournment of the meeting unless the board fixes a new date for determining the right to notice or the right to vote, which it must do if the meeting is adjourned to a date more than four (4) months after the record date for determining members entitled to notice of the original meeting.
If a court orders a meeting adjourned to a date more than four (4) months after the date fixed for the original meeting, it may provide that the original record date for notice or voting continues in effect or it may fix a new record date for notice or voting.

Acts 1987, ch. 242, § 7.07.

48-57-108. Action by written ballot.

Except as otherwise restricted by the charter or bylaws, any action that may be taken at any annual, regular, or special meeting of members may be taken without a meeting if the corporation having members delivers a ballot to every member entitled to vote on the matter.
A ballot must:
1. Be in the form of a document;
2. Set forth each proposed action;
3. Provide an opportunity to vote for, or withhold a vote for, each candidate for election as a director; and
4. Provide an opportunity to vote for or against or abstain from each proposed action.
Approval by ballot pursuant to this section of action, unless the charter, bylaws, or chapters 51-68 of this title require a greater number of affirmative votes, is valid only when the number of votes cast by ballot equals or exceeds the quorum required to be present at a meeting authorizing the action, and the number of approvals equals or exceeds the number of votes that would be required to approve the matter at a meeting at which the total number of votes cast was the same as the number of votes cast by ballot.
All solicitations for votes by ballot must:
1. Indicate the number of responses needed to meet the quorum requirements;
2. State the percentage of approvals necessary to approve each matter other than election of directors; and
3. Specify the time by which a ballot must be received by the corporation having members in order to be counted.
Except as otherwise permitted by the charter, bylaws or ballot, a ballot may not be revoked.

Acts 1987, ch. 242, § 7.08; 2014, ch. 899, § 23.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Part 2
Voting

48-57-201. Members' list for meeting.

After fixing a record date for a notice of a meeting, a corporation shall prepare an alphabetical list of the names of all its members who are entitled to notice of a meeting. The list must show the address and number of votes each member is entitled to vote at the meeting. The corporation shall prepare on a current basis through the time of the membership meeting a list of members, if any, who are entitled to vote at the meeting, but not entitled to notice of the meeting. This list shall be prepared on the same basis and be part of the list of members.
The list of members must be available for inspection by any member for the purpose of communication with other members concerning the meeting, beginning two (2) business days after notice is given of the meeting for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a reasonable place identified in the meeting notice in the city where the meeting will be held. A member, a member's agent, or attorney is entitled on written demand to inspect and, subject to the limitations of §§ 48-66-102(c) and 48-66-105, to copy the list, at a reasonable time and at the member's expense, during the period it is available for inspection.
The corporation shall make the list of members available at the meeting, and any member, a member's agent, or attorney is entitled to inspect the list at any time during the meeting or any adjournment.
If the corporation refuses to allow a member, a member's agent, or attorney to inspect the list of members before or at the meeting (or copy the list as permitted by subsection (b)), a court of record having equity jurisdiction in the county where a corporation's principal office (or if none in this state, its registered office) is located, on application of the member, may summarily order the inspection or copying at the corporation's expense and may postpone the meeting for which the list was prepared until the inspection or copying is complete.
Refusal or failure to make available the members' list does not affect the validity of action taken at the meeting.

Acts 1987, ch. 242, § 7.20.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 44.

48-57-202. Voting entitlement generally.

Unless the charter or bylaws provide otherwise, each member is entitled to one (1) vote on each matter voted on by the members.
Unless the charter or bylaws provide otherwise, if a membership stands of record in the names of two (2) or more persons, their acts with respect to voting shall have the following effect:
1. If only one (1) vote, such act binds all; and
2. If more than one (1) vote, the vote shall be divided on a pro rata basis.
Memberships standing in the name of another nonprofit or for-profit corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe or, in the absence of a bylaw provision, as the board of directors of such corporation may determine. The corporation whose membership is being voted may rely on the representations of such officer, agent, or proxy as to the authority unless such authority is questioned.

Acts 1987, ch. 242, § 7.21.

48-57-203. Quorum requirements.

Unless chapters 51-68 of this title or the charter or bylaws provide for a higher or lower quorum, ten percent (10%) of the votes entitled to be cast on a matter must be represented at a meeting of members to constitute a quorum on that matter.
An amendment to the charter or bylaws that adds, changes, or deletes a greater quorum or voting requirement shall meet the same quorum requirement in subsection (a) and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.
When a quorum is once present to organize a meeting, a meeting may be adjourned despite the absence of a quorum caused by the subsequent withdrawal of any of those present.

Acts 1987, ch. 242, § 7.22; 2014, ch. 899, §§ 24, 25.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-204. Voting requirements.

If a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the charter, bylaws or chapters 51-68 of this title require a greater number of affirmative votes.

Acts 1987, ch. 242, § 7.23; 2014, ch. 899, § 26.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-205. Proxies.

Unless the charter or bylaws prohibit or limit proxy voting, a member may vote in person or by proxy.
Without limiting the manner in which a member may authorize another person or persons to act for the member as proxy pursuant to this section, the following shall constitute a valid means by which a member may grant such authority:
1. A member may execute a writing authorizing another person or persons to act for the member as proxy. Execution may be accomplished by the member personally signing such writing or by an attorney-in-fact in the case of an individual member or by an authorized officer, director, employee, agent or attorney-in-fact in the case of any other member signing such writing or causing the member's signature to be affixed to such writing by any reasonable means, including, but not limited to, facsimile signature;
2. A member may authorize another person or persons to act for the member as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission; provided, that any such telegram, cablegram, or electronic transmission shall either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or electronic transmission was authorized by the member. If it is determined that such telegrams, cablegrams, or electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making such determination shall specify the information upon which they relied;
3. Any copy, electronic transmission or other reliable reproduction of such writing or transmission may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, that such copy, electronic transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.
An appointment of a proxy is effective when received by the secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless another period is expressly provided in the appointment form.
An appointment of a proxy is revocable by the member unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. Appointments coupled with an interest include the appointment of:
1. A pledgee;
2. A person who purchased or agreed to purchase the membership;
3. A creditor of the corporation who extended it credit under terms requiring the appointment;
4. An employee of the corporation whose employment contract requires the appointment; or
5. A party to a voting agreement created under § 48-57-301.
In the case of a proxy not made irrevocable under subsection (d), the death or incapacity of the member appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the secretary or other officer or agent authorized to tabulate votes before the proxy exercises the proxy's authority under the appointment.
An appointment made irrevocable under subsection (d) becomes revocable when the interest with which it is coupled is extinguished.
A transferee for value of the membership subject to an irrevocable appointment may revoke the appointment if the transferee did not know of its existence when such transferee acquired the membership, and the existence of the irrevocable appointment was not noted conspicuously on the document or documents representing the membership or the right to transfer the membership.
Subject to § 48-57-208 and to any express limitation on the proxy's authority appearing on the face of the appointment form, a corporation is entitled to accept the proxy's vote or other action as that of the member making the appointment.
Each fiduciary, including such acting as executor, administrator, guardian, committee, agent, or trustee, owning memberships registered in such person's name as fiduciary, or in the name of another for the convenience of the fiduciary, whether the corporation issuing such memberships is foreign or domestic, may, in addition to exercising the voting rights vested in such fiduciary, execute and deliver, or cause to be executed and delivered, a proxy or proxies in accordance with this section to others for the voting of such memberships, but subject always to the following limitations:
1. If there are two (2) or more fiduciaries acting, the proxy shall be executed by, and voting instructions shall be issued by, agreement of all fiduciaries or a majority of them, and in the event of failure to obtain a majority, each of the fiduciaries shall vote the number of memberships held by the fiduciaries divided by the number of fiduciaries; and
2. In the event the rights, manner or method of voting or the purpose to be accomplished is fixed by the instrument or instruments appointing the fiduciaries, the directions therein shall govern.

Acts 1987, ch. 242, § 7.24; 2014, ch. 899, § 27.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2501 — 5-2503.

48-57-206. Voting for directors — Cumulative voting.

Unless otherwise provided in the charter or the bylaws, directors are elected by a plurality of the votes cast by the members entitled to vote in the election at a meeting at which a quorum is present.
Members do not have a right to cumulate their votes for directors unless the charter or the bylaws so provide.
If the charter or the bylaws provide for cumulative voting by members, members may so vote, by multiplying the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote, and cast the product for a single candidate or distribute the product among two (2) or more candidates.
Members otherwise entitled to vote cumulatively may not vote cumulatively at a particular meeting unless:
1. The meeting notice or statement accompanying the notice states conspicuously that cumulative voting is authorized; or
2. A member who has the right to cumulate the member's votes gives notice during the meeting and before the vote is taken of the member's intent to cumulate votes, and if one (1) member gives this notice, all other members participating in the election are entitled to cumulate their votes without giving further notice.
Members may not cumulatively vote if the directors and members are identical.

Acts 1987, ch. 242, § 7.25.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-207. Other methods of electing directors.

A corporation may provide in its charter or bylaws for election of directors by members or delegates:

On the basis of chapter or other organizational unit;
By region or other geographic unit;
By preferential voting; or
By any other reasonable method.

Acts 1987, ch. 242, § 7.26.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-208. Corporation's acceptance of votes.

If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a member, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the member.
If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the record name of a member, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the member if:
1. The member is an entity and the name signed purports to be that of an officer or agent of the entity;
2. The name signed purports to be that of an administrator, executor, guardian, or conservator representing the member and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
3. The name signed purports to be that of a receiver or trustee in bankruptcy of the member, and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment;
4. The name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the member and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the member has been presented with respect to the vote, consent, waiver, or proxy appointment; or
5. Two (2) or more persons hold the membership as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the coholders and the person signing appears to be acting on behalf of all the coholders.
The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt about the validity of the signature or about the signatory's authority to sign for the member.
The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the member for the consequences of the acceptance or rejection.
Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise.
The grounds for acceptance of votes set out in subsection (b) do not constitute the exclusive basis on which a corporation may accept votes.

Acts 1987, ch. 242, § 7.27.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-57-209. Inspectors.

A corporation with members may appoint one (1) or more inspectors to act at a meeting of members and make a report in the form of a document of the inspectors' determinations. Each inspector shall execute the duties of inspector impartially and according to the best of the inspector's ability.
The inspectors shall:
1. Ascertain the number of members and their voting power;
2. Determine the members present at a meeting;
3. Determine the validity of proxies and ballots;
4. Count all votes; and
5. Determine the result.
An inspector may, but need not, be a director, member, officer, or employee of the membership corporation. A person who is a candidate for office to be filled at the meeting shall not be an inspector.

Acts 2014, ch. 899, § 28.

Part 3
Voting Agreements

48-57-301. Voting agreements.

An agreement between two (2) or more members, if in writing and signed by the parties thereto, may provide the manner in which the parties to the agreement will exercise their voting rights. Nothing in this subsection (a) shall impair the right of the corporation to treat the members of record as entitled to exercise their voting rights.
No written agreement to which all or less than all the members have actually assented, whether embodied in the charter or bylaws or in any agreement in writing signed by all the parties thereto, which agreement relates to any phase of the affairs of the corporation, whether to its management or otherwise, shall be invalid as between the parties thereto on the ground that it is an attempt by the parties thereto to restrict the discretion of the board of directors in its management of the corporation or to treat the corporation as if it were a partnership or to arrange their relationships in a manner that would be appropriate only between parties.
The duration of any agreement permitted by subsection (a) shall not exceed twenty (20) years. Failure to state a period of duration or stating a period of duration in excess of twenty (20) years shall not invalidate the agreement, but in either case the period of duration of the agreement shall be twenty (20) years. Any such agreement shall be renewable at any time before the expiration of such twenty-year period by agreement of all members bound thereby at the date of renewal.
A transferee of a membership in a corporation whose members have entered into an agreement authorized by subsection (a) or (b) shall be bound by such agreement or any renewal of such agreement authorized by subsection (c) if the transferee takes the membership with notice thereof. A transferee shall be deemed to have notice of any such agreement or any such renewal if the existence thereof is noted on the face or the back of the certificate representing such membership.
The effect of any agreement authorized by subsection (b) or any renewal thereof authorized by subsection (c) shall be to relieve the directors and impose upon the members assenting thereto the liability for managerial acts or omissions that is imposed on directors by law, to the extent that and so long as the discretion or powers of the board of directors, in its management of corporate affairs, are controlled by any such agreement.
A voting agreement created under this section is specifically enforceable, except that a voting agreement is not enforceable to the extent that enforcement of the agreement would violate the purposes of the corporation with members.

Acts 1987, ch. 242, § 7.30; 2014, ch. 899, § 29.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2504.

Chapter 58
Directors and Officers

Part 1
Board of Directors

48-58-101. Requirement for and duties of board of directors.

Each corporation must have a board of directors.
Except as provided in chapters 51-68 of this title or subsection (c), all corporate powers shall be exercised by or under the authority of, and the affairs of the corporation managed under the direction of, its board.
The charter of a mutual benefit corporation may authorize a person or persons to exercise some or all of the powers which would otherwise be exercised by a board. To the extent so authorized, any such person or persons shall have the duties and responsibilities of the directors, and the directors shall be relieved to that extent from such duties and responsibilities.
The charter of a public benefit corporation may authorize no less than three (3) individuals to exercise some or all of the powers which would otherwise be exercised by a board. If individuals are authorized to exercise powers pursuant to this subsection (d), any and all such individuals shall have the duties and responsibilities of the directors, and the directors shall be relieved from such duties and responsibilities; provided, however, if the charter of a public benefit corporation that is in existence and not administratively dissolved on July 1, 2014, contains a provision on or before July 1, 2014, that authorizes less than three (3) individuals or an entity or entities to exercise some or all of the powers that would otherwise be exercised by a board, that provision shall remain valid and effective until the first occurrence of one of the following:
1. The provision is amended or modified to conform with this section;
2. All individuals authorized to exercise powers of the board cease to serve in such a capacity; or
3. The dissolution, resignation or removal of all of the entities authorized to exercise powers of the board.

Acts 1987, ch. 242, § 8.01; 2014, ch. 899, § 30, 31.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, directors and officers, title 48, ch. 18.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1502, 5-1602.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

Director and Officer Liability, 40 Vand. L. Rev. 599 (1987).

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

NOTES TO DECISIONS

1. Power of Board of Directors.

48-58-102. Qualifications of directors.

All directors must be natural persons. The charter or bylaws may prescribe other qualifications for directors. A director need not be a resident of this state or a member of the corporation unless the charter or bylaws so prescribe.

Acts 1987, ch. 242, § 8.02.

48-58-103. Number of directors.

A board of directors must consist of three (3) or more natural persons, with the number specified in or fixed in accordance with the charter or bylaws.
The number of directors may be increased or decreased (but to no fewer than three (3)) from time to time by amendment to, or in the manner prescribed in, the charter or bylaws.

Acts 1987, ch. 242, § 8.03.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-58-104. Election, designation, and appointment of directors.

If the corporation has members, all directors (except the initial directors) shall be elected at the first annual meeting of members, and at each annual meeting thereafter, unless the charter or bylaws provide some other time or method of election, or provide that some of the directors are appointed by some other person or designated.
If the corporation does not have members, all directors (except the initial directors) shall be elected, appointed or designated as provided in the charter or bylaws. If no method of designation or appointment is set forth in the charter or bylaws, the directors (other than the initial directors) shall be elected by the board.

Acts 1987, ch. 242, § 8.04; 1988, ch. 610, § 1; 1993, ch. 412, § 1.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-58-105. Terms of directors generally.

The charter or bylaws must specify the terms of directors. Except for designated or appointed directors, the terms of directors may not exceed five (5) years. In the absence of any term specified in the charter or bylaws, the term of each director shall be one (1) year. Directors may be elected for successive terms.
Except in the case of designated or appointed directors, a decrease in the number of directors or term of office does not shorten an incumbent director's term.
Except as provided in the charter or bylaws:
1. The term of a director filling a vacancy in the office of a director elected by members expires at the next election of directors by members; and
2. The term of a director filling any other vacancy expires at the end of the unexpired term which such director is filling.
Despite the expiration of a director's term, the director continues to serve until a successor is elected, designated or appointed and qualifies, or until there is a decrease in the number of directors.

Acts 1987, ch. 242, § 8.05.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Attorney General Opinions. Service of fifteen consecutive years on a board of directors would not violate T.C.A. § 48-58-105, OAG 07-85, 2007 Tenn. AG LEXIS 85 (6/1/07).

48-58-106. Staggered terms for directors.

The charter or bylaws may provide for dividing the total number of directors into groups and staggering the terms of directors. The terms of office of the several groups need not be uniform.

Acts 1987, ch. 242, § 8.06.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-58-107. Resignation of directors.

A director may resign at any time by delivering written notice to the board of directors, its chair or president, or to the corporation.
A resignation is effective when the notice is effective unless the notice specifies a later effective date. If a resignation is made effective at a later date, the board may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.

Acts 1987, ch. 242, § 8.07.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2603.

48-58-108. Removal of directors elected by members or directors.

The members may remove one (1) or more directors elected by them with or without cause, unless the charter provides that directors may be removed only for cause. The charter or bylaws may specify what constitutes cause for removal.
If a director is elected by a class, chapter or other organizational unit or by region or other geographic grouping, the director may be removed only by the members of that class, chapter, unit or grouping.
Except as provided in subsection (i), a director may be removed under subsection (a) or (b) only if the number of votes cast to remove the director would be sufficient to elect the director at a meeting to elect directors.
If cumulative voting is authorized, a director may not be removed if the number of votes, or if the director was elected by a class, chapter, unit or grouping of members, the number of votes of that class, chapter, unit or grouping, sufficient to elect the director under cumulative voting is voted against the director's removal.
A director elected by members may be removed by the members only at a meeting called for the purpose of removing the director and the meeting notice must state that the purpose, or one (1) of the purposes, of the meeting is removal of the director.
In computing whether a director is protected from removal under subsections (b)-(d), it should be assumed that the votes against removal are cast in an election for the number of directors of the class to which the director to be removed belonged on the date of that director's election.
An entire board of directors may be removed under subsections (a)-(e).
The board of directors of a corporation may remove a director without cause who has been elected by the board by the vote of two thirds (2/3) of the directors then in office or such greater number as is set forth in the charter or bylaws.
If at the beginning of a director's term on the board, the charter or bylaws provide that the director may be removed for missing a specified number of board meetings, the board may remove the director for failing to attend the specified number of meetings. The director may be removed only if a majority of the directors then in office vote for the removal.

Acts 1987, ch. 242, § 8.08; 2014, ch. 899, § 32.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-58-109. Removal of designated or appointed directors.

A designated director may be removed by an amendment to the charter or bylaws deleting or changing the designation.
Except as otherwise provided in the articles or bylaws, an appointed director may be removed without cause by the person appointing the director. The person removing the director shall do so by giving written notice of the removal to the director and either the presiding officer of the board or the corporation's president or secretary. A removal is effective when the notice is effective unless the notice specifies a future effective date.

Acts 1987, ch. 242, § 8.09; 2004, ch. 505, § 1.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-58-110. Removal of directors by judicial proceeding.

Any court of record having equity jurisdiction in the county where a corporation's principal office (or if none in this state, its registered office) is located may remove any director of the corporation from office in a proceeding commenced either by the corporation, its members holding at least ten percent (10%) of the voting power of any class or the attorney general and reporter in the case of a public benefit corporation if the court finds that:
1. The director engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the corporation, or a final judgment has been entered finding that the director has violated a duty set forth in part 3 of this chapter; and
2. Removal is in the best interest of the corporation.
The court that removes a director may bar the director from serving on the board for a period prescribed by the court.
If members or the attorney general and reporter commence a proceeding under subsection (a), the corporation shall be made a party defendant.
If a public benefit corporation or its members commence a proceeding under subsection (a), they shall give the attorney general and reporter written notice of the proceeding.

Acts 1987, ch. 242, § 8.10.

48-58-111. Vacancy on board.

Unless the charter or bylaws provide otherwise, and except as provided in subsections (b) and (c), if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors or a vacancy resulting from a removal with or without cause:
1. The members, if any, may fill the vacancy. If the vacant office was held by a director elected by a class, chapter or other organizational unit or by region or other geographic grouping, only members of that class, chapter, unit or grouping are entitled to vote to fill the vacancy if it is filled by the members;
2. The board of directors may fill the vacancy; or
3. If the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
Unless the charter or bylaws provide otherwise, if a vacant office was held by an appointed director, only the person who appointed the director may fill the vacancy.
If a vacant office was held by a designated director, the vacancy shall be filled as provided in the charter or bylaws. In the absence of an applicable charter or bylaw provision, the vacancy may not be filled by the board.
A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 48-58-107(b) or otherwise) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.

Acts 1987, ch. 242, § 8.11.

48-58-112. Compensation of directors.

Unless the charter or bylaws provide otherwise, the board of directors may fix the compensation of directors.

Acts 1987, ch. 242, § 8.12.

Part 2
Meetings and Action of Board

48-58-201. Regular and special meetings.

If the time and place of a directors' meeting is fixed by the bylaws or the board, the meeting is a regular meeting. All other meetings are special meetings.
A board of directors may hold regular or special meetings in or out of this state. Unless the charter or bylaws otherwise provide, special meetings of the board of directors may be called by the presiding officer of the board, the president, or any two (2) directors.
Unless the charter or bylaws provide otherwise, a board may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

Acts 1987, ch. 242, § 8.20.

48-58-202. Action without meeting.

Unless the charter or bylaws provide otherwise, action required or permitted by chapters 51-68 of this title to be taken at a board of directors' meeting may be taken without a meeting. If all directors consent to taking such action without a meeting, the affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the board. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each director, and included in the minutes filed with the corporate records reflecting the action taken.
Action taken under this section is effective when the last director signs the consent, unless the consent specifies a different effective date.
A consent signed under this section has the effect of a meeting vote and may be described as such in any document.

Acts 1987, ch. 242, § 8.21.

48-58-203. Notice of meetings.

Unless the charter, bylaws or subsection (c) provide otherwise, regular meetings of the board may be held without notice.
Unless the charter, bylaws or subsection (c) provide otherwise, special meetings of the board must be preceded by at least two (2) days' notice to each director of the date, time, and place, but not the purpose, of the meeting.
In corporations without members, any board action to remove a director or to approve a matter, which would require approval by the members if the corporation had members, shall not be valid unless each director is given at least seven (7) days' written notice that the matter will be voted upon at a directors' meeting or unless notice is waived pursuant to § 48-58-204.
Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken and if the period of adjournment does not exceed one (1) month in any one (1) adjournment.

Acts 1987, ch. 242, § 8.22.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2005, 5-2105, 5-2201, 5-2302, 5-2601, 5-2602.

48-58-204. Waiver of notice.

A director may waive any notice required by chapters 51-68 of this title, the charter or bylaws before or after the date and time stated in the notice. Except as provided in subsection (b), the waiver must be in the form of a document, signed by the director entitled to the notice, and filed with the minutes or the corporate records.
A director's attendance at or participation in a meeting waives any required notice of the meeting unless the director at the beginning of the meeting (or promptly upon the director's arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

Acts 1987, ch. 242, § 8.23; 2014, ch. 899, § 33.

48-58-205. Quorum and voting.

Except as otherwise provided in chapters 51-68 of this title, the charter or bylaws, a quorum of a board of directors consists of a majority of the directors in office immediately before a meeting begins. In no event may the charter or bylaws authorize a quorum of fewer than the greater of one third (1/3) of the number of directors in office or two (2) directors. When a quorum is once present to organize a meeting, a meeting may be later adjourned despite the absence of a quorum caused by the subsequent withdrawal of any of those present.
If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the board unless chapters 51-68 of this title, the charter or bylaws require the vote of a greater number of directors.
A director who is present at a meeting of the board of directors when corporate action is taken is deemed to have assented to the action taken unless:
1. The director objects at the beginning of the meeting (or promptly upon the director's arrival) to holding it or transacting business at the meeting;
2. The director's dissent or abstention from the action taken is entered in the minutes of the meeting; or
3. The director delivers notice in the form of a document of the director's dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

Acts 1987, ch. 242, § 8.24; 2014, ch. 899, § 34.

Law Reviews.

Why a Board? Group Decisionmaking in Corporate Governance, 55 Vand. L. Rev. 1 (2002).

48-58-206. Committees.

Unless the charter or bylaws provide otherwise, a board of directors may create one (1) or more committees of the board. A committee may consist of one (1) natural person. Except as provided in § 48-58-703, members of committees of the board of directors may be members of the board of directors or other natural persons, and they shall serve at the pleasure of the board of directors.
The creation of a committee and appointment of members to it must be approved by the greater of:
1. A majority of all the directors in office when the action is taken; or
2. The number of directors required by the charter or bylaws to take action under § 48-58-205.
Sections 48-58-201 — 48-58-205, which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the board, apply to committees of the board and their members as well.
To the extent specified by the board of directors or in the charter or bylaws, each committee of the board may exercise the board's authority under § 48-58-101.
A committee may not, however:
1. Authorize distributions;
2. Approve or recommend to members dissolution, merger or the sale, pledge or transfer of all or substantially all of the corporation's assets;
3. Elect, appoint or remove directors or fill vacancies on the board or on any of its committees; or
4. Adopt, amend or repeal the charter or bylaws.
The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in § 48-58-301.
The board of directors may appoint one (1) or more directors as alternate members of any committee to replace any absent or disqualified committee member during the member's absence or disqualification.
The corporation may create or authorize the creation of one (1) or more advisory committees whose members need not be directors. An advisory committee is not a committee of the board and may not exercise any of the powers of the board.

Acts 1987, ch. 242, § 8.25; 2014, ch. 899, §§ 35, 36.

Part 3
Standards of Conduct

48-58-301. General standards for directors.

A director shall discharge all duties as a director, including duties as a member of a committee:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the director reasonably believes to be in the best interests of the corporation.
In discharging such duties, a director is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;
2. Legal counsel, public accountants or other persons as to matters the director reasonably believes are within the person's professional or expert competence;
3. A committee of the board of directors of which the director is not a member, as to matters within its jurisdiction, if the director reasonably believes the committee merits confidence; or
4. One (1) or more volunteers of the corporation whom the director reasonably believes to be reliable and competent in the matters presented.
A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
A director is not liable for any action taken as a director or any failure to take action, if the director performed the duties of the office in compliance with this section, or if the director is immune from suit under § 48-58-601.
A director shall not be deemed to be a trustee with respect to the corporation or with respect to any property held or administered by the corporation, including without limitation, property that may be subject to restrictions imposed by the donor or transferor of such property.
In discharging board or committee duties a director must disclose, or cause to be disclosed, to the other board or committee members information not already known by the other board or committee members but known by the director to be material to the discharge of their decision-making or oversight functions, except that disclosure is not required to the extent that the director reasonably believes that doing so would violate a duty imposed by law, a legally enforceable obligation of confidentiality, or a professional ethics rule.
A director may rely, in the case of a corporation engaged in religious activity, on religious authorities, religious leaders or other persons whose positions or duties the director reasonably believes justify reliance and confidence and whom the director believes to be reliable and competent in the matters presented.

Acts 1987, ch. 242, § 8.30; 2014, ch. 899, §§ 37, 38.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 57, 64, 65.

48-58-302. Personal liability of director — Enforcement.

Unless the director complies with the applicable standards of conduct described in § 48-58-301, a director who votes for or assents to a distribution made in violation of chapters 51-68 of this title or the charter is personally liable to the corporation for the amount of the distribution that exceeds what could have been distributed without violating chapters 51-68 of this title or the charter.
A director held liable for an unlawful distribution under subsection (a) is entitled to contribution from:
1. Every other director who voted for or assented to the distribution without complying with the applicable standards of conduct described in § 48-58-301; and
2. Each person who received an unlawful distribution for the amount of the distribution, whether or not the person receiving the distribution knew it was made in violation of chapters 51-68 of this title or the charter.
A proceeding to enforce:
1. The liability of a director under subsection (a) is barred unless it is commenced within two (2) years after the liability of such director has been finally adjudicated; and
2. Contribution or recoupment under subsection (b) is barred unless it is commenced within one (1) year after the liability of the claimant has been finally adjudicated.
Commencement of actions described in § 48-58-601 shall be governed by such section.

Acts 1987, ch. 242, § 8.31; 2014, ch. 899, § 39.

Attorney General Opinions. Conflicts of interest involving downtown development entities and directors, OAG 99-043, 1999 Tenn. AG LEXIS 56 (2/25/99).

48-58-303. Loans to or guarantees for directors and officers.

A corporation may not lend money to or guarantee the obligation of a director or officer of the corporation.
This section does not apply to loans and guarantees authorized or permitted by any other statute that regulates any special class of corporation.
This section does not apply to:
1. Advances to pay reimbursable expenses reasonably expected to be incurred by a director or officer;
2. Advances to pay premiums on life insurance if the advance is secured by the cash value of the policy;
3. Advances pursuant to part 5 of this chapter;
4. Loans or advances pursuant to employee benefit plans; or
5. Loans to pay relocation expenses.
Neither a sale on credit in the ordinary course of business nor a life insurance policy loan shall be subject to the restrictions of this section.
The fact that a loan or guarantee is made in violation of this section does not affect the borrower's liability on the loan.

Acts 1987, ch. 242, § 8.32; 2014, ch. 899, § 40.

Cross-References. Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-58-304. [Repealed.]

Acts 1987, ch. 242, § 8.33; repealed by Acts 2014, ch. 899, § 41, effective January 1, 2015.

Compiler's Notes. Former § 48-58-304 concerned liability for unlawful distributions.

Part 4
Officers

48-58-401. Required officers.

A corporation has the officers described in its bylaws or designated by its board of directors in accordance with the bylaws; provided, that every corporation shall have a president and a secretary. Unless the charter or bylaws provide otherwise, officers shall be elected or appointed by the board of directors.
A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors.
The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors' and members' meetings and for authenticating records of the corporation.
The same individual may simultaneously hold more than one (1) office in a corporation, except the offices of president and secretary.

Acts 1987, ch. 242, § 8.40; 1989, ch. 445, § 7.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 57, 60.

48-58-402. Duties of officers.

Acts 1987, ch. 242, § 8.41.

48-58-403. Standards of conduct for officers.

An officer with discretionary authority shall discharge all duties under that authority:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the officer reasonably believes to be in the best interests of the corporation.
In discharging such duties, an officer is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more officers or employees of the corporation whom the officer reasonably believes to be reliable and competent in the matters presented; or
2. Legal counsel, public accountants, or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
The duty of an officer includes the obligation to inform:
1. The superior officer to whom, or the board of directors or the committee thereof to which, the officer reports, of information about the affairs of the nonprofit corporation known to the officer, within the scope of the officer's functions and known to the officer to be material to the superior officer, board or committee; and
2. The officer's superior officer, or another appropriate person within the nonprofit corporation, or the board of directors, or a committee thereof, of any action or probable material violation of law involving the corporation or material breach of duty to the corporation by an officer, employee, or agent of the corporation, that the officer believes has occurred or is likely to occur.
An officer is not acting in good faith if the officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
An officer is not liable for any action taken as an officer or any failure to take any action, if the officer performed the duties of office in compliance with this section.

Acts 1987, ch. 242, § 8.42; 2014, ch. 899, § 42.

48-58-404. Resignation and removal of officers.

An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is effective unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the later effective date, its board of directors may fill the pending vacancy before the effective date if the board provides that the successor does not take office until the effective date.
A board may remove any officer at any time with or without cause and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer.

Acts 1987, ch. 242, § 8.43.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2603.

48-58-405. Contract rights of officers — Removal.

The appointment of an officer does not itself create contract rights.
An officer's removal does not affect the officer's contract rights, if any, with the corporation. An officer's resignation does not affect the corporation's contract rights, if any, with the officer.
Except as provided in the charter or bylaws, an officer may be removed at any time with or without cause by the appointing officer unless the board provides otherwise. In this section, “appointing officer” means the officer (including any successor to that officer) who appointed the officer resigning or being removed.

Acts 1987, ch. 242, § 8.44; 2014, ch. 899, § 43.

48-58-406. Release or assignment of life insurance on officers.

Acts 1987, ch. 242, § 8.45.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2604.

Part 5
Indemnification

48-58-501. Part definitions.

In this part:

“Corporation” includes any domestic or foreign predecessor entity of a corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction;
“Director” means an individual who is or was a director of a corporation, is or was a member of a committee of the board, or an individual who, while a director of a corporation or an individual serving on a committee of the board, is or was serving at the corporation's request as a director, member of a committee of the board, officer, partner, trustee, employee, or agent of another foreign or domestic for-profit or nonprofit corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the corporation's request if the director's duties to the corporation also impose duties on or otherwise involve services by the director to the plan or to participants in or beneficiaries of the plan. “Director” includes, unless the contract requires otherwise, the estate or personal representative of a director;
“Expenses” include counsel fees;
“Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses actually incurred with respect to a proceeding;
“Official capacity” means:
1. When used with respect to a director, the office of director in a corporation; and
2. When used with respect to an individual other than a director, as contemplated in § 48-58-507, the office in a corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. “Official capacity” does not include service for any other foreign or domestic profit or nonprofit corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise;
“Party” includes an individual who was, is, or is threatened to be made, a named defendant or respondent in a proceeding; and
“Proceeding” means any threatened, pending, or completed action, suit or proceeding whether civil, criminal, administrative, or investigative and whether formal or informal.

Acts 1987, ch. 242, § 8.50; 2014, ch. 899, § 44, 45.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1401.

48-58-502. Authority to indemnify.

Except as provided in subsection (d), a corporation may indemnify an individual made a party to a proceeding because the individual is or was a director against liability incurred in the proceeding if:
1. The individual's conduct was in good faith; and
2. The individual reasonably believed:
  1. In the case of conduct in the individual's official capacity with the corporation, that the individual's conduct was in its best interest; and
  2. In all other cases, that the individual's conduct was at least not opposed to its best interests; and
3. In the case of any criminal proceeding, the individual had no reasonable cause to believe the individual's conduct was unlawful.
A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in, and beneficiaries of, the plan is conduct that satisfies the requirements of subdivision (a)(2)(B).
The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section.
A corporation may not indemnify a director under this section:
1. In connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation;
2. In connection with any other proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged liable on the basis that personal benefit was improperly received by the director;
3. For any breach of the director's duty of loyalty to the corporation or its members;
4. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
5. Under § 48-58-302.

Acts 1987, ch. 242, § 8.51; 2014, ch. 899, § 46.

Attorney General Opinions. Tennessee bicentennial corporation, indemnification of directors and officers, OAG 94-014, 1994 Tenn. AG LEXIS 10 (2/4/94).

48-58-503. Mandatory indemnification.

Unless limited by its charter, a corporation shall indemnify a director to the extent the director was successful, on the merits or otherwise, or who is immune from suit under § 48-58-601, in the defense of any proceeding to which the director was a party because the director is or was a director of the corporation against reasonable expenses incurred by the director in connection with the proceeding.

Acts 1987, ch. 242, § 8.52; 2014, ch. 899, § 47.

48-58-504. Advance for expenses.

A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if:
1. The director furnishes the corporation a document of the director's good faith belief that the director has met the standard of conduct described in § 48-58-502 or is immune from suit under § 48-58-601;
2. The director furnishes the corporation a document, executed personally or on the director's behalf, to repay the advance if it is ultimately determined that the director is not entitled to indemnification; and
3. A determination is made that the facts then known to those making the determination would not preclude indemnification under this part.
The undertaking required by subdivision (a)(2) must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment.
Determinations and authorizations of payments under this section shall be made in the manner specified in § 48-58-506.

Acts 1987, ch. 242, § 8.53; 2014, ch. 899, § 48.

48-58-505. Court-ordered indemnification.

Entitled to mandatory indemnification under § 48-58-503, in which case the court shall also order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification; or
Fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in § 48-58-502(a) or was adjudged liable as described in § 48-58-502(d), but, if the director was adjudged so liable, indemnification is limited to reasonable expenses incurred.

Acts 1987, ch. 242, § 8.54.

48-58-506. Determination and authorization of indemnification.

A corporation may not indemnify a director who is not a qualified director under § 48-58-502 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in § 48-58-502.
The determination shall be made by:
1. The board of directors by majority vote of a quorum consisting of directors whether or not at the time are parties to the proceeding;
2. If a quorum cannot be obtained under subdivision (b)(1), majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceedings;
3. Independent special legal counsel:
  1. Selected by the board of directors or its committee in the manner prescribed in subdivision (b)(1) or (b)(2); or
  2. If a quorum of the board cannot be obtained under subdivision (b)(1) and a committee cannot be designated under subdivision (b)(2), selected by majority vote of the full board of directors (in which selection directors who are parties may participate);
4. The members, but directors who are at the time parties to the proceeding may not vote on the determination; or
5. Qualified directors as provided in § 48-58-703.
Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by independent special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (b)(3) to select counsel.

Acts 1987, ch. 242, § 8.55; 2014, ch. 899, §§ 49–51.

48-58-507. Indemnification of officers, employees, and agents.

Unless a corporation's charter provides otherwise:

An officer of the corporation who is not a director is entitled to mandatory indemnification under § 48-58-503, and is entitled to apply for court-ordered indemnification under § 48-58-505 in each case, to the same extent as a director;
The corporation may indemnify and advance expenses under this part to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and
A corporation may also indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy, that may be provided by its charter, bylaws, general or specific action of its board of directors, or contract.

Acts 1987, ch. 242, § 8.56.

48-58-508. Insurance.

A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who, while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic business or nonprofit corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by the individual in that capacity or arising from the individual's status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify the individual against the same liability under § 48-58-502 or § 48-58-503.

Acts 1987, ch. 242, § 8.57.

48-58-509. Applicability of part.

1. The indemnification and advancement of expenses granted pursuant to, or provided by, chapters 51-68 of this title shall not be deemed exclusive of any other rights to which a director or officer seeking indemnification or advancement of expenses may be entitled, whether contained in chapters 51-68 of this title, the charter, or the bylaws or, when authorized by such charter or bylaws, in a resolution of members, a resolution of directors, or an agreement providing for such indemnification; provided, that no indemnification may be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to the director or officer establishes the director's or officer's liability:
  1. For any breach of the duty of loyalty to the corporation or its members;
  2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
  3. For a director's or officer's conflicting interest transaction under part 7 of this chapter; or
  4. Under § 48-58-302.
2. Nothing contained in chapters 51-68 of this title shall affect any rights to indemnification to which corporate personnel, other than directors and officers, may be entitled by contract or otherwise under law. If the charter limits indemnification or advancement for expenses, indemnification and advancement for expenses are valid only to the extent consistent with the charter.
This part does not limit a corporation's power to pay or reimburse expenses incurred by a director in connection with appearing as a witness in a proceeding at a time when the director has not been made a named defendant or respondent to the proceeding.
This part does not limit a corporation's power to indemnify, advance expenses to, or provide or maintain insurance on behalf of an employee, agent, or volunteer.

Acts 1987, ch. 242, § 8.58; 2014, ch. 899, §§ 52, 53.

Part 6
Limitation of Actions and Immunity

48-58-601. Limitation of and immunity from actions for breach of fiduciary duty.

Any action alleging breach of fiduciary duties by directors or officers, including alleged violations of the standards established in § 48-58-301, §§ 48-58-701 — 48-58-704, or § 48-58-403, must be brought within one (1) year from the date of such breach or violation. In the event the alleged breach or violation is not discovered nor reasonably should have been discovered within that one-year period, the period of limitation shall be one (1) year from the date such was discovered or reasonably should have been discovered. In no event shall any such action be brought more than three (3) years after the date on which the breach or violation occurred, except where there is fraudulent concealment on the part of the defendant, in which case the action shall be commenced within one (1) year after the alleged breach or violation is, or should have been, discovered.
The general assembly finds and declares that the services of nonprofit boards are critical to the efficient conduct and management of the public and charitable affairs of the citizens of this state. Members of such nonprofit boards must be permitted to operate without concern for the possibility of litigation arising from the discharge of their duties as policy makers.
All directors, trustees or members of the governing bodies of nonprofit cooperatives, corporations, clubs, associations and organizations described in subsection (d), whether compensated or not, shall be immune from suit arising from the conduct of the affairs of such cooperatives, corporations, clubs, associations or organizations. Such immunity from suit shall be removed when such conduct amounts to willful, wanton or gross negligence. Notwithstanding other provisions of this subsection (c) to the contrary, all directors, trustees or members of the governing bodies of nonprofit cemetery corporations, associations and organizations referred to in subdivision (d)(6) shall be immune from personal liability only if such cemetery corporations, associations or organizations carry liability insurance coverage in an amount to be determined by the department of commerce and insurance; provided, that such requirement shall not apply in any county having a population of not less than six thousand (6,000) nor more than six thousand one hundred twenty-five (6,125), according to the 1980 federal census or any subsequent federal census. Nothing in chapters 51-68 of this title shall be construed to grant immunity to the nonprofit cooperative, corporation, association or organization.
Subsection (c) shall apply to the following:
1. Electric membership corporations organized under former title 65, chapter 24 [repealed];
2. Electric cooperatives organized under title 65, chapter 25;
3. Nonprofit corporations, associations and organizations which are exempt from federal income taxation under § 501(c)(3) of the Internal Revenue Code of 1986 (26 U.S.C. § 501(c)(3)), as amended;
4. Not-for-profit civic leagues or organizations which are exempt from federal income taxation under § 501(c)(4) of the Internal Revenue Code of 1954 (26 U.S.C. § 501(c)(4)), as amended;
5. Nonprofit corporations, associations and organizations which are exempt from federal income taxation under § 501(c)(6) of the Internal Revenue Code of 1986 (26 U.S.C. § 501(c)(6)), as amended;
6. Not-for-profit cemetery corporations, associations and organizations which are exempt from federal income taxation under § 501(c)(13) of the Internal Revenue Code (26 U.S.C. § 501(c)(13)), as amended;
7. Not-for-profit agricultural or horticultural organizations which are exempt from federal income taxation under § 501(c)(5) of the Internal Revenue Code of 1986 (26 U.S.C. § 501(c)(5)), as amended;
8. Nonprofit corporations, associations and organizations that are exempt from federal income taxation under § 115 of the Internal Revenue Code of 1986 (26 U.S.C. § 115), as amended;
9. Telephone cooperatives organized or, by virtue of conversion or otherwise, operating under title 65, chapter 29;
10. Public broadcast stations, as defined in 47 U.S.C. § 397(6);
11. Workers' compensation self-insurers pools established in compliance with § 50-6-405(c), by ten (10) or more employers of the same trade or professional association if such trade or professional association is exempt from federal taxation under § 501(c)(6) of the Internal Revenue Code (26 U.S.C., § 501(c)(6));
12. Not-for-profit corporations or associations which are exempt from federal income taxation under Internal Revenue Code of 1954, § 501(c)(7) (26 U.S.C. § 501(c)(7)), as amended, but only if general liability insurance in a reasonable amount is carried by or on behalf of any such club; and
13. Workers' compensation self-insurance pooling arrangements between municipal electric systems and rural electric cooperatives established in compliance with title 50, chapter 6, part 7.
In order for the immunity granted by subsection (c) to apply to workers' compensation self-insurers, such insurers must notify in writing each participating employer and applicant for membership in such self-insurance pool of the immunity from liability granted by this section to the directors, trustees or members of the governing bodies of such nonprofit organization. Notification of such immunity shall be given each time an employer makes application for membership in the pool.

Acts 1986, ch. 926, §§ 1-3; T.C.A., §§ 48-1-851 — 48-1-853; Acts 1987, ch. 242, § 8.60; 1987, ch. 403, § 1; 1988, ch. 952, §§ 1, 2; 1989, ch. 214, § 1; 1989, ch. 445, § 28; 1989, ch. 493, § 1; 1989, ch. 479, § 1; 1990, ch. 701, § 1; 1990, ch. 969, § 1; 1991, ch. 304, § 1; 1994, ch. 809, §§ 1, 2; 1996, ch. 675, § 49; 1999, ch. 399, §§ 1-3; 2001, ch. 87, § 1; 2014, ch. 899, § 96.

Compiler's Notes. Title 65, ch. 24, referred to in this section, was repealed by Acts 1988, ch. 689.

Cross-References. For table of U.S. decennial populations of Tennessee counties, see Volume 13 and its supplement.

Liability of director for unlawful distributions, § 48-58-302.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1401.

Law Reviews.

Unpacking Limited Liability: Direct and Vicarious Liability of Corporate Participants for Torts of the Enterprise (Robert B. Thompson), 47 Vand. L. Rev. 1 (1994).

NOTES TO DECISIONS

1. Charitable Corporations.

An action against a charitable corporation under T.C.A. § 29-35-102 based on allegations of gross negligence and misconduct by certain directors was not precluded by T.C.A. § 48-58-601. State by & Through Pierotti v. Sundquist, 884 S.W.2d 438, 1994 Tenn. LEXIS 255 (Tenn. 1994), rehearing denied, — S.W.2d —, 1994 Tenn. LEXIS 282 (Tenn. Oct. 3, 1994).

2. Homeowners Association.

Directors of a homeowners association were entitled to summary judgment on homeowners' claims of breach of fiduciary duty because the homeowners' bare assertions failed to raise a genuine issue of material fact as to whether the directors' conduct of the association's affairs amounted to willful, wanton, or gross negligence. Moreover, the association was, therefore, also entitled to summary judgment on the homeowners' claim as the homeowners asserted no claim against the association apart from those claims asserted against the directors. Urbanavage v. Capital Bank, — S.W.3d —, 2018 Tenn. App. LEXIS 376 (Tenn. Ct. App. June 29, 2018).

Part 7
Director's or Officer's Conflicting Interest Transactions

48-58-701. Part definitions.

As used in this part:

“Control” or “controlled by” means:
1. Having the power, directly or indirectly, to elect or remove a majority of the members of the board of directors or other governing body of an entity, whether through the ownership of voting memberships, voting rights or interests, by contract, or otherwise; or
2. Being subject to a majority of the risk of loss from the entity's activities or entitled to receive a majority of the entity's residual returns;
“Director's or officer's conflicting interest transaction” means a transaction effected or proposed to be effected by the corporation (or by an entity controlled by the corporation):
1. To which, at the relevant time, the director or officer is a party;
2. Respecting which, at the relevant time, the director or officer had knowledge and a material financial interest known to the director or officer; or
3. Respecting which, at the relevant time, the director or officer knew that a related person was a party or had a material financial interest;
“Fair to the corporation” means, for purposes of § 48-58-702(b)(3), that the transaction as a whole was beneficial to the corporation, taking into appropriate account whether it was:
1. Fair in terms of the director's or officer's dealings with the corporation; and
2. Comparable to what might have been obtainable in an arm's length transaction, given the consideration paid or received by the corporation;
“Material financial interest” means a financial interest in a transaction that would reasonably be expected to impair the objectivity of the director's or officer's judgment when participating in action on the authorization of the transaction;
“Material relationship” means a familial, financial, professional, employment or other relationship that would reasonably be expected to impair the objectivity of the director's judgment when participating in the action to be taken;
1. “Qualified director” means a director who, at the time action is to be taken under § 48-58-703, is not a director:
  1. As to whom the transaction is a director's or officer's conflicting interest transaction; or
  2. Who has a material relationship with another director as to whom the transaction is a director's or officer's conflicting interest transaction;
2. The presence of one (1) or more of the following circumstances shall not automatically prevent a director from being a qualified director:
  1. Nomination or election of the director to the current board by any director who is not a qualified director with respect to the matter (or by any person that has a material relationship with that director), acting alone or participating with others; or
  2. Service as a director of another corporation of which a director who is not a qualified director with respect to the matter (or any individual who has a material relationship with that director), is or was also a director;
“Related person” means:
1. The director's or officer's spouse;
2. A child, stepchild, grandchild, parent, stepparent, grandparent, sibling, stepsibling, half-sibling, aunt, uncle, niece or nephew (or spouse of any thereof) of the director or officer or of the director's or officer's spouse;
3. An individual living in the same home as the director or officer;
4. An entity (other than the corporation or an entity controlled by the corporation) controlled by the director or officer or any person specified in subdivisions (7)(A)-(C);
5. A domestic or foreign:
  1. Business or nonprofit corporation (other than the corporation or an entity controlled by the corporation) of which the director or officer is a director but only with respect to a transaction or proposed transaction to which the corporation and the other business or nonprofit corporation are parties or proposed parties and that is a transaction or proposed transaction that is or should be considered by the board of directors of the corporation;
  2. Unincorporated entity of which the director or officer is a general partner or a member of the governing body; or
  3. Individual, trust or estate for whom or of which the director or officer is a trustee, guardian, personal representative or like fiduciary; or
6. A person that is or an entity that is controlled by an employer of the director or officer;
“Relevant time” means:
1. The time at which directors' action respecting the transaction is taken in compliance with § 48-58-703; or
2. If the transaction is not brought before the board of directors of the corporation (or its committee) for action under § 48-58-703, at the time the corporation (or an entity controlled by the corporation) becomes legally obligated to consummate the transaction; and
“Required disclosure” means disclosure of:
1. The existence and nature of the director's or officer's conflicting interest; and
2. All facts known to the director or officer respecting the subject matter of the transaction that a director or officer free of such conflicting interest would reasonably believe to be material in deciding whether to proceed with the transaction.

Acts 2014, ch. 899, § 54.

48-58-702. Conflicting interest transaction may be subject of equitable relief or give rise to damages award or sanctions — Circumstances when conflicting interest transaction may not be subject of equitable relief or give rise to damages award or sanctions.

A transaction effected or proposed to be effected by the corporation (or by an entity controlled by the corporation) may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director or officer of the corporation, in a proceeding by a member or by or in the right of the corporation, on the ground that the director or officer has an interest respecting the transaction, if it is not a director's or officer's conflicting interest transaction.
A director's or officer's conflicting interest transaction may not be the subject of equitable relief, or give rise to an award of damages or other sanctions against a director or officer of the corporation, in a proceeding by a member or by or in the right of the corporation, on the ground that the director or officer has an interest respecting the transaction, if:
1. Directors' action respecting the transaction was taken in compliance with § 48-58-703 at any time;
2. Member's action respecting the transaction was taken in compliance with § 48-58-704 at any time;
3. The transaction, judged according to the circumstances at the relevant time, is established to have been fair to the corporation; or
4. Approval of the transaction is obtained from:
  1. The attorney general and reporter; or
  2. A court of record having equity jurisdiction in an action in which the attorney general and reporter is joined as party.

Acts 2014, ch. 899, § 54.

48-58-703. When director's or officer's action respecting conflicting interest transaction is effective — Required disclosures — Quorum.

Directors' action respecting a director's or officer's conflicting interest transaction is effective for purposes of § 48-58-702 if the transaction has been authorized by the affirmative vote of a majority (but no fewer than two (2)) of the qualified directors who voted on the transaction, after required disclosure by the conflicted director or officer of information not already known by such qualified directors, or after modified disclosure in compliance with subsection (b); provided, that:
1. The qualified directors have deliberated and voted without the participation by any other director; and
2. Where the action has been taken by a committee, all members of the committee were qualified directors, and either:
  1. The committee was composed of all the qualified directors on the board of directors; or
  2. The members of the committee were appointed by the affirmative vote of a majority of the qualified directors on the board.
Notwithstanding subsection (a), when a transaction is a director's or officer's conflicting interest transaction only because a related person described in § 48-58-701(7)(E) or (7)(F) is a part to or has a material financial interest in the transaction, the conflicted director or officer is not obligated to make required disclosure to the extent that the director or officer reasonably believes that doing so would violate a duty imposed under law, a legally enforceable obligation of confidentiality, or a professional ethics rule; provided, that the conflicted director or officer discloses to the qualified directors voting on the transaction:
1. All the information required to be disclosed that is not so violative;
2. The existence and nature of the director's or officer's conflicting interest; and
3. The nature of the conflicted director's or officer's duty not to disclose the confidential information.
1. A majority (but no fewer than two (2)) of all the qualified directors on the board of directors, or on the committee, constitutes a quorum for purposes of action that complies with this section.
2. Where directors' action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the charter, the bylaws or a provision of law, independent action to satisfy those authorization requirements must be taken by the board of directors or a committee, in which action directors who are not qualified directors may participate.

Acts 2014, ch. 899, § 54.

48-58-704. When members' action respecting a director's or officer's conflicting interest transaction is effective — Disclosure of nonqualified memberships — Quorum — Procedure for noncompliant member votes.

Members' action respecting a director's or officer's conflicting interest transaction is effective for purposes of § 48-58-702(b)(2) if a majority of the votes cast by the holders of all qualified memberships are in favor of the transaction after:
1. Notice to members describing the action to be taken respecting the transaction;
2. Provision to the corporation of the information referred to in subsection (b); and
3. Communication to the members entitled to vote on the transaction of the information that is the subject of required disclosure, to the extent the information is not known by them.
A director or officer who has a conflicting interest respecting the transaction shall, before the members' vote, inform the secretary or other officer or agent of the corporation authorized to tabulate votes, in writing, of the number of memberships that the director or officer knows are not qualified memberships under subsection (c), and the identity of the holders of those memberships.
For purposes of this section:
1. “Beneficial member” means the person who is a beneficial owner of a membership interest held by a nominee as the record member;
2. “Holder” means, and “held by” refers to, memberships held by both a record member and a beneficial member;
3. “Qualified memberships” means all memberships entitled to be voted with respect to the transaction except for memberships that the secretary or other officer or agent of the corporation authorized to tabulate votes either knows, or under subsection (b) is notified, are held by:
  1. A director or officer who has a conflicting interest respecting the transaction; or
  2. A related person of the director or officer (excluding a person described in § 48-58-701(7)(F)); and
4. “Record member” means the person in whose name a membership interest is registered in the records of a corporation or the beneficial owner of the membership interest to the extent of the rights granted by a nominee certificate or other document on file with the corporation.
A majority of the votes entitled to be cast by the holders of all qualified memberships constitutes a quorum for purposes of compliance with this section. Subject to subsection (e), members' action that otherwise complies with this section is not affected by the presence of holders, or by the voting, of memberships that are not qualified memberships.
If a member's vote does not comply with subsection (a) solely because of a director's or officer's failure to comply with subsection (b), and if the director or officer establishes that the failure was not intended to influence and did not in fact determine the outcome of the vote, the court may take such action respecting the transaction and the director or officer, and may give such effect, if any, to the members' vote, as the court considers appropriate in the circumstances.
Where members' action under this section does not satisfy a quorum or voting requirement applicable to the authorization of the transaction by reason of the charter, the bylaws or a provision of law, independent action to satisfy those authorization requirements must be taken by the members, in which action memberships that are not qualified memberships may participate.

Acts 2014, ch. 899, § 54.

Chapter 59
[Reserved]

Chapter 60
Amendment of Charter and Bylaws

Part 1
Amendment of Charter

48-60-101. Authority to amend.

A corporation may amend its charter at any time to add or change a provision that is required or permitted in the charter or to delete a provision not required in the charter. Whether a provision is required or permitted in the charter is determined as of the effective date of the amendment.
Except as provided in § 48-56-202(b), a member of the corporation does not have a vested property right resulting from any provision in the charter or bylaws.

Acts 1987, ch. 242, § 10.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, amendment of charter and bylaws, title 48, ch. 20.

Qualified applicability of Tennessee Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-60-102. Amendment by board of directors.

Unless the charter provides otherwise, a corporation's board of directors may adopt one (1) or more amendments to the corporation's charter without member approval to:
1. Delete the names and addresses of the initial directors;
2. Delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the secretary of state;
3. Designate or change the address of the principal office of the corporation and a mailing address if the United States Postal Service does not deliver to the principal office;
4. Change the corporate name by substituting the word “corporation,” “incorporated,” “company,” or the abbreviation “corp.,” “inc.,” “co.,” for a similar word or abbreviation in the name, or by adding, deleting or changing a geographical attribution to the name;
5. Designate the street address and zip code of the corporation's current registered office, the county in which the office is located, and the name of its current registered agent at that office, as required by § 48-68-101(b);
6. Delete the initial principal office, if an annual report is on file with the secretary of state;
7. Make any other change expressly permitted by chapters 51-68 of this title to be made by director action without member action;
8. Restate without change all of the then operative provisions of the charter; or
9. Extend the duration of the corporation, including perpetual duration, if it was incorporated at a time when limited duration was required by law.
If a corporation has no members, its incorporators, until directors have been chosen, and thereafter its board of directors may adopt one (1) or more amendments to the corporation's charter subject to any approval required pursuant to § 48-60-301. The corporation shall provide notice of any meeting at which an amendment is to be voted upon. The notice shall be in accordance with § 48-58-203. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider a proposed amendment to the charter and contain or be accompanied by a copy or summary of the amendment. The amendment must be approved by a majority of the directors in office at the time the amendment is adopted.

Acts 1987, ch. 242, § 10.02; 1989, ch. 445, § 8; 1991, ch. 188, § 4; 2014, ch. 899, §§ 55, 56.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2005.

48-60-103. Amendment by board of directors and members.

Unless chapters 51-68 of this title, the charter, bylaws, the members (acting pursuant to subsection (b)), or the board of directors (acting pursuant to subsection (c)) require a greater vote or voting by class, an amendment to a corporation's charter to be adopted must be approved:
1. Except as provided in § 48-60-102, by the members by two thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
2. In writing by any person or persons whose approval is required by a provision of the charter authorized by § 48-60-301.
The members may condition the amendment's adoption on receipt of a higher percentage of affirmative votes or on any other basis.
If the board initiates an amendment to the charter or board approval is required by the charter or bylaws to adopt a charter amendment, the board may condition the amendment's adoption on receipt of a higher percentage of affirmative votes or on any other basis.
If the board or the members seek to have the amendment approved by the members at a membership meeting, the corporation shall give notice to its members of the proposed membership meeting in writing in accordance with § 48-57-105. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
If the board or the members seek to have the amendment approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of the amendment.
The board must transmit to the members a recommendation that the members approve the amendment, unless the board makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board must transmit to the members the basis for that determination.

Acts 1987, ch. 242, § 10.03; 2014, ch. 899, § 57.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2006.

Attorney General Opinions. Amending a nonprofit corporation's charter, OAG 00-029, 2000 Tenn. AG LEXIS 29 (2/22/00).

48-60-104. Voting on amendments by members of a class.

The members of a class are entitled to vote as a class on a proposed amendment to the charter if the amendment would:
1. Affect the rights, privileges, preferences, restrictions, or conditions of that class as to voting, dissolution, redemption, or transfer of memberships in a manner different than the amendment would affect another class;
2. Change the rights, privileges, preferences, restrictions, or conditions of that class as to voting, dissolution, redemption, or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class;
3. Increase or decrease the number of memberships authorized for that class;
4. Increase the number of memberships authorized for another class;
5. Effect an exchange or reclassification, or create the right of exchange, of all or part of the memberships of another class into memberships of the class;
6. Authorize a new class of memberships; or
7. Effect a termination of the memberships of that class.
If a class is to be divided into two (2) or more classes as a result of an amendment to the charter, the amendment must be approved by the members of each class that would be created by the amendment.
If a class vote is required to approve an amendment to the charter, the amendment must be approved by the members of the class by two thirds (2/3) of the votes cast by the class or a majority of the voting power of the class, whichever is less.
A class of members is entitled to the voting rights granted by this section although the charter and bylaws provide that the class may not vote on the proposed amendment.

Acts 1987, ch. 242, § 10.04; 2014, ch. 899, §§ 58, 59.

48-60-105. Articles of amendment.

A corporation amending its charter shall deliver to the secretary of state for filing articles of amendment setting forth:

The name of the corporation;
The text of each amendment adopted;
If an amendment provides for an exchange, reclassification, or cancellation of memberships, provisions for implementing the amendment if not contained in the amendment itself;
The date of each amendment's adoption;
If approval of members was not required, a statement to that effect and a statement that the amendment was duly adopted by the incorporators or board of directors;
If approval by members was required, a statement that the amendment was duly adopted by the members; and
A statement as to whether or not approval of the amendment by some person or persons other than the members, the board, or the incorporators is required pursuant to § 48-60-301; and if such approval is required, a statement that the approval was obtained.

Acts 1987, ch. 242, § 10.05.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2003.

48-60-106. Restated charter.

A corporation's board of directors may restate its charter at any time with or without approval by members or any other person.
The restatement may include one (1) or more amendments to the charter. If the restatement includes an amendment requiring approval by the members or any other person, it shall be adopted as provided in § 48-60-103.
If the restatement includes an amendment requiring approval by members, the board must submit the restatement to the members for their approval.
If the board of directors submits a restatement for member action, the corporation shall notify each member, whether or not entitled to vote, of the proposed members' meeting in accordance with § 48-57-105. The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the charter.
If the board seeks to have the restatement approved by the members by written ballot or written consent, the material soliciting the approval shall contain or be accompanied by a copy or summary of the restatement that identifies any amendments or other change it would make in the charter.
A restatement requiring approval by the members must be approved by the same vote as a charter amendment under § 48-60-103.
If the restatement includes an amendment requiring approval pursuant to § 48-60-301, the board must submit the restatement for such approval.
A corporation restating its charter shall deliver to the secretary of state the restated charter, setting forth the name of the corporation and the text of the restated charter, together with a certificate setting forth:
1. Whether the restatement contains an amendment to the charter requiring approval by the members or any person other than the board of directors and, if it does not, that the board of directors adopted the restatement; or
2. If the restatement contains an amendment to the charter requiring approval by the members, the information required by § 48-60-105; and
3. If the restatement contains an amendment to the charter requiring approval by a person whose approval is required pursuant to § 48-60-301, a statement that such approval was obtained.
If the restatement contains an amendment to the charter, it shall be designated in the heading as an “Amended and Restated Charter.”
The restated charter must contain all the requirements of a charter as set out in § 48-52-102(a) unless the corporation is exempt from any of those requirements pursuant to § 48-68-101(b).
A duly adopted restated charter supersedes the original charter and all prior amendments thereto.
The secretary of state may certify a restated charter as the charter currently in effect, without including the certificate information required by subsection (h).

Acts 1987, ch. 242, § 10.06; 1989, ch. 445, § 9; 1991, ch. 188, § 6.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2002.

48-60-107. Amendment of charter pursuant to reorganization.

A corporation's charter may be amended without action by the board of directors, members or any other person pursuant to § 48-60-301 to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under the authority of a law of the United States if the charter after amendment contains only provisions required or permitted by § 48-52-102.
The individual or individuals designated by the court shall deliver to the secretary of state for filing articles of amendment setting forth:
1. The name of the corporation;
2. The text of each amendment approved by the court;
3. The date of the court's order or decree approving the articles of amendment;
4. The title of the reorganization proceeding in which the order or decree was entered; and
5. A statement that the court had jurisdiction of the proceeding under federal statute.
This section does not apply after entry of a final decree in the reorganization proceedings, even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

Acts 1987, ch. 242, § 10.07; 2014, ch. 899, § 60.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2004.

48-60-108. Effect of amendment.

Except as provided in subsections (b), (c), and (d), an amendment to the charter does not affect a cause of action existing against or in favor of the corporation, a proceeding to which the corporation is a party, or the existing rights of persons other than members of the corporation or persons referred to in the charter. An amendment changing a corporation's name does not abate a proceeding brought by or against the corporation in its former name.
Property held in trust by a corporation or otherwise dedicated to a charitable purpose may not be diverted from its purpose by an amendment of its charter unless the corporation obtains an appropriate order of a court of competent jurisdiction to the extent required by and pursuant to the law of this state on cy pres or otherwise dealing with the nondiversion of charitable assets.
Unless a corporation, after notifying the attorney general and reporter, obtains an appropriate order of a court of competent jurisdiction under the law of this state on cy pres or otherwise dealing with the nondiversion of charitable assets, an amendment of its charter may not affect:
1. Any restriction imposed upon property held by the corporation by virtue of any trust under which it holds that property; or
2. The existing rights of persons other than its members.
A person who is a member or otherwise affiliated with a public benefit corporation may not receive a direct or indirect financial benefit in connection with an amendment of the charter unless the person is itself a public benefit corporation or an unincorporated entity with a charitable purpose. This subsection (d) does not apply to the receipt of reasonable compensation for services rendered.

Acts 1987, ch. 242, § 10.08; 2014, ch. 899, § 61; 2016, ch. 688, § 2.

Part 2
Amendment of Bylaws

48-60-201. Amendment of bylaws by board of directors.

If a corporation has no members, its incorporators, until directors have been chosen, and thereafter its board of directors, may adopt one (1) or more amendments to the corporation's bylaws, subject to any approval required pursuant to § 48-60-301. The corporation shall provide notice of any meeting of directors at which an amendment is to be approved. The notice shall be in accordance with § 48-58-203. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider a proposed amendment to the bylaws and contain or be accompanied by a copy or summary of the amendment or state the general nature of the amendment. The amendment must be approved by a majority of the directors in office at the time the amendment is adopted.

Acts 1987, ch. 242, § 10.20.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1503, 5-1603, 5-2005.

48-60-202. Amendment of bylaws by board of directors or members.

A corporation's board of directors may amend or repeal the corporation's bylaws unless:
1. The charter or chapters 51-68 of this title reserve this power exclusively to the members in whole or in part; or
2. The members in amending or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw.
A corporation's members may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors. An amendment to the bylaws shall be approved by members by two thirds (2/3) of the votes cast or a majority of the voting power, whichever is less. An amendment to the bylaws which relates solely to the dues required for membership and which establishes or changes a specific amount for dues shall be approved by a majority of the members present and voting unless the charter or bylaws specify a higher voting percentage.
An amendment or repeal of a bylaw requires the written approval of a third person or persons if the charter so provides in accordance with § 48-60-301.

Acts 1987, ch. 242, § 10.21; 1988, ch. 859, § 1.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-60-203. Bylaw increasing quorum or voting requirement for members.

If expressly authorized by the charter, the members may adopt or amend a bylaw that fixes a greater quorum or voting requirement for members (or voting groups of members) than is required by chapters 51-68 of this title. The adoption or amendment of a bylaw that adds, changes, or deletes a greater quorum or voting requirement for members must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.
A bylaw that fixes a greater quorum or voting requirement for members under subsection (a) may not be adopted, amended or repealed by the board of directors.
Except as provided in the charter or bylaws, the board of directors of a corporation that has one (1) or more members at the time may not adopt or amend a bylaw under:
1. Section 48-56-201 providing differences in rights and obligations of members;
2. Section 48-56-204 addressing member's liability for dues, assessments and fees;
3. Section 48-56-302 relating to termination;
4. Section 48-56-303 authorizing the purchase of memberships;
5. Section 48-58-108(a) requiring cause to remove a director;
6. Section 48-58-108(a) specifying what constitutes cause to remove a director;
7. Section 48-58-109 relating to removal of designated or appointed directors; or
8. Section 48-58-101(c) authorizing persons to exercise powers otherwise exercised by the board.

Acts 1987, ch. 242, § 10.22; 2014, ch. 899, § 62.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-60-204. Bylaw increasing quorum or voting requirement for directors.

A bylaw that fixes a greater quorum or voting requirement for the board of directors may be amended or repealed:
1. By written approval of any person or persons whose approval is required by a charter provision authorized by § 48-60-301;
2. If originally adopted by the members, only by the members; and
3. If originally adopted by the board of directors, either by the members or by the board of directors.
A bylaw adopted or amended by the members that fixes a greater quorum or voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the members or the board of directors.
Action by the board of directors under subdivision (a)(3) to adopt or amend a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.

Acts 1987, ch. 242, § 10.23.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-60-205. Class voting by members on amendments.

The members of a class in a corporation are entitled to vote as a class on a proposed amendment to the bylaws if the amendment would:
1. Affect the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer of memberships in a manner different than the amendment would affect another class;
2. Change the rights, privileges, preferences, restrictions or conditions of that class as to voting, dissolution, redemption or transfer by changing the rights, privileges, preferences, restrictions or conditions of another class;
3. Increase or decrease the number of memberships authorized for that class;
4. Increase the number of memberships authorized for another class;
5. Effect an exchange, reclassification or termination of all or part of the memberships of that class; or
6. Authorize a new class of memberships.
If a class is to be divided into two (2) or more classes as a result of an amendment to the bylaws, the amendment must be approved by the members of each class that would be created by the amendment.
If a class vote is required to approve an amendment to the bylaws, the amendment must be approved by the members of the class by two thirds (2/3) of the votes cast by the class or a majority of the voting power of the class, whichever is less.
A class of members is entitled to the voting rights granted by this section although the charter and bylaws provide that the class may not vote on the proposed amendment.

Acts 1987, ch. 242, § 10.24.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1503, 5-1603.

48-60-206. Amendment to bylaws may not divert property held in trust for charitable purpose from that purpose — Exception — Financial benefit in connection with bylaws amendment prohibited — Exception.

Property held in trust by a corporation or otherwise dedicated to a charitable purpose may not be diverted from its purpose by an amendment of its bylaws unless the corporation obtains an appropriate order of a court of competent jurisdiction to the extent required by and pursuant to the law of this state on cy pres or otherwise dealing with the nondiversion of charitable assets.
Unless a corporation, after notifying the attorney general and reporter obtains an appropriate order of a court of competent jurisdiction under the law of this state on cy pres or otherwise dealing with the nondiversion of charitable assets, an amendment of its bylaws may not affect:
1. Any restriction imposed upon property held by the corporation by virtue of any trust under which it holds that property; or
2. The existing rights of persons other than its members.
A person who is a member or otherwise affiliated with a public benefit corporation may not receive a direct or indirect financial benefit in connection with an amendment of the bylaws unless the person is itself a public benefit corporation or an unincorporated entity with a charitable purpose. This subsection (c) does not apply to the receipt of reasonable compensation for services rendered.

Acts 2014, ch. 899, § 63; 2016, ch. 688, § 3.

Part 3
Charter and Bylaws

48-60-301. Approval by third persons.

The charter may require an amendment to the charter or bylaws to be approved in writing by a specified person or persons other than the board or members. Such a charter provision may only be amended with the approval of such person or persons in the form of a document.

Acts 1987, ch. 242, § 10.30; 2014, ch. 899, § 64.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1503, 5-1603.

48-60-302. Amendment terminating members or redeeming or cancelling memberships.

Any amendment to the charter or bylaws which would terminate all members or any class of members or redeem or cancel all memberships of any class of memberships must meet the requirements of chapters 51-68 of this title and this section.
Before adopting a resolution proposing such an amendment, the board of a mutual benefit corporation shall give notice of the general nature of the amendment to the members.
After the board has adopted a resolution proposing such an amendment, the notice to members proposing such amendment shall include one (1) statement of up to five hundred (500) words opposing the proposed amendment if such statement is submitted by any five (5) members or members having three percent (3%) or more of the voting power, whichever is less, not later than twenty (20) days after the board has voted to submit such amendment to the members for their approval. In public benefit corporations, the production and mailing costs shall be paid by the requesting members. In mutual benefit corporations, the production and mailing costs shall be paid by the corporation.
Any such amendment shall be approved by the members by two thirds (2/3) of the voting power.
Section 48-56-302 shall not apply to any amendment meeting the requirements of chapters 51-68 of this title and this section.

Acts 1987, ch. 242, § 10.31.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1503, 5-2006, 5-2007.

Chapter 61
Mergers, Membership Exchanges, Entity Conversions, and For-Profit Conversions

48-61-101. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

“Converted entity” means the domestic corporation or domestic unincorporated entity that adopts a plan of entity conversion or the foreign unincorporated entity converting to a domestic corporation;
“Eligible entity” means a domestic or foreign unincorporated entity or a domestic or foreign business corporation;
“Eligible interests” means interests or shares;
“Filing entity” means an unincorporated entity that is of a type that is created by filing a public organic document;
“Foreign business corporation” means a corporation for-profit incorporated under an organic law other than the laws of this state;
“Foreign unincorporated entity” means an unincorporated entity whose internal affairs are governed by an organic law other than the laws of this state;
“Interest” means either or both of the following rights under the organic law of an unincorporated entity:
1. The right to receive distributions from the entity either in the ordinary course or upon liquidation; or
2. The right to receive notice or vote on issues involving its internal affairs, other than as an agent, assignee, proxy, or person responsible for managing its business and affairs;
“Interest holder” means a person who holds of record an interest;
“Membership” means the rights of a member in a domestic or foreign nonprofit corporation and includes the rights and obligations a member has pursuant to a corporation's charter, bylaws and chapters 51-68 of this title;
“Party to a merger or membership exchange” means any domestic or foreign nonprofit corporation, or eligible entity that will:
1. Merge in a plan of merger;
2. Acquire memberships or eligible interests of another domestic or foreign corporation, or an eligible entity in a membership exchange; or
3. Have all of its memberships or eligible interests of one (1) or more classes or series acquired in membership exchange;
“Survivor” means the corporation or unincorporated entity that is in existence immediately after consummation of a merger or entity conversion pursuant to this chapter; and
“Voting memberships” means memberships that entitle their holders to vote unconditionally in the election of directors.

Acts 2014, ch. 899, § 65.

Compiler's Notes. Former chapter 61, §§ 48-61-101 — 48-61-107 (Acts 1987, ch. 242, §§ 11.01-11.07), concerning merger, was repealed and reenacted by Acts 2014, ch. 899, §§ 65-72, effective January 1, 2015.

Law Reviews.

Congratulations, It's A Merger!, 50 Tenn. B.J. 22 (2014).

The Market for Preclusion in Merger Litigation, 66 Vand. L. Rev. 1053 (2013).

48-61-102. Permitted mergers — Plan of Merger.

Subject to the limitations on public benefit corporations in § 48-61-122, one (1) or more domestic nonprofit corporations may merge with one (1) or more domestic or foreign nonprofit corporations or eligible entities pursuant to a plan of merger, or two (2) or more foreign nonprofit corporations or domestic or foreign eligible entities may merge into a new domestic nonprofit corporation to be created in the merger in the manner provided in this chapter. The merger shall result in a single survivor.
A foreign nonprofit corporation, or a foreign eligible entity, may be a party to a merger with a domestic nonprofit corporation, or may be created by the terms of the plan of merger, only if the merger is permitted by the organic law of the foreign nonprofit corporation or eligible entity. If the organic law of a domestic eligible entity does not prohibit a merger with a domestic nonprofit corporation but does not provide procedures for the approval of a merger, a plan of merger may be adopted and approved, and the merger effectuated, in accordance with the procedures in this chapter. For the purposes of applying this chapter:
1. The eligible entity, its members or interest holders, eligible interests, and organic documents, taken together shall be deemed to be a domestic nonprofit corporation, members, memberships, charter and bylaws, respectively and vice versa, as the context may require; and
2. If the business and affairs of the eligible entity are managed by a group of persons that is not identical to the members or interest holders, that group shall be deemed to be the board of directors.
The plan of merger must be in the form of an organic document and set forth:
1. The name of each domestic or foreign nonprofit corporation or eligible entity planning to merge and the name of each domestic or foreign nonprofit corporation or eligible entity that shall survive the merger;
2. The terms and conditions of the merger;
3. The manner and basis of converting the memberships of each merging domestic or foreign nonprofit corporation and eligible interests of each merging domestic or foreign eligible entity into memberships or other securities, eligible interests, obligations, rights to acquire memberships, other securities or eligible interests, cash, other property, or any combination of the foregoing;
4. The charter of any domestic or foreign business corporation or nonprofit corporation, or the organic documents of any domestic or foreign unincorporated entity, to be created by the merger, or if a new domestic or foreign nonprofit corporation or unincorporated entity is not to be created by the merger, any amendments to the survivor's charter and bylaws or organic documents; and
5. Any other provision required or permitted by the organic law under which any party to the merger is organized or by which it is governed, or by the charter or organic documents of any such party.
The plan of merger may set forth any other provisions relating to the merger.
Terms of a plan of merger may be made dependent on facts objectively ascertainable outside the plan in accordance with § 48-51-301(j).
The plan of merger may also include a provision that the plan may be amended prior to filing articles of merger, but if the members of a domestic nonprofit corporation that is a party to the merger are required or permitted to vote on the plan, the plan must provide that subsequent to approval of the plan by such members the plan may not be amended to change the following:
1. The amount or kind of memberships or other securities, eligible interests, obligations, rights to acquire memberships, other securities, or eligible interests, cash, or other property to be received under the plan by the members of or owners of eligible interests in any party to the merger;
2. The charter of any corporation, or the organic documents of any unincorporated entity, that will survive or be created as a result of the merger, except for changes permitted by § 48-60-102 or by comparable provisions of the organic laws of any such foreign corporation or domestic or foreign unincorporated entity; or
3. Any of the other terms or conditions of the plan if the change would adversely affect such members in any material respect.
Property held in trust or for charitable purposes under the laws of this state by a domestic or foreign eligible entity shall not be diverted by a merger from the objects for which it was donated, granted, or devised, unless and until the eligible entity obtains a court order specifying the disposition of the property to the extent required by and pursuant to § 35-15-413 or enters into a nonjudicial settlement agreement pursuant to § 35-15-111.

Acts 2014, ch. 899, § 66.

48-61-103. Plan of membership exchange.

Subject to the limitations on public benefit corporations in § 48-61-122, through a membership exchange:
1. A domestic nonprofit corporation may acquire all of the memberships of one (1) or more classes or series of memberships of another domestic or foreign nonprofit corporation or all of the interests of one (1) or more classes or series of interests of a domestic or foreign other entity, in exchange for memberships, other securities, interests, obligations, rights to acquire memberships, other securities, or interests, cash, other property, or any combination of the foregoing, pursuant to a plan of membership exchange; or
2. All of the memberships of one (1) or more classes or series of memberships of a domestic nonprofit corporation may be acquired by another domestic or foreign nonprofit corporation or other entity, in exchange for memberships, other securities, interests, obligations, rights to acquire memberships, other securities or interests, cash, other property, or any combination of the foregoing, pursuant to a plan of membership exchange.
A foreign nonprofit corporation or eligible entity may be a party to a membership exchange only if the membership exchange is permitted by the organic law under which the corporation or other entity is organized or by which it is governed. If the organic law of a domestic other entity does not prohibit a membership exchange with a domestic nonprofit corporation but does not provide procedures for the approval of a membership exchange, a plan of membership exchange may be adopted and approved and the membership exchange effectuated in accordance with the procedures, if any, for a merger. If the organic law of a domestic other entity does not provide procedures for the approval of either a membership exchange or an exchange of interests similar to a membership exchange or a merger, a plan of membership exchange may be adopted and approved and the membership exchange effectuated in accordance with the procedures in this chapter. For the purposes of applying this chapter:
1. The other entity, its interest holders, interests, and organic documents taken together shall be deemed to be a domestic nonprofit corporation, members, memberships, charter and bylaws, respectively and vice versa, as the context may require; and
2. If the business and affairs of the other entity are managed by a group of persons that is not identical to the interest holders, that group shall be deemed to be the board of directors.
The plan of membership exchange must be in the form of an organic document and set forth:
1. The name of each corporation or other entity whose memberships or interests will be acquired and the name of the acquiring corporation or other entity;
2. The terms and conditions of the membership exchange;
3. The manner and basis of exchanging memberships of each corporation or interests in another entity whose memberships or interests will be acquired under the membership exchange into memberships, other securities, interests, obligations, rights to acquire memberships, other securities or interests, cash, other property, or any combination of the foregoing; and
4. Any other provisions required by the organic law under which any party to the membership exchange is organized or by which it is governed, or by the charter or organic document of any such party.
The plan of membership exchange may set forth other provisions relating to the membership exchange.
This section does not limit the power of a domestic nonprofit corporation to acquire all or part of the memberships of one (1) or more classes or series of another corporation or interests of another entity through a voluntary exchange or otherwise.

Acts 2014, ch. 899, § 67.

48-61-104. Approval and adoption of plan of merger or membership exchange.

In the case of a domestic nonprofit corporation that is a party to a merger or membership exchange:

The plan of merger or membership exchange shall be adopted by the board of directors of each party to the merger or membership exchange and approved by the members, if any, of each party;
Except as provided in subdivision (7) and in § 48-61-105, after adopting the plan of merger or membership exchange, the board of directors shall submit the plan of merger or membership exchange for approval to the members if there are members entitled to vote on the plan. The board of directors must also transmit to the members a recommendation that the members approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the members the basis for that determination;
The board of directors may condition its submission of the plan of merger or membership exchange to its members on any basis;
If the plan of merger or membership exchange is required to be approved by the members, and if the approval is to be given at a meeting, the corporation shall notify each member, whether or not entitled to vote, of the members' meeting at which the plan is to be submitted for approval. The notice shall state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan of merger or membership exchange and shall contain or be accompanied by a copy or summary of the plan. If the corporation is to be merged into an existing corporation or other entity, the notice shall also include or be accompanied by a copy or summary of the charter or organic documents of that corporation or other entity. If the corporation is to be merged into a corporation or other entity that is to be created pursuant to the merger, the notice shall include or be accompanied by a copy or a summary of the charter or organizational documents of the new corporation or other entity;
Unless chapters 51-68 of this title, the charter, the organic documents or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of merger or membership exchange to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group;
Separate voting by voting groups is required:
1. On a plan of merger, by each class or series of memberships that would be entitled to vote as a separate group on a provision in the plan that, if contained in a proposed amendment to the charter or bylaws, would entitle the class of members to vote as a class on the proposed amendment under § 48-60-104 or § 48-60-205;
2. On a plan of membership exchange, by each class or series of memberships included in the exchange, with each class or series constituting a separate voting group; or
3. On a plan of merger or membership exchange, if the voting group is entitled under the charter or by agreement to vote as a voting group to approve a plan of merger or membership exchange;
Unless the charter otherwise provides, approval by the members of a domestic corporation of a plan of merger or membership exchange shall not be required if:
1. The corporation will survive the merger or is the acquiring corporation in a membership exchange;
2. Except for amendments enumerated in § 48-60-102, its charter will not differ from the charter before the merger;
3. Each member of the corporation whose memberships were outstanding immediately before the effective date of the merger or exchange will hold the same number of memberships, with identical designations, preferences, limitations and relative rights, immediately after the effective date of the merger or exchange;
4. The voting power of the members and memberships outstanding immediately after the merger or exchanging, plus the voting power of the memberships issuable as a result of the merger or exchange (either by the conversion of memberships, rights or eligible interests issued pursuant to the merger or exchange or by the exercise of rights or contracts issued pursuant to the merger or exchange), will not exceed by more than twenty percent (20%) the voting power of the total memberships of the corporation immediately before the merger or exchange; and
5. The number of participating memberships immediately after the merger or exchange, plus the number of participating memberships issuable as a result of the merger or exchange (either by the conversion of memberships, rights or eligible interests issued pursuant to the merger or exchange by the exercise of rights or options issued pursuant to the merger or exchange), will not exceed by more than twenty percent (20%) the total number of participating memberships immediately before the merger or exchange; and
If as a result of a merger or membership exchange, one (1) or more members of a domestic corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, approval of the plan of merger or membership exchange shall require the execution, by each member, of a separate written consent to become subject to such owner liability.

Acts 2014, ch. 899, § 68; 2015, ch. 60, § 7.

48-61-105. Merger between parent and subsidiary corporations — Plan of merger — Approval.

Subject to the limitations on public benefit corporations in § 48-61-122, a domestic parent corporation owning at least ninety percent (90%) of the voting memberships or eligible interests of each class and series of a domestic or foreign subsidiary corporation or eligible interests of another controlled eligible entity may either:
1. Merge the subsidiary corporation or other entity into the parent corporation;
2. Merge the parent corporation into the subsidiary corporation or other eligible entity; or
3. Merge two (2) or more subsidiary or controlled corporations or other controlled eligible entities with and into each other.
The board of directors of the parent corporation shall adopt a plan of merger that sets forth:
1. The name of the parent corporation owning at least ninety percent (90%) of the outstanding voting memberships of the subsidiary or controlled corporation or eligible interests of the other controlled eligible entity and the name of the subsidiary corporation or corporations or other controlled eligible entity or entities to be a party to the merger, and the name of the corporation or other entity that is to survive the merger;
2. The terms and conditions of the merger;
3. The manner and basis of converting the memberships of each corporation or eligible interests of the controlled other entity into memberships, eligible interests, obligations or other securities of the survivor or of any other corporation or other entity or into cash or other property or any combination of the foregoing; and
4. Such other provisions with respect to the proposed merger as the board considers necessary or desirable.
No vote of the members of a subsidiary corporation or approval of interest holders of a subsidiary or controlled other entity shall be required with respect to such a merger. If the parent corporation will be the survivor, no vote of its members shall be required. If the subsidiary corporation or other controlled eligible entity will be the survivor, the approval of the members of the parent corporation shall be obtained in the manner provided in § 48-61-104.
If under subsection (c) approval of a merger by the subsidiary's or eligible entity's members or interest holders is not required, the parent corporation shall, within ten (10) days after the effective date of the merger, notify each of the subsidiary's or eligible entity's members or interest holders that the merger has become effective.
Except as provided in subsections (a)-(d), a merger between a parent and a subsidiary shall be governed by the provisions of this chapter applicable to mergers generally.

Acts 2014, ch. 899, § 69.

48-61-106. Abandonment of merger or membership exchange — Certificate of abandonment.

After a plan of merger or membership exchange has been adopted and approved as required by chapters 51-68 of this title, and at any time before the merger or membership exchange has become effective, the merger or membership exchange may be abandoned (subject to any contractual rights) by any corporation or other entity that is a party to the merger or membership exchange, without action by the members or interest holders of such party, in accordance with the procedures set forth in the plan of merger or membership exchange or, if no such procedures are set forth in the plan, in the manner determined by the board of directors of such corporation or the managers of such other entity subject to any contractual rights of other parties to the merger or membership exchange.
If the merger or membership exchange is abandoned after articles of merger or membership exchange have been filed with the secretary of state but before the merger or membership exchange has become effective, a statement, executed on behalf of each party to the merger or membership exchange by an officer or other duly authorized representative, stating that the merger or membership exchange has been abandoned in accordance with the plan and this section, shall be filed with the secretary of state prior to the effectiveness of the merger or membership exchange.
The secretary of state shall, when all fees have been paid as required by law:
1. Endorse on the original and each copy the word “filed” and the month, day, and year of the filing thereof;
2. File the original in the office of the secretary of state; and
3. Issue a certificate of abandonment to each party to the merger or membership exchange.
Upon the filing of such statement by the secretary of state, the merger or membership exchange shall be deemed abandoned and shall not become effective.

Acts 2014, ch. 899, § 70.

48-61-107. Articles of merger or membership exchange — Contents — Filing.

After a plan of merger or membership exchange has been adopted and approved as required by this chapter, articles of merger or membership exchange shall be executed on behalf of each party to the merger or membership exchange by an officer or other duly authorized representative and shall set forth:
1. The names of the parties to the merger or membership exchange and the date on which the merger or membership exchange occurred or is to be effective;
2. If the charter or organic documents of the survivor of a merger are amended, or if a new corporation is created as a result of a merger, the amendments to the survivor's charter or organic documents or the charter of the new corporation;
3. If approval by the members of a domestic corporation that is a party to the merger or membership exchange is not required by this chapter, a statement to that effect and the date on which the plan was adopted by the board of directors;
4. If approval by the members of a domestic corporation that is a party to the merger or membership exchange is required by this chapter, a statement to that effect and a statement that the plan was approved by the affirmative vote of the required percentage of all of:
  1. The votes entitled to be cast if there is no voting by voting groups; or
  2. The votes entitled to be cast by each voting group having the right to vote separately on the plan and the votes cast by the outstanding memberships otherwise entitled to vote on the plan;
5. If the corporation is a public benefit corporation, a statement that notice of the plan of merger or membership exchange was given to the attorney general and reporter in the manner required by § 48-61-123 and that either:
  1. The plan of merger or membership exchange was approved by order of a court of record of this state; or
  2. The corporation received a written statement of no enforcement intent with respect to the plan from the attorney general and reporter; and
6. As to each foreign corporation and each other entity that was a party to the merger or membership exchange, a statement that the plan and performance of its terms were duly authorized by all action required by the laws under which it was organized and by its charter or organic documents.
The original of the articles of merger or membership exchange shall be delivered to the secretary of state for filing together with the required filing fee. A merger or membership exchange takes effect upon the effective date of the articles of merger or membership exchange.

Acts 2014, ch. 899, § 71.

48-61-108. Effect of merger or membership exchange.

When a merger becomes effective:
1. The corporation or eligible entity that is designated in the plan of merger as an entity surviving the merger shall survive, and the separate existence of every other corporation or eligible entity that is a party to the merger shall cease;
2. All property owned by, and every contract right possessed by, each corporation or eligible entity that is merged into the survivor shall be vested in the survivor without reversion or impairment;
3. All liabilities of each corporation or eligible entity that is merged into the survivor shall be vested in the survivor;
4. A proceeding pending against any corporation or eligible entity that is a party to the merger may be continued as if the merger did not occur or the name of the survivor may be substituted in the proceeding for any corporation or eligible entity whose existence ceased in the merger;
5. The charter or organic document of the survivor shall be amended to the extent provided in the plan of merger;
6. The charter or organic documents of a survivor created by the plan of merger shall become effective; and
7. The memberships of each corporation and the interests of each eligible entity that are to be converted into memberships, other securities, interests, obligations, rights to acquire memberships, other securities or eligible interests, cash, other property, or any combination of the foregoing in the merger shall be converted or exchanged, and the former holders of such memberships or eligible interests shall be entitled only to the rights provided to them in the plan of merger or to their rights under the organic law of the eligible entity.
When a membership exchange takes effect, the memberships of each corporation that are to be exchanged for memberships, other securities, interests, obligations, rights to acquire memberships, other securities or eligible interests, cash, other property or any combination of the foregoing in the membership exchange shall be exchanged, and the former holders of such memberships shall be entitled only to the rights provided in the plan of membership exchange.
Upon a merger becoming effective, a foreign corporation, or a foreign eligible entity, that is the survivor of the merger is deemed to:
1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of members of each domestic corporation that is a party to the merger; and
2. Agree that it will promptly pay the amount, if any, to which such members are entitled under the plan of merger.
The effect of a merger or membership exchange on the owner liability of a person who had owner liability for some or all of the debts, obligations or liabilities of a party to the merger or membership exchange shall be as follows:
1. The merger or membership exchange does not discharge any owner liability under the organic law of the entity in which the person was a member or interest holder to the extent any such owner liability arose before the effective time of the articles of merger or membership exchange;
2. The person shall not have owner liability under the organic law of the entity in which the person was member or eligible interest holder prior to the merger or membership exchange for any debt, obligation or liability that arises after the effective time of the articles of merger or membership exchange;
3. The organic law of any entity for which the person had owner liability before the merger or membership exchange shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (d)(1), as if the merger or membership exchange had not occurred; and
4. The person shall have whatever rights of contribution from other persons are provided by the organic law of the entity for which the person had owner liability with respect to any owner liability preserved by subdivision (d)(1), as if the merger or membership exchange had not occurred.
A merger or membership exchange shall take effect upon the date the articles of merger or membership exchange are filed as provided in § 48-61-107(b) or on such later date as may be specified in the plan of merger or share exchange.

Acts 2014, ch. 899, § 72.

48-61-109. Plan of entity conversion.

Subject to the limitations on public benefit corporations in § 48-61-122, a domestic nonprofit corporation may become a domestic unincorporated entity pursuant to a plan of entity conversion.
Subject to the limitations on public benefit corporations in § 48-61-122, a domestic nonprofit corporation may become a foreign unincorporated entity if the entity conversion is permitted by the laws of the foreign jurisdiction.
A domestic unincorporated entity may become a domestic nonprofit corporation. If the organic law of a domestic unincorporated entity does not provide procedures for the approval of an entity conversion, the conversion shall be adopted and approved, and the entity conversion effectuated, in the same manner as a merger of the unincorporated entity. If the organic law of a domestic unincorporated entity does not provide procedures for the approval of either an entity conversion or a merger, a plan of entity conversion shall be adopted and approved, and the entity conversion effectuated, in accordance with the procedures in this chapter. Without limiting this subsection (c), a domestic unincorporated entity whose organic law does not provide procedures for the approval of an entity conversion shall be subject to subsection (e) and § 48-61-111(7). For purposes of applying this chapter:
1. The unincorporated entity, its interest holders, interests, and organic documents taken together, shall be deemed to be a domestic nonprofit corporation, members, memberships and charters, respectively, and vice versa, as the context may require; and
2. If the business and affairs of the unincorporated entity are managed by a group of persons that is not identical to the interest holders, that group shall be deemed to be the board of directors.
A foreign unincorporated entity may become a domestic nonprofit corporation if the organic law of the foreign unincorporated entity authorizes it to become a nonprofit corporation in another jurisdiction.
If any provision of a debt security, note or similar evidence of indebtedness for money borrowed, whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a domestic nonprofit corporation before January 1, 2015, applies to a merger of the corporation and the document does not refer to an entity conversion of the corporation, the provision shall be deemed to apply to an entity conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2015.
If a plan of entity conversion includes a for-profit conversion of the corporation, the corporation must also comply with §§ 48-61-116 — 48-61-121.

Acts 2014, ch. 899, § 72.

48-61-110. Contents of plan of entity conversion.

A plan of entity conversion must include:
1. A statement of the type of other entity the survivor will be and, if it will be a foreign other entity, its jurisdiction of organization;
2. The terms and conditions of the conversion;
3. The manner and basis of converting the memberships of the domestic nonprofit corporation following its conversion into interests or other securities, obligations, rights to acquire interests or other securities, cash, other property, or any combination of the foregoing; and
4. The full text, as they will be in effect immediately after consummation of the conversion, of the organic documents of the survivor.
The plan of entity conversion may also include a provision that the plan may be amended prior to filing articles of entity conversion, except that subsequent to approval of the plan by the members, the plan may not be amended to change:
1. The amount or kind of memberships or other securities, interests, obligations, rights to acquire memberships, other securities or interests, cash or other property to be received under the plan by the members;
2. The organic documents that will be in effect immediately following the conversion, except for changes permitted by a provision of the organic law of the survivor comparable to § 48-60-102; or
3. Any of the other terms or conditions of the plan if the change would adversely affect any of the members in any material respect.
Terms of a plan of entity conversion may be made dependent upon facts objectively ascertainable outside the plan in accordance with § 48-51-301.

Acts 2014, ch. 899, § 72.

48-61-111. Approval of entity conversion of a domestic nonprofit corporation to a domestic or foreign unincorporated entity.

In the case of an entity conversion of a domestic nonprofit corporation to a domestic or foreign unincorporated entity:

The plan of entity conversion must be adopted by the board of directors;
After adopting the plan of entity conversion, the board of directors must submit the plan to the members for their approval if there are members entitled to vote on the plan. The board of directors must also transmit to the members a recommendation that the members approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the members the basis for that determination;
The board of directors may condition its submission of the plan of entity conversion to the members on any basis;
If the approval of the members is to be given at a meeting, the corporation must notify each member, whether or not entitled to vote, of the meeting of members at which the plan of entity conversion is to be submitted for approval. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan and must contain or be accompanied by a copy or summary of the plan. The notice shall include or be accompanied by a full text copy of the organic documents as they will be in effect immediately after the entity conversion;
Unless chapters 51-67 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group;
If any provision of the charter, bylaws or an agreement to which any of the directors or members are parties, adopted or entered into before January 1, 2015, applies to a merger of the corporation and the document does not refer to an entity conversion of the corporation, the provision shall be deemed to apply to an entity conversion of the corporation until such time as the provision is subsequently amended; and
If as a result of the conversion one (1) or more members of the corporation would become subject to owner liability for the debts, obligations, or liabilities of any other person or entity, approval of the plan of conversion shall require the execution, by each such member, of a separate written consent to become subject to such owner liability.

Acts 2014, ch. 899, § 72.

48-61-112. Articles of entity conversion.

After the conversion of a domestic nonprofit corporation to a domestic unincorporated entity has been adopted and approved as required by this chapter, articles of entity conversion shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles shall:
1. Set forth the name of the corporation immediately before the filing of the articles of entity conversion and the name to which the name of the corporation is to be changed, which shall be a name that satisfies the organic law of the survivor;
2. State the type of unincorporated entity that the survivor will be;
3. Set forth a statement that the plan of entity conversion was duly approved by the members in the manner required by this chapter and the charter;
4. If the survivor is a filing entity, have attached the applicable public organic document; except that provisions that would not be required to be included in a restated public organic document may be omitted; and
5. If the corporation is a public benefit corporation, have a statement that notice of the plan of entity conversion was given to the attorney general and reporter in the manner required by § 48-61-123 and that either:
  1. The plan of entity conversion was approved by order of a court of record of this state; or
  2. The corporation received a written statement of no enforcement intent with respect to the plan from the attorney general and reporter.
After the conversion of a domestic unincorporated entity to a domestic nonprofit corporation has been adopted and approved as required by the organic law of the unincorporated entity, articles of entity conversion shall be executed on behalf of the unincorporated entity by any officer or other duly authorized representative. The articles shall:
1. Set forth the name of the unincorporated entity immediately before the filing of the articles of entity conversion and the name to which the name of the unincorporated entity is to be changed, which shall be a name that satisfies the requirements of § 48-54-101;
2. Set forth a statement that the plan of entity conversion was duly approved in accordance with the organic law of the unincorporated entity; and
3. Have attached a charter; except that provisions that would not be required to be included in a restated charter of a domestic nonprofit corporation may be omitted.
After the conversion of a foreign unincorporated entity to a domestic nonprofit corporation has been authorized as required by the laws of the foreign jurisdiction, articles of entity conversion shall be executed on behalf of the foreign unincorporated entity by any officer or other duly authorized representative. The articles shall:
1. Set forth the name of the unincorporated entity immediately before the filing of the articles of entity conversion and the name to which the name of the unincorporated entity is to be changed, which shall be a name that satisfies the requirements of § 48-54-101;
2. Set forth the jurisdiction under the laws of which the unincorporated entity was organized immediately before the filing of the articles of entity conversion and the date on which the unincorporated entity was organized in that jurisdiction;
3. Set forth a statement that the conversion of the unincorporated entity was duly approved in the manner required by its organic law; and
4. Have attached a charter; except that provisions that would not be required to be included in a restated charter of a domestic nonprofit corporation may be omitted.
The articles of entity conversion shall be delivered to the secretary of state for filing, together with the required filing fee, and shall take effect at the effective time provided in § 48-51-304. Articles of entity conversion filed under subsection (a) or (b) may be combined with any required conversion filing under the organic law of the domestic unincorporated entity if the combined filing satisfies the requirements of both this section and the other organic law. The public organic document required by subsection (a) to be attached shall be delivered to the secretary of state for filing, and shall take effect at the effective time of the articles of entity conversion. A filing fee for the public organic document shall be paid to the secretary of state in the amount specified for such public organic document by the applicable law governing the formation of such domestic unincorporated entity. The charter required by subsection (b) or (c) to be attached shall be delivered to the secretary of state for filing, and shall take effect at the effective time of the articles of entity conversion. A filing fee for the charter shall be paid in accordance with § 48-51-303.
If the converting entity is a foreign unincorporated entity that is authorized to transact business in this state under a provision of law similar to chapter 65 of this title, its certificate of authority or other type of foreign qualification shall be cancelled automatically on the effective date of its conversion.

Acts 2014, ch. 899, § 72.

48-61-113. Entity conversion of domestic nonprofit corporation to foreign unincorporated entity — Articles of charter surrender.

Whenever a domestic nonprofit corporation has adopted and approved, in the manner required by this chapter, a plan of entity conversion providing for the corporation to be converted to a foreign unincorporated entity, articles of charter surrender shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles of charter surrender shall set forth:
1. The name of the corporation;
2. A statement that the articles of charter surrender are being filed in connection with the conversion of the corporation to a foreign unincorporated entity;
3. A statement that the conversion was duly approved by the members or the board of directors or otherwise in the manner required by this chapter and the charter;
4. The jurisdiction under the laws of which the survivor will be organized; and
5. If the survivor will be a nonfiling entity, the address of its executive office immediately after the conversion.
The articles of charter surrender shall be delivered by the corporation to the secretary of state for filing together with the required filing fee. The articles of charter surrender shall take effect on the effective time provided in § 48-51-304.

Acts 2014, ch. 899, § 72.

48-61-114. Effect of entity conversion.

When a conversion under § 48-61-111 takes effect:
1. All title to real and personal property, both tangible and intangible, of the converting entity remains in the survivor without reversion or impairment;
2. All obligations and liabilities of the converting entity continue as obligations and liabilities of the survivor;
3. An action or proceeding pending against the converting entity continues against the survivor as if the conversion had not occurred;
4. In the case of a survivor that is a filing entity, its charter or public organic documents and its private organic documents become effective;
5. In the case of a survivor that is a nonfiling entity, its private organic documents become effective;
6. The memberships or interests of the converting entity are reclassified into memberships, interests, other securities, obligations, rights to acquire memberships, interests, or other securities, or into cash or other property in accordance with the plan of conversion; and the members or interest holders of the converting entity are entitled only to the rights provided to them under the terms of the conversion and to any appraisal rights they may have under the applicable organic law of the converting entity if it is other than a corporation; and
7. The survivor is deemed to:
  1. Be incorporated or organized under and subject to the organic law of the converting entity for all purposes;
  2. Be the same corporation or unincorporated entity without interruption as the converting entity; and
  3. Have been incorporated or otherwise organized on the date that the converting entity was originally incorporated or organized.
When a conversion of a domestic nonprofit corporation to a foreign other entity becomes effective, the surviving entity is deemed to:
1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of members or interest holders who exercise appraisal rights that they may have under the applicable organic law of the converting entity if it is other than a corporation in connection with the conversion; and
2. Agree that it will promptly pay the amount, if any, to which such members are entitled under the applicable law of the converting entity if it is other than a corporation.
A member who becomes subject to owner liability for some or all of the debts, obligations, or liabilities of the survivor shall be personally liable only for those debts, obligations, or liabilities of the survivor that arise after the effective time of the articles of entity conversion.
The owner liability of an interest holder in an unincorporated entity that converts to a domestic nonprofit corporation shall be as follows:
1. The conversion does not discharge any owner liability under the organic law of the unincorporated entity to the extent any such owner liability arose before the effective time of the articles of entity conversion;
2. The interest holder shall not have owner liability under the organic law of the unincorporated entity for any debt, obligation, or liability of the corporation that arises after the effective time of the articles of entity conversion;
3. The organic law of the unincorporated entity shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (d)(1), as if the conversion had not occurred; and
4. The interest holder shall have whatever rights of contribution from other interest holders are provided by the organic law of the unincorporated entity with respect to any owner liability preserved by subdivision (d)(1), as if the conversion had not occurred.
The converting entity shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and such conversion shall not be deemed to constitute a dissolution of such entity.
The interests of the interest holders of the converting entity, unless otherwise agreed, shall be cancelled and become of no effect whatsoever, with respect to the survivor, and the former holders of such interests shall be entitled only to the rights provided in the plan of conversion or the organic documents for the conversion of memberships into interests in the survivor.
A conversion shall take effect upon the date the articles of conversion are filed, as provided in § 48-61-112, or on such later date as may be specified in the plan of conversion.
Notwithstanding any other law to the contrary, this section and § 48-61-109 shall have no effect on the application of title 67 and other state and federal tax statutes. Any tax consequences of the conversion as referenced herein shall continue to be controlled by applicable state and federal tax statutes as they may be amended from time to time.

Acts 2014, ch. 899, § 72.

48-61-115. Abandonment of plan of entity conversion — Filing of statement of abandonment.

Unless otherwise provided in a plan of entity conversion of a domestic nonprofit corporation, after the plan has been adopted and approved as required by § 48-61-111, and at any time before the entity conversion has become effective, it may be abandoned by the board of directors without action by the members.
If an entity conversion is abandoned after articles of entity conversion or articles of charter surrender have been filed with the secretary of state but before the entity conversion has become effective, a statement that the entity conversion has been abandoned in accordance with this section, executed by an officer or other duly authorized representative, shall be delivered to the secretary of state for filing, together with the required filing fee, prior to the effective date of the entity conversion. Upon filing, the statement shall take effect and the entity conversion shall be deemed abandoned and shall not become effective.

Acts 2014, ch. 899, § 72.

48-61-116. Plan of for-profit conversion — Contents of plan

Subject to the limitations on public benefit corporations in § 48-61-122, a domestic nonprofit corporation may become a domestic business corporation pursuant to a plan of for-profit conversion.
Subject to the limitations on public benefit corporations in § 48-61-122, a domestic nonprofit corporation may become a foreign business corporation if the for-profit conversion is permitted by the laws of the foreign jurisdiction. Regardless of whether the laws of the foreign jurisdiction require the adoption of a plan of for-profit conversion, the foreign for-profit conversion shall be approved by the adoption by the domestic nonprofit corporation of a plan of for-profit conversion in the manner provided in this section.
The plan of for-profit conversion must include:
1. The terms and conditions of the conversion;
2. The manner and basis of:
  1. Issuing at least one (1) share in the corporation following its conversion, and
  2. Reclassifying the memberships of the corporation following its conversion into shares, if any, or securities, obligations, rights to acquire shares or securities, cash, other property, or any combination of the foregoing;
3. Any desired amendments to or restatements of the charter or organic documents of the corporation following its conversion; and
4. If the domestic nonprofit corporation is to be converted to a foreign for-profit corporation, a statement of the jurisdiction in which the corporation will be incorporated after the conversion.
The plan of for-profit conversion may also include a provision that the plan may be amended prior to filing articles of for-profit conversion, except that subsequent to approval of the plan by the members the plan may not be amended to change:
1. The amount or kind of shares or securities, obligations, rights to acquire shares or securities, cash, or other property to be received by the members under the plan;
2. The charter as it will be in effect immediately following the conversion, except for changes permitted by § 48-60-102; or
3. Any of the other terms or conditions of the plan if the change would adversely affect any of the members in any material respect.
Terms of a plan of for-profit conversion may be made dependent upon facts objectively ascertainable outside the plan in accordance with § 48-51-301.
If any debt security, note or similar evidence of indebtedness for money borrowed, whether secured or unsecured, or a contract of any kind, issued, incurred or executed by a domestic nonprofit corporation before January 1, 2015, contains a provision applying to a merger of the corporation and the document does not refer to a for-profit conversion of the corporation, the provision shall be deemed to apply to a for-profit conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2015.

Acts 2014, ch. 899, § 72.

48-61-117. Approval of conversion of a domestic nonprofit corporation to a domestic or foreign for-profit corporation.

In the case of a conversion of a domestic nonprofit corporation to a domestic or foreign for-profit corporation:

The plan of for-profit conversion must be adopted by the board of directors;
After adopting the plan of nonprofit conversion, the board of directors must submit the plan to the members for their approval if there are members entitled to vote on the plan. The board of directors must also transmit to the members a recommendation that the members approve the plan, unless the board of directors makes a determination that because of conflicts of interest or other special circumstances it should not make such a recommendation, in which case the board of directors must transmit to the members the basis for that determination;
The board of directors may condition its submission of the plan of for-profit conversion to the members on any basis;
If the approval of the members is to be given at a meeting, the corporation must notify each member of the meeting of members at which the plan of for-profit conversion is to be submitted for approval. The notice must state that the purpose, or one (1) of the purposes, of the meeting is to consider the plan and must contain or be accompanied by a copy or summary of the plan. The notice shall include or be accompanied by a copy of the charter as it will be in effect immediately after the for-profit conversion and full text copy of the bylaws and other organic documents as they will be in effect immediately after the for-profit conversion;
Unless chapters 51-68 of this title, the charter, or the board of directors acting pursuant to subdivision (3) requires a greater vote or a vote by voting groups, the plan of for-profit conversion to be authorized must be approved by each voting group entitled to vote separately on the plan by a majority of all the votes entitled to be cast on the plan by that voting group; and
If any provision of the charter, bylaws, or an agreement to which any of the directors or members are parties, adopted or entered into before January 1, 2015, applies to a merger of the corporation and the document does not refer to a for-profit conversion of the corporation, the provision shall be deemed to apply to a for-profit conversion of the corporation until such time as the provision is amended on or subsequent to January 1, 2015.

Acts 2014, ch. 899, § 72.

48-61-118. Articles of for-profit conversion — Contents.

After a plan of for-profit conversion providing for the conversion of a domestic nonprofit corporation to a domestic business corporation has been adopted and approved as required by this chapter, articles of for-profit conversion shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles shall set forth:
1. The name of the corporation immediately before the filing of the articles of for-profit conversion and if that name does not satisfy the requirements of § 48-14-101, or the corporation desires to change its name in connection with the conversion, a name that satisfies the requirements of § 48-14-101;
2. A statement that the plan of for-profit conversion was duly approved by the members in the manner required by this chapter and the charter if there are members entitled to vote on the plan or, if there are no members entitled to vote on the plan, by the board of directors in the manner required by this chapter and the charter; and
3. If the corporation is a public benefit corporation, a statement that notice of the plan of for-profit conversion was given to the attorney general and reporter in the manner required by § 48-61-123 and that either:
  1. The plan of for-profit conversion was approved by order of a court of record of this state; or
  2. The corporation received a written statement of no enforcement intent with respect to the plan from the attorney general and reporter.
The articles of for-profit conversion shall have attached a charter that satisfies the requirements of § 48-12-102. Provisions that would not be required to be included in a charter of a domestic business corporation may be omitted.
The articles of for-profit conversion shall be delivered to the secretary of state for filing, together with the required filing fee, and shall take effect at the effective time provided in § 48-51-304. The attached charter shall be delivered to the secretary of state for filing and a fee therefor shall be paid in accordance with § 48-11-303.

Acts 2014, ch. 899, § 72.

48-61-119. Conversion of domestic nonprofit corporation to foreign for-profit corporation — Articles of charter surrender.

Whenever a domestic nonprofit corporation has adopted and approved, in the manner required by this chapter, a plan of for-profit conversion providing for the corporation to be converted to a foreign for-profit corporation, articles of charter surrender shall be executed on behalf of the corporation by any officer or other duly authorized representative. The articles of charter surrender shall set forth:
1. The name of the corporation;
2. A statement that the articles of charter surrender are being filed in connection with the conversion of the corporation to a foreign for-profit corporation;
3. A statement that the foreign for-profit conversion was duly approved by the members in the manner required by this section and the charter; and
4. The corporation's new jurisdiction of incorporation.
The articles of charter surrender shall be delivered by the corporation to the secretary of state for filing together with the required filing fee in accordance with § 48-51-303. The articles of charter surrender shall take effect on the effective time provided in § 48-51-304.

Acts 2014, ch. 899, § 72.

48-61-120. Effect of for-profit conversion.

When a conversion of a domestic nonprofit corporation to a domestic business corporation becomes effective:
1. The title to all real and personal property, both tangible and intangible, of the corporation remains in the corporation without reversion or impairment;
2. The liabilities of the corporation remain the liabilities of the corporation;
3. An action or proceeding pending against the corporation continues against the corporation as if the conversion had not occurred;
4. The charter of the domestic or foreign for-profit corporation becomes effective;
5. The memberships of the corporation are reclassified into shares, interests, securities, obligations, rights to acquire shares or securities, or into cash or other property in accordance with the plan of for-profit conversion, and the members are entitled only to the rights provided in the plan of for-profit conversion or to any rights they may have under charter or organic documents of the corporation; and
6. The corporation is deemed to:
  1. Be a domestic business corporation for all purposes;
  2. Be the same corporation without interruption as the corporation that existed prior to the conversion; and
  3. Have been incorporated on the date it was originally incorporated as a domestic nonprofit corporation.
When a conversion of a domestic nonprofit corporation to a foreign for-profit corporation becomes effective, the foreign for-profit corporation is deemed to:
1. Appoint the secretary of state as its agent for service of process in a proceeding to enforce the rights of members who exercise appraisal rights in connection with the conversion; and
2. Agree that it will promptly pay the amount, if any, to which such members are entitled under the charter or organic documents of the corporation.
The owner liability of a member in a domestic nonprofit corporation that converts to a domestic business corporation shall be as follows:
1. The conversion does not discharge any owner liability of the member as a member of the nonprofit corporation to the extent any such owner liability arose before the effective time of the articles of for-profit conversion;
2. The member shall not have owner liability for any debt, obligation, or liability of the for-profit corporation that arises after the effective time of the articles of for-profit conversion;
3. The laws of this state shall continue to apply to the collection or discharge of any owner liability preserved by subdivision (c)(1), as if the conversion had not occurred and the business corporation were still a nonprofit corporation; and
4. The member shall have whatever rights of contribution from other members are provided by the laws of this state with respect to any owner liability preserved by subdivision (c)(1), as if the conversion had not occurred and the business corporation was still a nonprofit corporation.
A member who becomes subject to owner liability for some or all of the debts, obligations, or liabilities of the business corporation shall have owner liability only for those debts, obligations, or liabilities of the business corporation that arise after the effective time of the articles of for-profit conversion.

Acts 2014, ch. 899, § 72.

48-61-121. Abandonment of for-profit conversion — Filing of statement of abandonment.

Unless otherwise provided in a plan of for-profit conversion of a domestic nonprofit corporation, after the plan has been adopted and approved as required by this section, and at any time before the for-profit conversion has become effective, it may be abandoned by the board of directors without action by the members.
If a for-profit conversion is abandoned under subsection (a) after articles of for-profit conversion or articles of charter surrender have been filed with the secretary of state but before the for-profit conversion has become effective, a statement that the for-profit conversion has been abandoned in accordance with this section, executed by an officer or other duly authorized representative, shall be delivered to the secretary of state for filing, together with the required filing fee, prior to the effective date of the for-profit conversion. The statement shall take effect upon filing, and the for-profit conversion shall be deemed abandoned and shall not become effective.

Acts 2014, ch. 899, § 72.

48-61-122. Limitations on entities with which a public benefit corporation may be a party to a merger, membership exchange, entity conversion or for-profit conversion transaction.

Without the prior approval of a court of record of this state having equity jurisdiction in a proceeding of which the attorney general and reporter has been given written notice of a plan of merger or membership exchange, a plan of entity conversion, or a plan of for-profit conversion in accordance with § 48-61-123; or unless the attorney general and reporter, after receiving written notice to the attorney general in accordance with § 48-61-123, has issued a written statement of no enforcement intent with respect to the plan, a public benefit corporation may be a party to a merger, membership exchange, entity conversion or for-profit conversion transaction described in this chapter only with:
1. A domestic nonprofit public benefit corporation;
2. A foreign nonprofit corporation which would qualify under chapters 51-68 of this title as a public benefit corporation;
3. A foreign or domestic corporation for profit; provided, that the public benefit corporation is the surviving corporation and continues to be a public benefit corporation after the transaction; or
4. A foreign or domestic corporation for profit that is the surviving corporation; provided that:
  1. On or prior to the effective date of the transaction, assets with a value equal to the greater of the fair market value of the net tangible and intangible assets (including good will) of the public benefit corporation, or the fair market value of the public benefit corporation if it were to be operated as a business concern, are transferred or conveyed to one (1) or more persons who would have received its assets under § 48-64-106(a)(5) and (a)(6) had it dissolved;
  2. It shall return, transfer or convey any assets held by it upon condition requiring return, transfer or conveyance, which condition occurs by reason of the transaction, in accordance with such condition;
  3. The transaction is approved by a majority of directors of the public benefit corporation who are not and will not become shareholders in or officers, employees, agents or consultants of the for-profit corporation; and
  4. A copy of the plan of transaction is submitted to the attorney general and reporter not less than forty-five (45) days prior to the effective date of the transaction.
A public benefit corporation must give written notice to the attorney general and reporter in accordance with § 48-61-123.
In a transaction to which subdivisions (a)(1), (a)(2) or (a)(3) applies, when a public benefit corporation with members consummates the transaction, each member of the public benefit corporation may only receive or keep a membership or membership interest in the surviving public benefit corporation if the surviving public benefit corporation has memberships or membership interests in accordance with the plan.
Unless a public benefit corporation that is a party to a transaction under this chapter has obtained an order of a court of record in this state having equity jurisdiction to the extent required by the law of this state regarding cy pres or otherwise dealing with the nondiversion of charitable assets, the transaction may not alter, amend, or change the following:
1. Any restriction or limitation imposed on the public benefit corporation by its documents that may not be altered, amended or changed by its officers, board of directors, members or interest holders;
2. Any restriction imposed on any assets or property held by the public benefit corporation by virtue of any trust under which it holds the assets or property; or
3. The existing rights and interests of persons other than members or interest holders in the public benefit corporation.
In any transaction in which a public corporation is a party to a merger, membership exchange, entity conversion or for-profit conversion transaction under this chapter, the public benefit corporation must comply with § 48-62-103(a) with respect to the corporation's assets and property.
A person who is a member, interest holder or is otherwise affiliated with a public benefit corporation or an unincorporated entity with a charitable purpose may not receive a direct or indirect financial benefit in connection with a transaction under this chapter to which the public benefit corporation is a party unless the party is itself a public benefit corporation or a charitable corporation or unincorporated entity with a charitable purpose. This subsection (f) does not apply to the receipt of reasonable compensation for services rendered.

Acts 2014, ch. 899, § 72.

48-61-123. Public benefit corporation to provide notice to attorney general and reporter of intent to consummate any merger, membership exchange, or conversions — Time after notice for consummation of transaction.

A public benefit corporation shall give the attorney general and reporter written notice that it intends to consummate any merger, membership exchange or conversions. The notice shall include a copy or summary of the plan of merger, membership exchange or conversion.
No merger, membership exchange or conversion shall be consummated, including any transfer of assets until forty-five (45) days after it has given the written notice required by subsection (a) to the attorney general and reporter or until the attorney general and reporter has consented in writing to, or indicated in writing that the attorney general and reporter will take no action in respect to, the transfer or conveyance, whichever is earlier.

Acts 2014, ch. 899, § 72.

48-61-124. Bequests, devises and gifts.

Any bequest, devise, gift, grant, or promise contained in a will or other instrument of donation, subscription, or conveyance, which is made to a corporation that is a party to a transaction under this chapter and which takes effect or remains payable after the transaction, inures to the surviving entity with a charitable purpose unless the will or other instrument otherwise specifically provides.

Acts 2014, ch. 899, § 72.

Chapter 62
Sale of Assets

48-62-101. Sale of the assets in regular course of activities and mortgage of assets.

A corporation may on the terms and conditions and for the consideration determined by the board of directors:
1. Sell, lease, exchange, or otherwise dispose of any or all of the corporation's assets in the usual and regular course of its activities;
2. Mortgage, pledge, dedicate to the repayment of indebtedness (whether with or without recourse), or otherwise encumber any or all of the corporation's assets, whether or not in the usual and regular course of business; or
3. Transfer any or all of the corporation's assets to one (1) or more corporations or other entities all of the memberships or interests of which are owned by the corporation.
Unless the charter or bylaws requires, approval of the members or any other person of a transaction described in subsection (a) is not required.

Acts 1987, ch. 242, § 12.01; 2014, ch. 899, § 73.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, sale of assets, title 48, ch. 22.

Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 77, 93.

48-62-102. Sale of assets other than in regular course of activities.

1. A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of its property (with or without the good will) other than in the usual and regular course of its activities, on the terms and conditions and for the consideration determined by the corporation's board, if the proposed transaction is authorized by subsection (b).
2. The sale, lease, exchange or other disposition of all, or substantially all, of the properties (with or without good will) of one (1) or more subsidiaries of a corporation in which such corporation possesses at least eighty percent (80%) of the total combined voting power of the corporation, or of all classes of membership otherwise entitled to vote for the election of directors, otherwise than in the usual and regular course of business, shall be treated as a disposition within the meaning of this subsection (a) if the subsidiary or subsidiaries constitute all, or substantially all, of the properties of the corporation.
Unless chapters 51-68 of this title, the charter, bylaws, or the board of directors or members (acting pursuant to subsection (d)) require a greater vote or voting by class, the proposed transaction to be authorized must be approved:
1. By the board;
2. By the members by two-thirds (2/3) of the votes cast or a majority of the voting power, whichever is less; and
3. In writing by any person or persons whose approval is required by the charter authorized by § 48-60-301 for an amendment to the charter or bylaws.
If the corporation does not have members, the transaction must be approved by a vote of a majority of the directors in office at the time the transaction is approved and be approved in writing by any person or persons whose approval is required by the charter. The notice required by § 48-58-203(c) of any directors' meeting at which such approval is to be obtained must state that the purpose, or one (1) of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all or substantially all, of the property or assets of the corporation and contain or be accompanied by a copy or summary of a description of the transaction.
The board may condition its submission of the proposed transaction, and the members may condition their approval of the transaction, on receipt of a higher percentage of affirmative votes or on any other basis.
If the corporation seeks to have the transaction approved by the members at a membership meeting, the notice required by § 48-57-105 must state that the purpose, or one (1) of the purposes, of the meeting is to consider the sale, lease, exchange, or other disposition of all, or substantially all, of the property or assets of the corporation and contain or be accompanied by a copy or summary of a description of the transaction.
If approval by the members by written consent or written ballot is required, the material soliciting the approval shall contain or be accompanied by a copy or summary of a description of the transaction.
A public benefit corporation must give written notice to the attorney general and reporter at least forty-five (45) days before it sells, leases, exchanges or otherwise disposes of all, or substantially all, of its property in a transaction not in the usual and regular course of its activities unless the attorney general and reporter has given the corporation a written waiver of this subsection (g).
After a sale, lease, exchange or other disposition of property is authorized, the transaction may be abandoned (subject to any contractual rights), without further action by the members or other person who approved the transaction in accordance with the procedure set forth in the resolution proposing the transaction or, if none is set forth, in the manner determined by the board of directors.

Acts 1987, ch. 242, § 12.02; 2014, ch. 899, § 74.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2201 — 5-2203.

Attorney General Opinions. Domestic nonprofit water cooperative merging with or transferring assets to municipality, OAG 06-176, 2006 Tenn. AG LEXIS 196 (12/19/06).

NOTES TO DECISIONS

1. Challenge to Sale of Corporation.

48-62-103. Property held in trust or otherwise dedicated to charitable purpose not to be diverted from its purpose — Financial benefit in connection with disposition prohibited — Notice required of transactions not in usual and regular course of activities.

Property held in trust or otherwise dedicated to a charitable purpose may not be diverted from its purpose by a transaction described in § 48-62-101 or § 48-62-102 unless the corporation complies with subsection (c) to the extent required by and pursuant to the law of this state on cy pres or otherwise dealing with the nondiversion of charitable assets.
A person who is a member or otherwise affiliated with a public benefit corporation may not receive a direct or indirect financial benefit in connection with a disposition of assets unless the person is a public benefit corporation or an unincorporated entity that has a charitable purpose. This subsection (b) does not apply to the receipt of reasonable compensation for services rendered.
A public benefit corporation must give written notice to the attorney general and reporter at least forty-five (45) days before it sells, leases, exchanges or otherwise disposes of all, or substantially all, of its property in a transaction not in the usual and regular course of its activities unless the corporation obtains an appropriate order from the court of competent jurisdiction.

Acts 2014, ch. 899, § 75.

Chapter 63
Distributions

48-63-101. Prohibited distributions.

Except as authorized by § 48-63-102, a corporation shall not make any distributions.

Acts 1987, ch. 242, § 13.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, shares and distributions, title 48, ch. 16.

Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

48-63-102. Purchase of memberships—Authorized distributions.

A mutual benefit corporation may purchase its memberships if after the purchase is completed:
1. The corporation would be able to pay its debts as they become due in the usual course of its activities; and
2. The corporation's total assets would at least equal the sum of its total liabilities.
A public benefit corporation may make distributions to its members who are public benefit corporations if the distributions are in conformity with its charitable purposes.
A public benefit corporation and a mutual benefit corporation may make distributions upon dissolution in conformity with chapter 64 of this title.

Acts 1987, ch. 242, § 13.02; 2014, ch. 899, § 76.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Chapter 64
Dissolution

Part 1
Voluntary Dissolution

48-64-101. Dissolution by incorporators or directors.

A majority of the incorporators or directors of a corporation that has no members may, subject to any approval required by the charter or bylaws, dissolve the corporation by delivering to the secretary of state for filing articles of dissolution and termination that set forth:
1. The name of the corporation;
2. The date of its incorporation;
3. A statement that the corporation has no members; and
4. A statement that a majority of the incorporators or directors authorized the dissolution and the date dissolution was thus authorized.
The corporation shall give notice of any meeting at which dissolution will be approved. The notice shall be in accordance with § 48-58-203(c). The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider dissolution of the corporation and contain or be accompanied by a copy or summary of the plan of dissolution.
The incorporators or directors in approving dissolution shall adopt a plan of dissolution indicating to whom the assets owned or held by the corporation will be distributed after all creditors have been paid.
If the secretary of state finds that the articles of dissolution and termination of corporate existence comply with the requirements of subsection (a), and if the articles are accompanied by a tax clearance for termination or withdrawal relative to such corporation, then the secretary of state shall file the articles of dissolution and termination of corporate existence. Upon such filing, the existence of the corporation shall cease. Unless a claim is barred pursuant to § 48-64-107 or § 48-64-108, the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or members, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The members, directors, and officers shall have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1987, ch. 242, § 14.01; 1989, ch. 445, § 10; 2010, ch. 741, § 15.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, dissolution, title 48, ch. 24.

Monthly list of corporations surrendering charters, § 8-3-104.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2305.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

NOTES TO DECISIONS

Decisions Under Prior Law

1. Restraining Order.

The exercise of the power by one general welfare corporation to dissolve and to transfer its assets to another cannot be properly restrained by the courts except for fraud or corruptly induced manipulation. Elie v. Pullias, 407 F.2d 615, 1969 U.S. App. LEXIS 8766 (6th Cir. Tenn. 1969).

48-64-102. Dissolution by board of directors, members and third persons.

A corporation may be voluntarily dissolved by the written consent of its members in accordance with § 48-57-104 or at a special meeting called in accordance with § 48-57-102.
A corporation's board of directors may propose dissolution for submission to the members. Notice of any meeting of the directors to approve such action shall be in accordance with § 48-64-101(b).
For a proposal to dissolve to be adopted:
1. The board of directors shall recommend dissolution to the members unless the board of directors determines that because of conflict of interest or other special circumstances it should make no recommendation and communicates the basis for its determination to the members;
2. The members entitled to vote shall approve the proposal to dissolve as provided in subsection (f); and
3. Any person or persons whose approval is required by a charter provision authorized by § 48-60-301 for a charter or bylaw amendment shall approve the dissolution in writing.
The board of directors or members may condition its submission of the proposal for dissolution on any basis.
The corporation shall notify its members, whether or not entitled to vote, of the proposed members' meeting in accordance with § 48-57-105. The notice must also state that the purpose, or one (1) of the purposes, of the meeting is to consider dissolving the corporation and contain or be accompanied by a copy or summary of the plan of dissolution.
Unless the charter, bylaws, the board of directors, or members (acting pursuant to subsection (c)) require a greater vote or voting by class, the proposal to dissolve to be adopted shall be approved by two thirds (2/3) of the votes cast by members or a majority of the voting power, whichever is less.
If the board seeks to have dissolution approved by the members by written consent or written ballot, the material soliciting the approval shall contain or be accompanied by a copy or summary of the plan of dissolution.
The plan of dissolution shall indicate to whom the assets owned or held by the corporation will be distributed after all creditors have been paid.

Acts 1987, ch. 242, § 14.02.

Cross-References. Inapplicability of Nonprofit Corporation Act to certain rural electric and community services cooperatives, § 65-25-125.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2301 — 5-2303.

48-64-103. Notices to the attorney general and reporter.

A public benefit corporation shall give the attorney general and reporter written notice that it intends to dissolve at or before the time it delivers the articles of dissolution to the secretary of state. The notice shall include a copy or summary of the plan of dissolution.
No assets shall be transferred or conveyed by a public benefit corporation as part of the dissolution process until forty-five (45) days after it has given the written notice required by subsection (a) to the attorney general and reporter or until the attorney general and reporter has consented in writing to, or indicated in writing that the attorney general and reporter will take no action in respect to, the transfer or conveyance, whichever is earlier.
When all or substantially all of the assets of a public benefit corporation have been transferred or conveyed following approval of dissolution, the board shall deliver to the attorney general and reporter a list showing those (other than creditors) to whom the assets were transferred or conveyed. The list shall indicate the address of each person (other than creditors) who received assets and indicate what assets each received.

Acts 1987, ch. 242, § 14.03; 2014, ch. 899, § 77.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2304, 5-2309, 5-2314.

48-64-104. Articles of dissolution.

At any time after dissolution is authorized, the corporation may dissolve by delivering to the secretary of state for filing articles of dissolution setting forth:
1. The name of the corporation;
2. The date dissolution was authorized;
3. A statement that the resolution was duly adopted by the members;
4. If approval by members was not required, a statement that the resolution was duly adopted by a majority of the board of directors;
5. A copy of the resolution or the written consent authorizing the dissolution;
6. If approval of dissolution by some third person or persons other than the members, directors, or incorporators was required, a statement that such approval was obtained; and
7. If the corporation is a public benefit corporation, a statement that the notice to the attorney general and reporter required by § 48-64-103(a) has been given.
Unless a delayed effective date is specified in the articles of dissolution, a corporation is dissolved when the articles of dissolution are filed.

Acts 1987, ch. 242, § 14.04.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2301.

48-64-105. Revocation of dissolution.

A corporation may revoke its dissolution at any time prior to filing the articles of termination of corporate existence with the secretary of state.
Revocation of dissolution shall be authorized in any manner that dissolution may be authorized under § 48-64-102, unless the authorization for dissolution permitted revocation by action by the board of directors alone, in which event the board of directors may revoke the dissolution without action by the members or any other person.
After the revocation of dissolution is authorized, the corporation may revoke the dissolution by delivering to the secretary of state for filing articles of revocation of dissolution that set forth:
1. The name of the corporation;
2. The effective date of the dissolution that was revoked;
3. The date that the revocation of dissolution was authorized;
4. If the corporation's board of directors (or its incorporators) revoked the dissolution, a statement to that effect;
5. If the corporation's board of directors revoked a dissolution authorized by the members alone or in conjunction with another person or persons, a statement that revocation was permitted by action by the board of directors alone pursuant to that authorization; and
6. If member or third person action was required to revoke the dissolution, the information required by § 48-64-104(a)(3), (5) and (6).
Revocation of dissolution is effective when the articles of revocation of dissolution are filed.
When the revocation of dissolution is effective, it relates back to and takes effect as of the effective date of the dissolution and the corporation resumes carrying on its activities as if dissolution had never occurred.

Acts 1987, ch. 242, § 14.05; 1989, ch. 445, § 11.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2306.

48-64-106. Effect of dissolution.

A dissolved corporation continues its corporate existence, but may not carry on any activities except those appropriate to wind up and liquidate its affairs, including:
1. Collecting its assets;
2. Conveying and disposing of its properties that will not be distributed in kind;
3. Discharging or making provision for discharging its liabilities;
4. Returning, transferring or conveying assets held by the corporation upon a condition requiring return, transfer or conveyance, which condition occurs by reason of the dissolution, in accordance with such condition;
5. Transferring, subject to any contractual or legal requirements, its assets as provided in or authorized by its charter or bylaws;
6. If the corporation is a public benefit corporation, and no provision has been made in its charter or bylaws for distribution of assets on dissolution, transferring, subject to any contractual or legal requirement, its assets to:
  1. One (1) or more persons recognized as exempt under Section 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3));
  2. If the dissolved corporation is not recognized as exempt under Section 501(c)(3) of the Internal Revenue Code, one (1) or more public benefit corporations; or
  3. The state of Tennessee or any county, municipality, or political subdivision thereof;
7. If the corporation is a mutual benefit corporation and no provision has been made in its charter or bylaws for distribution of assets on dissolution, transferring its assets to its members or, if it has no members, those persons whom the corporation holds itself out as benefitting or serving; and
8. Doing every other act necessary to wind up and liquidate its assets and affairs.
Dissolution of a corporation does not:
1. Transfer title to the corporation's property;
2. Subject its directors or officers to standards of conduct different from those prescribed in chapter 58 of this title;
3. Change quorum or voting requirements for its board of directors or members; change provisions for selection, resignation, or removal of its directors or officers, or both; or change provisions for amending its bylaws;
4. Prevent commencement of a proceeding by or against the corporation in its corporate name;
5. Abate or suspend a proceeding pending by or against the corporation on the effective date of dissolution; or
6. Terminate the authority of the registered agent of the corporation.

Acts 1987, ch. 242, § 14.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2301.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

48-64-107. Known claims against dissolved corporation.

A dissolved corporation may dispose of the known claims against it by following the procedure described in this section.
The dissolved corporation shall notify its known claimants in writing of the dissolution at any time after its effective date. The written notice must:
1. Describe information that must be included in a claim;
2. State whether the claim is admitted, or not admitted, and if admitted:
  1. The amount that is admitted, which may be as of a given date; and
  2. Any interest obligation if fixed by an instrument of indebtedness;
3. Provide a mailing address where a claim may be sent;
4. State the deadline, which may not be fewer than four (4) months from the effective date of the written notice, by which the dissolved corporation must receive the claim; and
5. State that, except to the extent that any claim is admitted, the claim will be barred if written confirmation of the claim is not received by the deadline.
A claim against the dissolved corporation is barred to the extent that it is not admitted:
1. If the dissolved corporation delivered written notice to the claimant in accordance with subsection (b) and the dissolved corporation does not receive a written notice of the claim by the deadline set out in subdivision (b)(4); or
2. If the dissolved corporation delivered written notice to the claimant that the claimant's claim is rejected, in whole or in part, and the claimant does not commence a proceeding to enforce the claim within three (3) months from the effective date of the rejection notice.
For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.

Acts 1987, ch. 242, § 14.07.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-2311 — 5-2313.

48-64-108. Unknown claims against dissolved corporation.

A dissolved corporation may also publish notice of its dissolution and request that persons with claims against the corporation present them in accordance with the notice.
The notice must:
1. Be published one (1) time in a newspaper of general circulation in the county where the dissolved corporation's principal office (or, if none in this state, its registered office) is or was last located;
2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
3. State that a claim against the corporation will be barred unless a proceeding to enforce the claim is commenced within two (2) years after the publication of the notice.
If the dissolved corporation publishes a newspaper notice in accordance with subsection (b), the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved corporation within two (2) years after the publication date of the newspaper notice:
1. A claimant who did not receive written notice under § 48-64-107;
2. A claimant whose claim was timely sent to the dissolved corporation but not acted on; and
3. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
A claim may be enforced under this section:
1. Against the dissolved corporation, to the extent of its undistributed assets; or
2. If the assets have been distributed in liquidation, against any person other than a creditor of the corporation, to whom the corporation distributed its property to the extent of the distributee's pro rata share of the claim or the corporate assets distributed to the distributee in liquidation, whichever is less, but the distributee's total liability for all claims under this section may not exceed the total amount of assets distributed to the distributee.

Acts 1987, ch. 242, § 14.08.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2310.

48-64-109. Articles of termination of corporate existence.

When a corporation has distributed all its assets to its creditors and other parties authorized by chapters 51-68 of this title and voluntary dissolution proceedings have not been revoked, it shall deliver to the secretary of state for filing articles of termination of corporate existence. The articles shall set forth:
1. The name of the corporation;
2. That all the assets of the corporation have been distributed to its creditors and other parties authorized by chapters 51-68 of this title; and
3. That the dissolution of the corporation has not been revoked.
If the secretary of state finds that the articles of termination of corporate existence comply with the requirements of subsection (a), and if the articles are accompanied by a tax clearance for termination or withdrawal relative to such corporation, then the secretary of state shall file the articles of dissolution and termination of corporate existence. Upon such filing, the existence of the corporation shall cease. Unless a claim is barred pursuant to § 48-64-107 or § 48-64-108, the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers, or members, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The members, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1987, ch. 242, § 14.09; 2010, ch. 741, § 16.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2308.

48-64-110. Directors to cause dissolved corporation to discharge or make reasonable provision for payment of claims and distributions of assets thereafter — Liability for breach.

Directors shall cause the dissolved corporation to discharge or make reasonable provision for the payment of claims and make distributions of assets after payment or provision for claims.
Directors of a dissolved corporation that has disposed of claims under § 48-64-107 or § 48-64-108 shall not be liable for breach of § 48-64-110(a) with respect to claims against the dissolved corporation that are barred or satisfied under § 48-64-107 or § 48-64-108.

Acts 2014, ch. 899, § 78.

Part 2
Administrative Dissolution

48-64-201. Grounds for administrative dissolution.

The secretary of state may commence a proceeding under § 48-64-202 to administratively dissolve a corporation if the:

Corporation does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
Corporation is without a registered agent or registered office in this state for two (2) months or more;
Name of a corporation contained in a document filed after the enactment of chapters 51-68 of this title fails to comply with § 48-54-101;
Corporation does not notify the secretary of state within two (2) months that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued;
Corporation's period of duration, if any, stated in its charter expires; or
Corporation submits to the secretary of state's office a check, bank draft, money order or other such instrument, for payment of any fee and it is dishonored upon presentation for payment.

Acts 1987, ch. 242, § 14.20; 1989, ch. 445, § 12.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 96.

48-64-202. Procedure for and effect of administrative dissolution.

If the secretary of state determines that one (1) or more grounds exist under § 48-64-201 for dissolving a corporation, the secretary of state shall serve the corporation with written notice of the secretary of state's determination under §§ 48-55-104 and 48-55-105, except that such determination may be sent by first class mail, and in the case of a public benefit corporation, shall notify the attorney general and reporter in writing.
If the corporation does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the notice is perfected under §§ 48-55-104 and 48-55-105, the secretary of state shall administratively dissolve the corporation by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the corporation under §§ 48-55-104 and 48-55-105, except that the certificate may be sent by first class mail.
A corporation administratively dissolved continues its corporate existence but may not carry on any activities except that necessary to wind up and liquidate its assets and affairs under § 48-64-106 and notify claimants under §§ 48-64-107 and 48-64-108.
The administrative dissolution of a corporation does not terminate the authority of its registered agent.

Acts 1987, ch. 242, § 14.21; 1989, ch. 445, § 13.

48-64-203. Reinstatement following administrative dissolution.

A corporation administratively dissolved under § 48-64-202 may apply to the secretary of state for reinstatement. The application must:
1. Contain a confirmation of good standing relative to such foreign corporation;
2. Recite the name of the corporation at its date of dissolution;
3. State that the ground or grounds for dissolution either did not exist or have been eliminated; and
4. State a corporate name that satisfies the requirements of § 48-54-101.
1. If the secretary of state determines that the application contains the confirmation of good standing and information required by subsection (a), and that such information is correct, then the secretary of state shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation under §§ 48-55-104 and 48-55-105.
2. If the corporate name in subdivision (a)(4) is different than the corporate name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to the charter insofar as it pertains to the corporate name.
When the reinstatement hereunder or under § 48-64-204 is effective, it relates back to and takes effect as of the effective date of the administrative dissolution, and the corporation resumes carrying on its activities as if the administrative dissolution had never occurred.

Acts 1987, ch. 242, § 14.22; 1991, ch. 188, § 9; 1993, ch. 217, § 1; 1999, ch. 117, § 1; 2010, ch. 741, §§ 17, 18; 2011, ch. 99, § 3.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2307.

48-64-204. Appeal from denial of reinstatement.

If the secretary of state denies a corporation's application for reinstatement following administrative dissolution, the secretary of state shall serve the corporation under §§ 48-55-104 and 48-55-105 with a written notice that explains the reason or reasons for denial.
The corporation may appeal the denial of reinstatement to the chancery court of Davidson County within thirty (30) days after service of the notice of denial is perfected. The corporation appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the secretary of state's certificate of dissolution, the corporation's application for reinstatement, and the secretary of state's notice of denial.
The court may summarily order the secretary of state to reinstate the dissolved corporation or may take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.

Acts 1987, ch. 242, § 14.23.

48-64-205. Articles of termination following administrative dissolution or revocation.

When a corporation, which has been administratively dissolved or has had its charter revoked, wishes to terminate its corporate existence, it may do so without first being reinstated by delivering to the secretary of state for filing articles of termination following administrative dissolution or revocation setting forth:
1. The name of the corporation;
2. The date that termination of corporate existence was authorized;
3. A statement that the resolution authorizing termination was duly adopted by the members or that approval by the members was not required, and that the resolution authorizing termination was adopted by a majority of the board of directors;
4. A copy of the resolution or the written consent authorizing the termination;
5. If approval of dissolution by some third person or persons other than the members, directors, or incorporators was required, a statement that such approval was obtained;
6. If the corporation is a public benefit corporation, a statement that notice to the attorney general and reporter required by § 48-64-103(a) has been given; and
7. A statement that all the assets of the corporation have been distributed to its creditors and other parties authorized by chapters 51-68 of this title.
If the secretary of state finds that the articles of termination following administrative dissolution or revocation comply with the requirements of subsection (a), and if the articles are accompanied by a tax clearance for termination or withdrawal, then the secretary of state shall file the articles of termination following administrative dissolution or revocation. Upon such filing, the existence of the corporation shall cease. Unless a claim is barred pursuant to § 48-64-107 or § 48-64-108, the termination of corporate existence shall not take away or impair any remedy to or against the corporation, its directors, officers or members, for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name. The members, directors, and officers have the power to take such corporate or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1989, ch. 445, § 14; 2010, ch. 741, § 19.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2309.

48-64-206. Reinstatement within certain amount of time — Amendment of charter — Application for reinstatement.

A nonprofit corporation that has been administratively dissolved by the expiration of its period of duration may reinstate within one (1) year of the expiration of the period of duration by:

Amending its charter to extend its period of duration or set the period of duration to perpetual; and
Filing an application for reinstatement following administrative dissolution pursuant to § 48-64-203.

Acts 2016, ch. 688, § 4.

Part 3
Judicial Dissolution

48-64-301. Grounds for judicial dissolution.

Any court of record with proper venue in accordance with § 48-64-302(a) may dissolve a corporation:
1. In a proceeding by the attorney general and reporter if it is established that the corporation:
  1. Obtained its charter through fraud;
  2. Has exceeded or abused the authority conferred upon it by law;
  3. Has violated any provision of law resulting in the forfeiture of its charter;
  4. Has carried on, conducted, or transacted its business or affairs in a persistently fraudulent or illegal manner;
  5. Is a public benefit corporation and the corporate assets are being misapplied or wasted; or
  6. Is a public benefit corporation and is no longer able to carry out its purposes;
    provided, that the enumeration of these grounds for dissolution shall not exclude actions or special proceedings by the attorney general and reporter or other state officials for the dissolution of a corporation for other causes as provided in this chapter or in any other statute of this state;
2. In a proceeding by fifty (50) members or members holding five percent (5%) of the voting power, whichever is less, or any person specified in this chapter, if it is established that:
  1. The directors are deadlocked in the management of the corporate affairs, the members are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be generally conducted because of the deadlock;
  2. The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;
  3. The members are deadlocked in voting power and have failed, for a period that includes at least two (2) consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired upon the election of their successors;
  4. The corporate assets are being misapplied or wasted; or
  5. The corporation is a public benefit corporation and is no longer able to carry out its purposes;
3. In a proceeding by a creditor if it is established that:
  1. The creditor's claim has been reduced to judgment, the execution on the judgment returned unsatisfied, and the corporation is insolvent; or
  2. The corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; and
4. In a proceeding by the corporation to have its voluntary dissolution continued under court supervision.
With respect to actions based on subdivision (a)(2), (a)(3) or (a)(4), prior to dissolving a corporation, the court shall consider whether:
1. There are reasonable alternatives to dissolution;
2. Dissolution is in the public interest, if the corporation is a public benefit corporation; and
3. Dissolution is the best way of protecting the interests of members, if the corporation is a mutual benefit corporation.

Acts 1987, ch. 242, § 14.30; 1989, ch. 445, § 15.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 96, 97.

NOTES TO DECISIONS

1. Successful Actions.

T.C.A. § 48-64-301(a)(1) authorized the Attorney General to seek court dissolution of two nonprofit corporations who repeatedly violated the Tennessee Nonprofit Corporation Act, T.C.A. §§ 48-51-101 et seq., by failing to preserve records and to adhere to a budget. Summers v. Cherokee Children & Family Servs., 112 S.W.3d 486, 2002 Tenn. App. LEXIS 699 (Tenn. Ct. App. 2002), appeal denied, — S.W.3d —, 2003 Tenn. LEXIS 143 (Tenn. Feb. 18, 2003).

48-64-302. Procedure for judicial dissolution.

Venue for a proceeding by the attorney general and reporter to dissolve a corporation lies in Davidson County. Venue for a proceeding brought by any other party named in § 48-64-301 lies in the county where a corporation's principal office (or, if none in this state, its registered office) is or was last located.
It is not necessary to make directors or members parties to a proceeding to dissolve a corporation unless relief is sought against them individually.
A court in a proceeding brought to dissolve a corporation may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the corporate assets wherever located, and carry on the business of the corporation until a full hearing can be held.
A person other than the attorney general and reporter who brings an involuntary dissolution proceeding for a public benefit corporation shall forthwith give written notice of the proceeding to the attorney general and reporter who may intervene.

Acts 1987, ch. 242, § 14.31.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 96, 122.

NOTES TO DECISIONS

1. Authority of Court.

In a proceeding to dissolve two nonprofit corporations who repeatedly violated the Tennessee Nonprofit Corporation Act, T.C.A. §§ 48-51-101 et seq., the court had the authority under T.C.A. § 48-64-302(a) to appoint a receiver to marshal and preserve the corporate assets. Summers v. Cherokee Children & Family Servs., 112 S.W.3d 486, 2002 Tenn. App. LEXIS 699 (Tenn. Ct. App. 2002), appeal denied, — S.W.3d —, 2003 Tenn. LEXIS 143 (Tenn. Feb. 18, 2003).

48-64-303. Receivership or custodianship.

A court of record having equity jurisdiction in a judicial proceeding brought to dissolve a corporation may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage, the affairs of the corporation. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the corporation and all of its property wherever located.
The court may appoint an individual or a domestic or foreign corporation (authorized to transact business in this state), whether a nonprofit corporation or a corporation for-profit, as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
1. The receiver may:
  1. Dispose of all or any part of the assets of the corporation wherever located, at a public or private sale, if authorized by the court; and
  2. Sue and defend in the receiver's own name as receiver of the corporation in all courts of this state; and
2. The custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its members and creditors.
The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation, its members, and creditors.
The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver's or custodian's counsel from the assets of the corporation or proceeds from the sale of the assets.

Acts 1987, ch. 242, § 14.32.

48-64-304. Decree of dissolution.

If after a hearing the court determines that one (1) or more grounds for judicial dissolution described in § 48-64-301 exist, it may enter a decree dissolving the corporation and specifying the effective date of the dissolution, and the clerk of the court shall deliver a certified copy of the decree to the secretary of state, who shall file it.
After entering the decree of dissolution, the court shall direct the winding up and liquidation of the corporation's assets and affairs in accordance with § 48-64-105 and the notification of claimants in accordance with §§ 48-64-106 and 48-64-107.

Acts 1987, ch. 242, § 14.33.

Chapter 65
Foreign Corporations

Part 1
Certificate of Authority

48-65-101. Authority to transact business required.

A foreign corporation may not transact business in this state until it obtains a certificate of authority from the secretary of state.
The following activities, among others, do not constitute transacting business within the meaning of subsection (a):
1. Maintaining, defending, or settling any proceeding, claim, or dispute;
2. Holding meetings of the board of directors or members or carrying on other activities concerning internal corporate affairs;
3. Maintaining bank accounts;
4. Maintaining offices or agencies for the transfer, exchange, and registration of memberships or securities or appointing and maintaining trustees or depositories with respect to those securities;
5. Selling through independent contractors;
6. Soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts;
7. Creating or acquiring indebtedness, deeds of trust, mortgages, and security interests in real or personal property;
8. Securing or collecting debts or enforcing mortgages, deeds of trust, and security interests in property securing the debts;
9. Owning, without more, real or personal property; provided, that for a reasonable time the management and rental of real property acquired in connection with enforcing a mortgage or deed of trust shall also not be considered transacting business if the owner is attempting to liquidate the owner's investment and if no office or other agency therefor, other than an independent agency, is maintained in this state;
10. Conducting an isolated transaction that is completed within one (1) month that is not one in the course of repeated transactions of a like nature; and
11. Transacting business in interstate commerce.
The list of activities in subsection (b) is not exhaustive, and is applicable solely to determine whether a foreign corporation must procure a certificate of authority and for no other purpose.

Acts 1987, ch. 242, § 15.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Foreign business corporations, title 48, ch. 25.

Long-arm statutes, title 20, ch. 2, part 2.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2401.

Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 105, 116, 117.

48-65-102. Consequences of transacting business without authority.

A foreign corporation transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
The successor to a foreign corporation that transacted business in this state without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding on that cause of action in any court in this state until the foreign corporation or its successor obtains a certificate of authority.
A court may stay a proceeding commenced by a foreign corporation, its successor, or assignee until it determines whether the foreign corporation or its successor requires a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign corporation or its successor obtains the certificate.
A foreign corporation which transacts business or conducts affairs in this state without a certificate of authority shall be liable to this state, for the years or parts thereof during which it transacted business or conducted affairs in this state without a certificate of authority, in an amount equal to treble the amount of all fees, penalties and taxes, plus interest, which would have been imposed by the laws of this state upon such corporation had it duly applied for and received a certificate of authority as required by this chapter, and thereafter had failed to file all reports required.
An application for a certificate of authority by a foreign corporation which has transacted business in this state without a certificate of authority shall not be filed by the secretary until all amounts due under subsection (d) shall have been paid.
Notwithstanding subsections (a) and (b), the failure of a foreign corporation to obtain a certificate of authority does not impair the validity of its corporate acts or prevent it from defending any proceeding in this state.

Acts 1987, ch. 242, § 15.02.

48-65-103. Application for certificate of authority.

A foreign corporation may apply for a certificate of authority to transact business in this state by delivering an application to the secretary of state for filing. The application must set forth:
1. The name of the foreign corporation, and, if different, the name under which the certificate of authority is to be obtained pursuant to § 48-65-106;
2. The name of the state or the country under whose law it is incorporated;
3. Its date of incorporation and period of duration, if other than perpetual;
4. The street address, including the zip code, of its principal office (and a mailing address such as a post office box if the United States Postal Service does not deliver to the principal office);
5. The street address, including the zip code, of its registered office in this state, the county in which the office is located, and the name of its registered agent at that office;
6. The names and business addresses, including the zip code of its current directors and officers;
7. Whether the foreign corporation has members;
8. A statement that the corporation is not for-profit; and
9. Whether the corporation, if it had been incorporated in this state, would be a public benefit or mutual benefit corporation.
The foreign corporation shall deliver with the completed application a certificate of existence (or a document of similar import) duly authenticated by the secretary of state or other official having custody of corporate records in the state or country under whose law it is incorporated. The certificate shall not bear a date of more than two (2) months prior to the date the application is filed in this state.
If the secretary of state determines upon application that a foreign corporation has been transacting business in this state without a certificate of authority for a period of one (1) year or more, then the application shall not be issued by the secretary of state until the foreign corporation submits a confirmation of good standing relative to such foreign corporation.

Acts 1987, ch. 242, § 15.03; 1989, ch. 445, § 16; 1991, ch. 188, § 7; 2010, ch. 741, § 20; 2014, ch. 899, § 79.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2401.

48-65-104. Amended certificate of authority.

A foreign corporation authorized to transact business in this state must obtain an amended certificate of authority from the secretary of state if it changes:
1. Its corporate name;
2. The period of its duration; or
3. The state or country of its incorporation.
The requirements of § 48-65-103 for obtaining an original certificate of authority apply to obtaining an amended certificate under this section.

Acts 1987, ch. 242, § 15.04; 1989, ch. 445, § 17; 1991, ch. 188, § 5.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2402.

48-65-105. Effect of certificate of authority.

A certificate of authority authorizes the foreign corporation to which it is issued to transact business in this state subject, however, to the right of the state to revoke the certificate as provided in chapters 51-68 of this title.
A foreign corporation with a valid certificate of authority has the same but no greater rights and has the same but no greater privileges as, and except as otherwise provided by chapters 51-68 of this title, is subject to the same duties, restrictions, penalties, and liabilities now or later imposed on, a domestic corporation of like character.
Chapters 51-68 of this title do not authorize this state to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this state.
This state does hereby release its right of escheat by virtue of the alien origin of such foreign corporation, or the alienage or nonresidence of the members of such foreign corporation, or any of them, in accordance with the Uniform Unclaimed Property Act, compiled in title 66, chapter 29, part 1.

Acts 1987, ch. 242, § 15.05; 2017, ch. 457, § 2.

48-65-106. Corporate name of foreign corporation.

A foreign corporation may obtain or maintain a certificate of authority to transact business in this state under any of the following names:
1. The corporate name of the foreign corporation; provided, that such name complies with § 48-54-101; or
2. An assumed corporate name which meets the requirements of § 48-54-101.
Except as authorized by subsections (c) and (d), the name of a foreign corporation that is authorized to transact business in this state or is applying for a certificate of authority to transact business in this state, shall be distinguishable upon the records of the secretary of state from the respective names of or for every other entity, whether true, assumed, reserved or registered, to the extent the use or reservation of such names is evidenced by a filing with the secretary of state under applicable law.
A foreign corporation, or person acting on behalf of a corporation not yet authorized to transact business in this state, may apply to the secretary of state for authorization to use a name that is not distinguishable upon the secretary of state's records from one (1) or more of the names described in subsection (b). The secretary of state shall authorize use of the indistinguishable name applied for, if:
1. The person holding the right to use the previously filed name described in subsection (b) consents to the use in writing and submits an undertaking, in a form satisfactory to the secretary of state, to cancel its reservation of such name or change such name to a name that is distinguishable upon the records of the secretary of state from the name of the applicant;
2. The applicant delivers to the secretary of state a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state; or
3. The person holding the right to use the previously filed name described in subsection (b) consents in writing to the use of such name by the applicant, and both the other person and the applicant consent in a form satisfactory to the secretary of state to use the same registered agent.
A foreign corporation may use in this state the name (including the assumed corporate name) of another domestic or foreign nonprofit or business corporation that is used in this state if the other corporation is incorporated or authorized to transact business in this state and the foreign corporation has:
1. Merged with the other corporation;
2. Been formed by reorganization of the other corporation; or
3. Acquired all or substantially all of the assets, including the corporate name, of the other corporation.
If a foreign corporation authorized to transact business in this state changes its corporate name to one that does not satisfy the requirements of § 48-54-101, it may not transact business in this state under the changed name until it adopts a name satisfying the requirements of § 48-54-101 and obtains an amended certificate of authority under § 48-65-104.

Acts 1987, ch. 242, § 15.06; 1989, ch. 445, § 18; 2010, ch. 743, §§ 5, 6.

Cross-References. Business corporations, Corporate name, § 48-14-101.

Foreign business corporations, Corporate name, § 48-25-106.

Nonprofit business, Corporate name, § 48-54-101.

48-65-107. Registered office and registered agent of foreign corporation.

Each foreign corporation authorized to transact business in this state must continuously maintain in this state:

A registered office that may be the same as its place of business; and
A registered agent, who may be:
1. An individual who resides in this state and whose office is identical with the registered office;
2. A domestic for-profit or nonprofit corporation whose office is identical with the registered office; or
3. A foreign for-profit or nonprofit corporation authorized to transact business in this state whose business office is identical with the registered office.

Acts 1987, ch. 242, § 15.07.

48-65-108. Change of registered office or registered agent of foreign corporation.

A foreign corporation authorized to transact business in this state may change its registered office or registered agent by delivering to the secretary of state for filing a statement of change that sets forth:
1. Its name;
2. If the current registered office is to be changed, the street address, including the zip code, of its new registered office and the county in which the office is located;
3. If the current registered agent is to be changed, the name of its new registered agent; and
4. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
If a registered agent changes the street address of such registered agent's business office, such registered agent may change the street address of the registered office of any foreign corporation for which such registered agent is the registered agent by notifying the corporation in writing of the change and signing (either manually or in facsimile) and delivering to the secretary of state for filing a statement of change that complies with the requirements of subsection (a) and recites that the corporation has been notified of the change.
Each foreign corporation authorized to transact business in this state shall comply with § 48-55-101(b).

Acts 1987, ch. 242, § 15.08; 1991, ch. 188, § 11; 2014, ch. 899, § 80.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-1901, 5-1902, 5-1904.

48-65-109. Resignation of registered agent of foreign corporation.

A registered agent may resign the agency appointment by signing and filing with the secretary of state an original statement of resignation accompanied by the agent's certification that the agent has mailed a copy thereof to the principal office of the corporation by certified mail. The statement may include a statement that the registered office is also discontinued.
The agency is terminated, and the registered office discontinued if so provided, on the date on which the statement is filed by the secretary of state.

Acts 1987, ch. 242, § 15.09.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1903.

48-65-110. Service on foreign corporation.

The registered agent of a foreign corporation authorized to transact business in this state is the corporation's agent for service of process, notice, or demand required or permitted by law to be served on the foreign corporation.
Service on a foreign corporation when the secretary of state is its agent for service of process may be obtained pursuant to § 48-55-105.
This section does not prescribe the only means, or necessarily the required means, of serving a foreign corporation.

Acts 1987, ch. 242, § 15.10; 1989, ch. 445, § 19.

Cross-References. Long-arm statutes, title 20, ch. 2, part 2.

Part 2
Withdrawal

48-65-201. Withdrawal of foreign corporation.

A foreign corporation authorized to transact business in this state may not withdraw from this state until it obtains a certificate of withdrawal from the secretary of state.
A foreign corporation authorized to transact business in this state may apply for a certificate of withdrawal by delivering an application to the secretary of state for filing. The application shall set forth:
1. The name of the foreign corporation and the name of the state or country under whose law it is incorporated;
2. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
3. That it either continues its registered agent in this state or revokes the authority of its registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
4. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (b)(3); and
5. A commitment to notify the secretary of state in the future of any change in the mailing address.
The foreign corporation shall provide any additional information in its application requested by the commissioner of revenue or the secretary of state in order to determine and assess any unpaid taxes and fees payable under the laws of this state.
The secretary of state shall not file an application for a certificate of withdrawal unless it is accompanied by a tax clearance for termination or withdrawal relative to such foreign corporation.
After the withdrawal of the corporation is effective, service of process on the secretary of state or the continued registered agent under this section is service on the foreign corporation. Upon receipt of process, the secretary of state shall mail a copy of the process to the foreign corporation at the mailing address set forth under subsection (b).

Acts 1987, ch. 242, § 15.20; 2010, ch. 741, § 21.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2403.

Part 3
Revocation of Certificate of Authority

48-65-301. Grounds for revocation.

The secretary of state may commence a proceeding under § 48-65-302 to revoke the certificate of authority of a foreign corporation authorized to transact business in this state if:

The foreign corporation does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
The foreign corporation is without a registered agent or registered office in this state for two (2) months or more;
The foreign corporation does not inform the secretary of state under § 48-65-108 or § 48-65-109 that its registered agent or registered office has changed, that its registered agent has resigned, or that its registered office has been discontinued within two (2) months of the change, resignation or discontinuance;
An incorporator, director, officer, or agent of the foreign corporation signed a document knowing it was false in any material respect with intent that the document be delivered to the secretary of state for filing;
The secretary of state receives a duly authenticated certificate from the secretary of state or other official having custody of corporate records in the state or country under whose law the foreign corporation is incorporated stating that it has been dissolved or has disappeared as the result of a merger;
The foreign corporation is exceeding the authority conferred upon it by this chapter;
The name of a foreign corporation contained in a document filed after January 1, 1988, fails to comply with provisions of § 48-65-106; or
The foreign corporation submits to the secretary of state's office a check, bank draft, money order or other such instrument, for payment of any fee and it is dishonored upon presentation for payment.

Acts 1987, ch. 242, § 15.30; 1989, ch. 445, § 20.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 114.

48-65-302. Procedures for and effect of revocation.

If the secretary of state determines that one (1) or more grounds exist under § 48-65-301 for revocation of a certificate of authority, the secretary of state shall serve the foreign corporation with written notice of the secretary of state's determination under § 48-65-110, except that such determination may be sent by first class mail. Notice need not be sent if the grounds for revocation are pursuant to § 48-65-301(5) and a certificate of revocation may be sent without the two-month waiting period required by subsection (b).
If the foreign corporation does not correct each ground for revocation or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the communication is perfected under § 48-65-110, the secretary of state may revoke the foreign corporation's certificate of authority by signing a certificate of revocation that recites the ground or grounds for revocation and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the foreign corporation under § 48-65-110, except that the certificate may be sent by first class mail.
The authority of a foreign corporation to transact business in this state ceases on the date shown on the certificate revoking its certificate of authority.
The secretary of state's revocation of a foreign corporation's certificate of authority appoints the secretary of state as the foreign corporation's agent for service of process in any proceeding based on a cause of action which arose during the time the foreign corporation was authorized to transact business in this state. Service of process on the secretary of state under this subsection (d) is service on the foreign corporation. Upon receipt of process, the secretary of state shall comply with § 48-55-105.
Revocation of a foreign corporation's certificate of authority does not terminate the authority of the registered agent of the corporation.

Acts 1987, ch. 242, § 15.31; 1989, ch. 445, § 21.

48-65-303. Reinstatement following administrative revocation.

A foreign corporation whose certificate of authority is administratively revoked under § 48-65-302 may apply to the secretary of state for reinstatement. The application must:
1. Contain a confirmation of good standing relative to such foreign corporation;
2. Recite the name of the corporation at its date of revocation;
3. State that the ground or grounds for revocation either did not exist or have been eliminated; and
4. State a corporate name that satisfies the requirements of § 48-54-101.
1. If the secretary of state determines that the application contains the confirmation of good standing and information required by subsection (a), and that such information is correct, then the secretary of state shall reinstate the certificate of authority, prepare a certificate that recites this determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the corporation under § 48-55-104.
2. If the corporate name in subdivision (a)(4) is different than the corporate name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to its certificate of authority insofar as it pertains to the corporate name.
When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative revocation and the corporation resumes carrying on its business as if the administrative revocation had never occurred.

Acts 1987, ch. 242, § 15.32; 1989, ch. 445, § 22; 1991, ch. 188, § 10; 1999, ch. 117, § 2; 2000, ch. 572, § 2; 2010, ch. 741, §§ 22, 23; 2011, ch. 99, § 4.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2307.

48-65-304. Appeal from denial of reinstatement.

If the secretary of state denies a foreign corporation's application for reinstatement following administrative revocation, the secretary of state shall serve the corporation under §§ 48-55-104 and 48-55-105 with a written communication that explains the reason or reasons for denial.
The corporation may appeal the denial of reinstatement to the chancery court of Davidson County within one (1) month after service of the communication of denial is perfected. The corporation appeals by petitioning the court to set aside the revocation and attaching to the petition copies of the secretary of state's communication of denial.
The court may summarily order the secretary of state to reinstate the revoked corporation or may take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.

Acts 1987, ch. 242, § 15.33.

48-65-305. Certificate of withdrawal following administrative revocation.

When a foreign corporation, which has had its certificate of authority revoked, wishes to withdraw from the state, it may do so without first being reinstated by delivering to the secretary of state for filing an application for a certificate of withdrawal following administrative revocation of the certificate of authority. The application shall set forth:
1. The name of the foreign corporation and the name of the state or country under whose law it is incorporated;
2. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
3. That it either continues its registered agent in this state or revokes the authority of its registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
4. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (a)(3); and
5. A commitment to notify the secretary of state in the future of any change in its mailing address.
The foreign corporation shall provide any additional information in its application requested by the commissioner of revenue or the secretary of state in order to determine and assess any unpaid taxes and fees payable under the laws of this state.
The secretary of state shall not file an application for a certificate of withdrawal following administrative revocation unless it is accompanied by a tax clearance for termination or withdrawal relative to such foreign corporation.
After the withdrawal of the corporation is effective, service of process on the secretary of state or the continued registered agent under this section is service on the foreign corporation. Upon receipt of process, the secretary of state shall mail a copy of the process to the foreign corporation at the mailing address set forth under subsection (a).

Acts 1989, ch. 445, § 23; 2010, ch. 741, § 24.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-2404.

Chapter 66
Records and Reports

Part 1
Records

48-66-101. Corporate records.

A corporation shall keep as permanent records minutes of all meetings of its members and board of directors, a record of all actions taken by the members or directors without a meeting, and a record of all actions taken by committees of the board of directors in place of the board of directors as authorized by § 48-58-206(d).
A corporation shall maintain appropriate accounting records.
A corporation or its agent shall maintain a record of its members in a form that permits preparation of a list of the names and addresses of all members, in alphabetical order by class showing the number of votes each member is entitled to vote.
A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
A corporation shall keep a copy of the following records at its principal office:
1. Its charter or restated charter and all amendments to it currently in effect;
2. Its bylaws or restated bylaws and all amendments to them currently in effect;
3. Resolutions adopted by its board of directors relating to the characteristics, qualifications, rights, limitations and obligations of members or any class or category of members;
4. The minutes of all meetings of members and records of all actions approved by the members for the past three (3) years;
5. All written communications to members generally within the past three (3) years, including the financial statements furnished for the past three (3) years under § 48-66-201;
6. A list of the names and business or home addresses of its current directors and officers; and
7. Its most recent annual report delivered to the secretary of state under § 48-66-203.

Acts 1987, ch. 242, § 16.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Business corporations, records and reports, title 48, ch. 26.

48-66-102. Inspection of records by members.

Subject to § 48-66-103(c), a member is entitled to inspect and copy, during regular business hours and at a reasonable location specified by the corporation, any of the records of the corporation described in § 48-66-101(e) if the member gives the corporation a written demand at least five (5) business days before the date on which the member wishes to inspect and copy.
A member is entitled to inspect and copy, during regular business hours and at a reasonable location specified by the corporation, any of the following records of the corporation if the member meets the requirements of subsection (c) and gives the corporation written notice at least five (5) business days before the date on which the member wishes to inspect and copy:
1. Excerpts from any records required to be maintained under § 48-66-101(a), to the extent not subject to inspection under subsection (a);
2. Accounting records of the corporation; and
3. Subject to § 48-66-105, the membership list.
A member may inspect and copy the records identified in subsection (b) only if:
1. The member's demand is made in good faith and for a proper purpose;
2. The member describes with reasonable particularity the purpose and the records the member desires to inspect; and
3. The records are directly connected with the purpose for which the demand is made.
The right of inspection granted by this section may not be abolished or limited by a corporation's charter or bylaws.
This section does not affect:
1. The right of a member to inspect records under § 48-57-201 or, if the member is in litigation with the corporation, to the same extent as any other litigant; or
2. The power of a court, independently of chapters 51-68 of this title, to compel the production of corporate records for examination.

Acts 1987, ch. 242, § 16.02; 2014, ch. 899, §§ 81, 82.

48-66-103. Scope of inspection rights.

A member's agent or attorney has the same inspection and copying rights as the member the agent or attorney represents.
The right to copy records under § 48-66-102 includes, if reasonable, the right to receive copies made by photographic, xerographic or other means.
The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the member. The charge may not exceed the estimated cost of production, reproduction or transmission of the records.
The corporation may comply with a member's demand to inspect the record of members under § 48-66-102(b)(3) by providing the member with a list of its members that was compiled no earlier than the date of the member's demand.
Copies may be provided through an electronic transmission if available and requested by the member.

Acts 1987, ch. 242, § 16.03; 2014, ch. 899, §§ 83, 84.

48-66-104. Court-ordered inspection.

If a corporation does not allow a member who complies with § 48-66-102(a) to inspect and copy any records required by that subsection to be available for inspection, a court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located may summarily order inspection and copying of the records demanded at the corporation's expense upon application of the member.
If a corporation does not within a reasonable time allow a member to inspect and copy any other record, the member who complies with § 48-66-102(b) and (c) may apply to a court of record having equity jurisdiction in the county where the corporation's principal office (or, if none in this state, its registered office) is located for an order to permit inspection and copying of the records demanded. The court shall dispose of an application under this subsection (b) on an expedited basis.
If the court orders inspection and copying of the records demanded, it shall also order the corporation to pay the member's costs (including reasonable counsel fees) incurred to obtain the order unless the corporation proves that it refused inspection in good faith because it had a reasonable basis for doubt about the right of the member to inspect the records demanded.
If the court orders inspection and copying of the records demanded, it may impose reasonable restrictions on the use or distribution of the records by the demanding member.

Acts 1987, ch. 242, § 16.04.

48-66-105. Limitations on use of membership list.

Without the consent of the board, a membership list or any part thereof may not be obtained or used by any person for any purpose unrelated to a member's interest as a member. Without limiting the generality of the foregoing, without the consent of the board a membership list or any part thereof may not be:

Used to solicit money or property unless such money or property will be used solely to solicit the votes of the members in an election to be held by the corporation;
Used for any commercial purpose; or
Given or sold to or purchased by any person.

Acts 1987, ch. 242, § 16.05.

48-66-106. Notice excused as to members whose prior notices were returned as undeliverable — Reinstatement of notice requirement.

Whenever notice would otherwise be required to be given under any provision of chapters 51-68 of this title to a member, the notice need not be given if notice of two (2) consecutive annual meetings, and all notices of meetings during the period between such two (2) consecutive annual meetings have been returned undeliverable or could not be delivered.
If a member delivers to the nonprofit corporation a notice setting forth the member's then-current address, the requirement that notice be given to that member is reinstated.

Acts 2014, ch. 899, § 85.

48-66-107. Prohibited uses of membership lists — Mutual benefit corporation's election to proceed under § 48-57-201.

Without the consent of the board, a membership list or any part thereof may not be obtained or used by any person for any purpose unrelated to a member's interest as a member. Without limiting the generality of the foregoing, without the consent of the board a membership list or any part thereof may not be:
1. Used to solicit money or property unless such money or property will be used solely to solicit the votes of the members in an election to be held by the corporation;
2. Used for any commercial purpose; or
3. Given or sold to or purchased by any person.
Instead of making a membership list available for inspection and copying pursuant to this part, a mutual benefit corporation may elect to proceed under the procedures set forth in § 48-57-201.

Acts 2014, ch. 899, § 85.

48-66-108. Inspection rights of director of corporation.

A director of a corporation is entitled to inspect and copy the books, records and documents of the corporation at any reasonable time but not for any purpose or in any manner that would violate any duty to the corporation.
The chancery court of the county where the corporation's principal office (or if none in this state, its registered office) is located may order inspection and copying of the books, records and documents at the corporation's expense, upon application of a director who has been refused such inspection rights, unless the corporation establishes that the director is not entitled to such inspection rights. The court shall dispose of an application under this subsection (b) on an expedited basis.
If an order is issued, the court may include provisions protecting the corporation from undue burden or expense, and prohibiting the director from using information obtained upon exercise of the inspection rights in a manner that would violate a duty to the corporation, and may also order the corporation to reimburse the director for the director's expenses incurred in connection with the application.

Acts 2014, ch. 899, § 86.

Part 2
Reports

48-66-201. Financial statements for members.

A corporation shall prepare annual financial statements, which may be consolidated or combined statements of the corporation and one (1) or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year and a statement of operations for the year. If the financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. On demand in the form of a document from a member, a corporation must furnish that member with its latest annual financial statements as set out in subsection (c).
If annual financial statements are reported upon by a public accountant, the public accountant's report must accompany them. If not, the statements must be accompanied by the statement of the president or the person responsible for the corporation's financial accounting records:
1. Stating the president's or other person's reasonable belief as to whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
2. Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year.
A corporation shall deliver in the form of a document the annual financial statements to each requesting member within one (1) month after notice of the demand; provided, that with respect to the financial statements for the most recently completed fiscal year, the statements shall be delivered in the form of a document to the member within four (4) months after the close of the fiscal year.

Acts 1987, ch. 242, § 16.20; 2014, ch. 899, §§ 87, 88.

48-66-202. Report of indemnification to members.

If a corporation indemnifies or advances expenses to a director under § 48-58-502, § 48-58-503, § 48-58-504 or § 48-58-505 in connection with a proceeding by or in the right of the corporation, the corporation shall report the indemnification or advance in writing to the members with or before the notice of the next meeting of members.

Acts 1987, ch. 242, § 16.21.

48-66-203. Annual report for secretary of state.

Each domestic corporation, and each foreign corporation authorized to transact business in this state, shall deliver to the secretary of state an annual report that sets forth:
1. The name of the corporation and the state or country under whose law it is incorporated;
2. The street address, including the zip code, of its registered office, the county in which the office is located, and the name of its registered agent at that office in this state;
3. The street address, including the zip code, of its principal office (and a mailing address such as a post office box if the United States Postal Service does not deliver to the principal office);
4. The names and business addresses, including the zip code, of its directors and principal officers; provided, that corporations which are exempt from the payment of income tax under § 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3)) and are currently operating shall not be required to comply with this subdivision (a)(4);
5. If a domestic corporation, a statement that the corporation is a public benefit corporation or a mutual benefit corporation;
6. If a foreign corporation, a statement whether the corporation, if it had been incorporated in this state, would be a public benefit or mutual benefit corporation;
7. If a domestic religious corporation, a statement to that effect; and
8. The federal employer identification number (FEIN) of the corporation, or its corporation control number as assigned by the secretary of state.
The information in the annual report shall be current as of the date the annual report is executed on behalf of the corporation. An annual report of a domestic corporation that sets forth a change of the principal office of the domestic corporation shall be deemed to be an amendment to the charter of the domestic corporation, and the domestic corporation shall not be required to take any further action to amend the charter of the domestic corporation under chapter 60 of this title with respect to such amendment. An annual report of a foreign corporation that sets forth a change of the principal executive office of the foreign corporation shall be deemed to be an amendment to the certificate of authority of the foreign corporation, and the foreign corporation shall not be required to take any further action to amend the certificate of authority of the foreign corporation under § 48-65-104 with respect to such amendment. An annual report of a domestic or foreign corporation that sets forth a change of the registered office or registered agent of the domestic or foreign corporation shall be deemed to be a statement of change for purposes of §§ 48-55-102 and 48-65-108, respectively, and the domestic or foreign corporation shall not be required to take any further action under §§ 48-55-102 and 48-65-108, respectively, with respect to such change.
Every corporation shall file the annual report with the secretary of state on or before the first day of the fourth month following the close of the corporation's fiscal year, or upon a date set by rule by the secretary of state, if a domestic corporation or a foreign corporation.
The secretary of state shall make a report to the commissioner of revenue, by the fifteenth day of each month, of any and all new corporations that have been licensed or authorized to operate in the state during the preceding month, giving the name and address of each new corporation, foreign or domestic.
The secretary of state shall furnish the commissioner of revenue, by the fifteenth day of each month, a list of all corporations that have surrendered their charters, have had their charters revoked, or have ceased to do business in the state during the preceding month.

Acts 1987, ch. 242, § 16.22; 1989, ch. 445, §§ 24, 25; 1990, ch. 848, §§ 3-5; 1991, ch. 188, § 14; 2014, ch. 899, §§ 89-91; 2020, ch. 719, § 11.

Amendments. The 2020 amendment inserted “or upon a date set by rule by the secretary of state,” in (c).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Chapter 67
Religious Corporations

48-67-101. Chapters 51-68 applicable to religious corporations.

Except as provided in § 48-67-102, chapters 51-68 of this title apply to religious corporations.

Acts 1987, ch. 242, § 17.01.

Cross-References. Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

48-67-102. Provisions not applicable to religious corporations.

The following provisions of chapters 51-68 of this title shall not apply to religious corporations unless otherwise provided in their articles or bylaws:
1. Section 48-56-202;
2. Section 48-56-302;
3. Section 48-58-110(d);
4. Section 48-58-303; and
5. Section 48-64-303.
If religious doctrine or canon law governing the affairs of a religious corporation is inconsistent with chapters 51-68 of this title on the same subject, the religious doctrine or canon law shall control to the extent, and only to the extent, required by the constitution of the United States or the constitution of this state, or both.

Acts 1987, ch. 242, § 17.02; 2014, ch. 899, § 92.

Chapter 68
Transition Provisions

Part 1
General Provisions

48-68-101. Application to existing domestic corporations.

Chapters 51-68 of this title apply to all domestic nonprofit corporations in existence on January 1, 1988, that were incorporated under any general statute of this state providing for incorporation of nonprofit corporations. Chapters 51-68 of this title shall, however, not apply to corporations, the charters of which were granted by special legislative act prior to the adoption of the Constitution of 1870. Such corporations may amend their charters for any purposes consistent with chapters 51-68 of this title and in the manner set out in chapters 51-68 of this title. Such amendments and the particular rights, obligations, duties, and privileges conferred or imposed by the amendments shall be subject to § 48-51-102.
Section 48-52-102(a) does not apply to the charter of any corporation existing on January 1, 1988, unless and until a charter amendment is filed. The first charter amendment filed by a corporation following January 1, 1988, shall include any information required by § 48-52-102(a) not otherwise on file in the office of the secretary of state, except that the name and address of each incorporator may be excluded, and the information required by § 48-52-102(a)(4) shall be provided for the current registered agent and registered office. Until such a charter amendment is filed, a corporation's registered agent shall be that agent specified in the office of the secretary of state on January 1, 1988, and such corporation's registered office shall be deemed to be that office specified as the address of its registered agent unless such agent or office is changed thereafter pursuant to chapter 55 or 65 of this title.
Chapters 51-68 of this title shall not apply to municipal corporations; provided, that this chapter shall apply to any public governmental corporation or authority created by or established under the authority of a municipal corporation or county or both for the performance of public functions, including industrial development boards created pursuant to title 7.
Chapter 523, § 1 (3.06 - 3.11) of the Acts of 1968, as amended, in effect on January 1, 1988, shall apply to any claims, applications, or proceedings for indemnification, or any corporate action authorizing indemnification, made or begun before January 1, 1988.
Chapter 523, § 1 (12.01 - 12.12, 12.14) of the Acts of 1968 and chapter 66, §§ 1 and 2 of the Acts of 1969, in effect on January 1, 1988, shall apply to any dissolution as to which a statement of intent to dissolve has been filed or a court proceeding filed before January 1, 1988.

Acts 1987, ch. 242, § 18.01.

Cross-References. Business corporations, transition provisions, title 48, ch. 27.

Law Reviews.

Conversions of Nonprofit Hospitals to For-Profit Status: The Tennessee Experience, 28 U. Mem. L. Rev. 1077 (1998).

48-68-102. Application to qualified foreign corporations.

A foreign corporation authorized to transact business in this state on January 1, 1988, is subject to chapters 51-68 of this title but is not required to obtain a new certificate of authority to transact business under chapters 51-68 of this title.

Acts 1987, ch. 242, § 18.02.

48-68-103. Saving provisions.

Except as provided in subsection (b), the repeal of a statute by chapters 51-68 of this title does not affect:
1. The operation of the statute or any action taken under it before its repeal and if any certificate or document is required to be filed in any public office of this state relating to such action, it may be filed after January 1, 1988, in accordance with the prior statute; provided, that such certificate or document is received by the secretary of state or other recording official on or before April 30, 1988. Any certificate or document recorded or filed pursuant to this subdivision (a)(1) shall pay the fee required by chapters 51-68 of this title for such recording or filing;
2. Any ratification, right, remedy, privilege, obligation, or liability acquired, accrued, or incurred under the statute before its repeal;
3. Any violation of the statute, or any penalty, forfeiture, or punishment incurred because of the violation, before its repeal; or
4. Any proceeding commenced, or reorganization or dissolution authorized by the board of directors, under the statute before its repeal, and the proceeding, reorganization, or dissolution may be completed in accordance with the statute as if it had not been repealed.
If a penalty or punishment imposed for violation of a statute repealed by chapters 51-68 of this title is reduced by chapters 51-68 of this title, the penalty or punishment if not already imposed shall be imposed in accordance with chapters 51-68 of this title.

Acts 1987, ch. 242, § 18.03.

48-68-104. Public benefit and mutual benefit corporations.

On January 1, 1988, each domestic corporation existing on January 1, 1988, that is or becomes subject to chapters 51-68 of this title, shall be designated as a public benefit or a mutual benefit corporation as follows:

Any corporation designated by statute as a public benefit corporation or a mutual benefit corporation is the type of corporation designated by statute;
Any corporation which does not come within subdivision (1) but which is recognized as exempt under § 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3)), or any successor section, is a public benefit corporation;
Any corporation which does not come within subdivision (1) or (2), but which is organized for a public or charitable purpose and which upon dissolution must distribute its assets to the United States, a state or a person which is recognized as exempt under § 501(c)(3) of the Internal Revenue Code, or any successor section, is a public benefit corporation; and
Any corporation which does not come within subdivision (1), (2) or (3) is a mutual benefit corporation.

Acts 1987, ch. 242, § 18.06.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), No. 5-1401.

48-68-105. Administrative procedures.

The secretary of state is authorized to prescribe forms and to promulgate regulations in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1987, ch. 242, § 19.

Part 2
Public Benefit Hospital Sales and Conveyance Act of 2006

48-68-201. Short title.

This part shall be known and may be cited as the “Public Benefit Hospital Sales and Conveyance Act of 2006.”

Acts 2006, ch. 930, § 2.

Compiler's Notes. Acts 2006, ch. 930, § 14 provided that a sale, lease, exchange or other disposition of any assets by an entity that was required to give notice to the attorney general and reporter prior to such sale, lease, exchange or other disposition before the enactment of this act shall be governed by the law in effect when such notice was sent.

48-68-202. Part definitions.

As used in this part, unless the context otherwise requires:

“Acquiring entity” means the person who gains ownership or control of a public benefit hospital entity as a result of a public benefit hospital conveyance transaction;
“Person” means any individual, partnership, trust, estate, corporation, association, joint venture, joint stock company or other organization;
1. “Public benefit hospital conveyance transaction” means:
  1. The sale, transfer, lease, exchange, optioning, conveyance or other disposition of a material amount of the assets or operations of any public benefit hospital entity to an entity or person other than another public benefit hospital entity that controls, is controlled by or is under common control with such public benefit hospital entity; and
  2. The transfer of control or governance of a public benefit hospital entity to an entity or person other than another public benefit hospital entity that controls, is controlled by or is under common control with such public benefit hospital entity;
2. “Public benefit hospital conveyance transaction” includes any transaction described in subdivision (3)(A)(i) or (3)(A)(ii) that is entered into by the public benefit hospital entity or by any entity that controls, is controlled by or is under common control with such public benefit hospital entity;
“Public benefit hospital entity” means any public benefit corporation, as defined in chapter 51, part 2 of this title, or any governmental entity that is licensed as a hospital under title 68, chapter 11, part 2, or considered a hospital under title 33, chapter 1, including entities affiliated with any of these through ownership, governance, or membership, such as a holding company or subsidiary.

Acts 2006, ch. 930, § 3; 2014, ch. 864, § 1.

48-68-203. Written notice prior to entering into public benefit hospital conveyance transaction.

Notwithstanding chapters 61 and 64 of this title, any public benefit hospital entity shall be required to provide written notice to the attorney general and reporter, prior to entering into any public benefit hospital conveyance transaction. At the time of providing notice to the attorney general and reporter, the public benefit hospital entity shall provide the attorney general and reporter with written certification that a copy of this part has been given in its entirety to each member of the board of trustees of the public benefit hospital entity.
The notice to the attorney general and reporter provided for in this section shall include and contain all the information the attorney general and reporter determines is required. No notice shall be effective until the attorney general and reporter has acknowledged receipt of a complete notice, in accordance with protocol established by the attorney general and reporter.
This part shall not apply to a public benefit hospital entity, if the public benefit hospital conveyance transaction is in the usual and regular course of its activities, and if the attorney general and reporter has given the public benefit hospital entity a written waiver of this part as to the public benefit hospital conveyance transaction.

Acts 2006, ch. 930, § 4.

Attorney General Opinions. Applicability of notification provisions of T.C.A. § 48-68-203 to subsidiary mergers. OAG 10-49, 2010 Tenn. AG LEXIS 49 (4/14/10).

48-68-204. Notification by attorney general and reporter of action.

Within forty-five (45) days of receipt of a complete written notice as required by § 48-68-203, the attorney general and reporter shall notify the public benefit hospital entity in writing of the attorney general and reporter's decision to object to the proposed public benefit hospital conveyance transaction or to take no action. The attorney general and reporter may extend this period for an additional thirty (30) days; provided, that the extension is necessary to obtain information pursuant to §§ 48-68-206, 48-68-208 and 48-68-209.

Acts 2006, ch. 930, § 5.

48-68-205. Published written notice.

Within five (5) days after giving written notice pursuant to § 48-68-203, the public benefit hospital entity shall cause the written notice to be published in one (1) or more newspapers of general circulation that are published in the county of the public benefit hospital entity. The published written notice shall contain:
1. The text of the written notice provided to the attorney general and reporter under § 48-68-203; and
2. The following statements:
  1. “This notice is provided pursuant to Tennessee Code Annotated, Title 48, Chapter 68, Part 2”; and
  2. “Any interested party wishing to provide written comment may submit the written comment directly to the Attorney General and Reporter, Antitrust Division, 425 Fifth Avenue North, Nashville, Tennessee 37243”.
A failure by the public benefit hospital entity giving notice under § 48-68-203 to provide a published written notice as required by subsection (a) shall be a sufficient ground for the attorney general and reporter to object to the proposed public benefit hospital conveyance transaction.

Acts 2006, ch. 930, § 6.

48-68-206. Considerations in making decision regarding proposed transaction.

In making a decision whether to object to a proposed public benefit hospital conveyance transaction, the attorney general and reporter shall consider:

Whether the public benefit hospital entity will receive full and fair market value for its charitable or social welfare assets;
Whether the fair market value of the public benefit hospital entity's assets to be transferred has been manipulated by the actions of the parties in a manner that causes the fair market value of the assets to decrease;
Whether the proceeds of the proposed public benefit hospital conveyance transaction will be used consistent with the trust under which the assets are held by the public benefit hospital entity;
Whether the proceeds are used by a county or municipality for general or special revenue obligations not expressly provided for when the hospital was established;
Whether the proceeds will be controlled as funds independently of the acquiring or related entities; provided, however, no proceeds shall be returned to any county or municipal government except to the extent necessary to pay lawful obligations to such county or municipal government;
Whether the proposed public benefit hospital conveyance transaction will result in a breach of fiduciary duty, as determined by the attorney general and reporter, including conflicts of interest related to payments or benefits to officers, directors, board members, executives and experts employed or retained by the parties;
Whether the governing body of the public benefit hospital entity exercised due diligence in deciding to dispose of the public benefit hospital entity's assets, selecting the acquiring entity, and negotiating the terms and conditions of the disposition;
Whether the public benefit hospital conveyance transaction will result in private inurement to any person;
Whether health care providers will be offered the opportunity to invest or own an interest in the acquiring entity or a related party, and whether procedures or safeguards are in place to avoid conflict of interest in patient referrals;
Whether the terms of any management or services contract negotiated in conjunction with the proposed public benefit hospital conveyance transaction are reasonable;
Whether any foundation established to hold the proceeds of the public benefit hospital conveyance transaction will be broadly based in the community and be representative of the affected community, taking into consideration the structure and governance of the foundation;
Whether the attorney general and reporter has been provided with sufficient information and data by the public benefit hospital entity to adequately evaluate the proposed public benefit hospital conveyance transaction or the effects of the transaction on the public; provided, that the attorney general and reporter has notified the public benefit hospital entity or the acquiring entity of any inadequacy of the information or data and has provided a reasonable opportunity to remedy the inadequacy; and
Any other criteria the attorney general and reporter considers necessary to determine whether the public benefit hospital entity will receive full and fair market value for its assets to be transferred, as required in rules adopted by the attorney general and reporter under § 48-68-208.

Acts 2006, ch. 930, § 7; 2012, ch. 929, §§ 1, 2.

Acts 2012, ch. 929, § 3 provided that a sale, lease, exchange or other disposition of any assets by an entity which was required to give notice to the attorney general prior to such sale, lease, exchange or other disposition before May 10, 2012, shall be governed by the law in effect when such notice was sent.

48-68-207. Determination of whether the transaction will have effect on availability or accessibility to health care services.

In making a decision whether to object to a public benefit hospital conveyance transaction, the attorney general and reporter shall also determine whether the proposed public benefit hospital conveyance transaction may have a significant effect on the availability or accessibility of health care services to the affected community. In making this determination, the attorney general and reporter shall consider:

Whether sufficient safeguards are included to assure the affected community continued access to affordable care;
Whether the proposed public benefit hospital conveyance transaction creates or has the likelihood of creating an adverse effect on the access to or availability or cost of health care services to the community;
Whether the acquiring entities have made a commitment, at least comparable to the public benefit hospital entity, to provide health care to the disadvantaged, the uninsured and the underinsured, and to provide benefits to the affected community to promote improved health care. Activities and funding provided by the public benefit hospital entity or its successor public benefit hospital entity or foundation to provide such health care or to provide support or medical education and teaching programs or medical research programs shall be considered in evaluating compliance with this commitment;
Whether the public benefit hospital conveyance transaction will result in the revocation of hospital privileges;
Whether sufficient safeguards are included to maintain appropriate capacity for health science research and health care provider education; and
Whether the proposed public benefit hospital conveyance transaction demonstrates that the public interest will be served considering the essential medical services needed to provide safe and adequate treatment, appropriate access and balanced health care delivery to the residents.

Acts 2006, ch. 930, § 8.

48-68-208. Providing sufficient information to complete review of the transaction.

The attorney general and reporter may demand that the public benefit hospital entity giving notice under § 48-68-203 provide such information as the attorney general and reporter reasonably deems necessary to complete the review of any proposed public benefit hospital conveyance transaction described in §§ 48-68-206 and 48-68-207. A failure by the public benefit hospital entity giving notice under § 48-68-203 to provide timely information as required by the attorney general and reporter shall be a sufficient ground for the attorney general and reporter to object to the proposed public benefit hospital conveyance transaction.

Acts 2006, ch. 930, § 9.

48-68-209. Permitted action to assist in review of proposed transaction.

Within the time periods designated in § 48-68-204, the attorney general and reporter may do any of the following to assist in the review of the proposed public benefit hospital conveyance transaction described in this part:
1. Contract with, consult, and receive advice from any agency of the state or the United States on such terms and conditions the attorney general and reporter deems appropriate; or
2. At the attorney general and reporter's sole discretion, contract with experts or consultants the attorney general and reporter deems appropriate to assist the attorney general and reporter in reviewing the proposed public benefit hospital conveyance transaction.
Any contract costs incurred by the attorney general and reporter pursuant to this section shall not exceed an amount that is reasonable and necessary to conduct the review of the proposed public benefit hospital conveyance transaction. The attorney general and reporter shall be exempt from all state procurement for competitive bidding for purposes of entering into contracts pursuant to this section. The acquiring entity, upon request, shall pay the attorney general and reporter promptly for all costs of contracts entered into by the attorney general and reporter pursuant to this section.
The attorney general and reporter shall be entitled to reimbursement from the acquiring entity for all reasonable and actual costs incurred by the attorney general and reporter in reviewing any proposed public benefit hospital conveyance transaction under this part, including attorney fees at the billing rate used by the attorney general and reporter to bill state agencies for legal services. The acquiring entity, upon request, shall pay the attorney general and reporter promptly for all costs, but in no event shall reimbursement associated with reviewing a proposed public benefit hospital conveyance transaction exceed fifty thousand dollars ($50,000). The attorney general and reporter shall not be entitled to reimbursement for expenses incurred for any legal services rendered by external legal counsel.
The failure by the acquiring entity to promptly reimburse the attorney general and reporter for all costs pursuant to this section shall be sufficient ground for the attorney general and reporter to object to the proposed public benefit hospital conveyance transaction.

Acts 2006, ch. 930, § 10.

48-68-210. Public records.

Unless subject to title 8, chapter 6, part 4, all documents submitted to the attorney general and reporter by any person, including public benefit hospital entities giving notice under § 48-68-203, in connection with the attorney general and reporter's review of the proposed public benefit hospital conveyance transaction pursuant to this part, shall be public records subject to title 10, chapter 7.

Acts 2006, ch. 930, § 11.

Cross-References. Confidentiality of public records, § 10-7-504.

48-68-211. Violations — Penalties — Remedies.

Any public benefit hospital conveyance transactions entered into in violation of this part shall be null and void, and each member of the governing boards and the chief financial officers of the parties to the public benefit hospital conveyance transaction may be subject to a civil penalty of up to one million dollars ($1,000,000), the amount to be determined by a court of competent jurisdiction in Davidson County. The attorney general and reporter shall institute proceedings to impose such a penalty. In addition, no license to operate a hospital may be issued or renewed under title 68, chapter 11, part 2, or applicable regulation, if there is a public benefit hospital conveyance transaction entered into in violation of the notice, public hearing, and review requirements of this part.
Nothing in this section shall be construed to limit the common law authority of the attorney general and reporter to protect charitable trusts and charitable assets in this state. These penalties and remedies are in addition to, and not a replacement for, any other civil or criminal actions that the attorney general and reporter may file under either the common law or statutory law, including rescinding the public benefit hospital conveyance transaction, granting injunctive relief, or any combination of these and other remedies available under common law or statutory law.

Acts 2006, ch. 930, § 12.

Chapter 69
Electric G&T Cooperative Act

48-69-101. Short title.

This chapter shall be known and may be cited as the “Electric G&T Cooperative Act.”

Acts 2009, ch. 475, § 1.

48-69-102. Legislative findings.

The general assembly finds that a need has developed for electric utility systems engaged in the distribution of electric power and energy in this state and adjoining states to have additional sources of electrical energy through traditional sources of generation and through renewable, clean and passive sources of electrical energy, as well as through other sources known and those sources yet to be known and discovered.
The general assembly finds that because of economies of scale needed for many forms of electrical energy supply resources, there are opportunities to acquire and operate these additional sources of energy on a cooperatively owned basis from owned or leased facilities to fulfill growing needs in and around this state.
The general assembly finds a need to provide a statutory framework for the creation and operation of nonprofit cooperative entities to allow groups of nonprofit cooperatives and municipally, county or other governmentally owned electric utility systems to make electrical power available at the lowest feasible cost, consistent with sound business principles, for wholesale sales to retail suppliers in communities within and without this state.

Acts 2009, ch. 475, § 1.

48-69-103. Chapter definitions.

As used in this chapter:

“Area” or “TVA area” means the area of the Tennessee Valley authority as described in § 15(d)(a) of the Tennessee Valley Authority Act of 1933 (16 U.S.C. § 831n-4);
“Board” means a G&T cooperative's board of directors or the necessary number of the board of directors to take action;
“Distribution cooperative” means an electric cooperative that has been heretofore incorporated under the former Electric Cooperative Law, formerly compiled in title 65, chapter 25, part 1, or that has been or hereafter is incorporated under the Rural Electric and Community Services Cooperative Act, compiled in title 65, chapter 25, or that has been or is created as an electric cooperative, electric power association or other similar nonprofit organization or association under the laws of another state, and that is also engaged, in whole or in part, in the distribution of electrical power at retail to its members as the ultimate end-users of such electrical power and energy;
“Energy acquisition corporation” means an entity created and operating pursuant to the authority established in the Energy Acquisitions Corporation Act, compiled in title 7, chapter 39;
“Existing G&T cooperative” means a nonprofit corporation created, under chapters 51-68 of this title, title 65, chapter 25, or by a charter of incorporation relying upon both or parts of either of these statutes that, as of June 23, 2009, does not have retail residential, commercial or industrial customers and that, as of June 23, 2009, has secured a determination of exemption from taxation as a § 501(c)(12) organization under the federal Internal Revenue Code (26 U.S.C. § 501(c)(12));
“Governmental electric system” means a state, municipal, county or other political subdivision or local governmental entity of this state or of any other state that is engaged, in whole or in part, in the distribution of electrical power at retail to its customers as the ultimate end-users of the electrical power and energy, and “governmental electric system” may, at the election of the G&T cooperative for purposes of membership in the G&T cooperative, include the Tennessee Valley authority, all as provided in the bylaws of the G&T cooperative;
“G&T cooperative” or “G&T cooperatives” means one (1) or more nonprofit cooperative membership corporations organized under or otherwise subject to this chapter;
“Lease-sale” means an agreement whereby the possession and use of assets and properties would be transferred to a lessee-purchaser for a stated or determinable period in time, during or at the end of which the lessee-purchaser would have the right and be obligated, or would have the option, to purchase and acquire, or would without further act acquire fee simple title to the assets and properties for a price expressly stated in the agreement or for a price determinable by a formula contained in the agreement, whether or not any portion of any lease-hold or rental payments would be creditable as a part of the price;
“Member” means a distribution cooperative or governmental electric system, as applicable, having the right through its duly appointed agent or representative to vote for the directors of a G&T cooperative and upon other matters as provided in this chapter and as provided in a G&T cooperative's charter or bylaws, and includes each incorporator of a G&T cooperative. Each such cooperative or system shall exercise its respective voting rights through its duly appointed or designated agent or representative. The rights shall be exercised as prescribed in the charter, bylaws or other organizational or governance instruments of a G&T cooperative;
“Patron” means a person agreeing to receive or already receiving, or who in the past has received, one (1) or more of the services rendered by a G&T cooperative, whether the person is a member or not. “Nonmember patron” means a person who or that is not or was not a member; and
“Person” includes any natural person, firm, association, corporation, cooperative, membership corporation, distribution cooperative, electric power association, business trust, partnership and federal, state or local governments, or departments, agencies or any other political subdivision thereof, including, without limitation, an energy acquisition corporation.

Acts 2009, ch. 475, § 1; 2010, ch. 1035, § 1.

48-69-104. Operation as a nonprofit membership cooperative corporation.

Any corporation hereafter created, organized and operated pursuant to this chapter shall be operated as a nonprofit membership cooperative corporation.

Acts 2009, ch. 475, § 1.

48-69-105. Existing cooperatives.

Any existing G&T cooperative shall be deemed to have been created, organized and operating under this chapter without further action by its members or board of directors and shall have all the rights, privileges, duties and obligations provided in this chapter.

Acts 2009, ch. 475, § 1.

48-69-106. Purposes of cooperatives — Powers.

A G&T cooperative shall have the following purposes:
1. To supply or furnish at wholesale electric power and energy services to one (1) or more patrons;
2. To own, lease, construct, acquire, operate or otherwise have control, either alone or with others, plants, equipment, facilities, lines and all property necessary to transmit, generate, supply or otherwise furnish electrical energy and power for the needs of its wholesale customers;
3. To supply, furnish or exchange wholesale electrical power, capacity and energy to or with any other entity;
4. To provide management or operating services by contract with any distribution cooperative, energy acquisition corporation or governmental electric system or other cooperatively organized or governmentally-owned utility system; and
5. Other purposes that may be prescribed in the charter of the G&T cooperative to the extent the purposes are for the benefit of the members of the G&T cooperative and are not prohibited by this chapter or any other laws.
In addition to the powers set forth in chapter 53 of this title, and subject only to the limitations provided in this chapter, a G&T cooperative shall have the powers to:
1. Have a corporate seal and alter the seal at will; provided, that it need not have, nor shall it for any purpose be necessary for the cooperative to use the seal;
2. Become a member in or stockholder of one (1) or more other nonprofit cooperatives, corporations or other legal entities and to own the other cooperatives, corporations or other legal entities, wholly or in part;
3. Solely on its own, or jointly, as tenant in common or as a partner with one (1) or more other entities, construct, purchase, take, receive, lease as lessee or lessor, or otherwise acquire and own, hold, use, equip, maintain and operate and sell, assign, transfer, convey, exchange, lease back, mortgage, pledge or otherwise dispose of or encumber any and all property, of whatever kind or nature and of whatever estate, real and personal, tangible and intangible, including choses in action;
4. Purchase or otherwise acquire, and own, lease as lessor or lessee, lease back, hold, use, and exercise, and sell, assign, transfer, convey, mortgage, pledge, hypothecate, or otherwise dispose of or encumber, franchises, rights, privileges, licenses, rights-of-way and easements;
5. Incur indebtedness in the form of notes, bonds, loans or other evidence of indebtedness and secure any of its liabilities or obligations by mortgage, pledge, deed of trust or any other encumbrance upon any or all of its then-owned or after-acquired real or personal property, assets, franchises, revenues or income;
6. Make any and all contracts necessary or convenient for the full exercise of the powers in this chapter granted, including, but not limited to, contracts with any person, federal agency or municipality for the purchase or sale of electric power and energy and, in connection with any such electric power and energy contract, stipulate and agree to such covenants, terms and conditions as the board may deem appropriate, including covenants, terms and conditions with respect to resale rates, financial and accounting methods, services, operation and maintenance practices and, consistent with § 48-69-113, the manner of disposing of the revenues of the properties operated and maintained by the cooperative;
7. Conduct its business and exercise any or all of its powers within or without this state;
8. Adopt, amend, and repeal bylaws;
9. Organize and promote and otherwise foster and participate in, through membership or ownership, including stock ownership, community, regional or statewide or national organizations whose purposes are or include the promotion and assistance of economic, industrial or commercial development that the board of the cooperative determines will, or likely will, result in economic benefits to the cooperative or its members;
10. Do and perform any and all other acts and things and have and exercise any and all other powers that may be necessary, convenient or appropriate to accomplish the cooperative's purpose or purposes;
11. Construct, maintain and operate electric transmission and distribution lines or other conducting facilities along, upon, under and across all public thoroughfares, including, without limitation, all roads, highways, streets, alleys, bridges and causeways, and upon, under and across all publicly owned lands; provided, that the respective authorities having jurisdiction shall consent thereto; provided, further, that such consent shall not be unreasonably withheld or conditioned or withheld or conditioned for the purpose of enabling such an authority to gain competitive advantage with respect to the rendition by itself or any other entity of a service that the cooperative also has a right to render;
12. Without limiting the generality or particularity of subdivisions (b)(1)-(11):
  1. Generate, manufacture, purchase, acquire and transmit, and transform, supply, distribute, furnish, deliver, sell and dispose of, electric power and energy; and
  2. Condemn either the fee or such other right, title, interest or easement in and to property as the board may deem necessary, and such property or interest in such property may be so acquired, whether or not the property or interest in property is owned or held for public use by corporations, associations, cooperatives or persons having the power of eminent domain, or otherwise held or used for public purposes, and the power of condemnation may be exercised in the mode of procedure prescribed by title 29, chapter 16, in the mode of procedure prescribed by title 65, chapter 22, or in the mode or method of procedure prescribed by any other applicable statutory provisions now in force or hereafter enacted for the exercise of the power of eminent domain; provided, that no property that is owned or held for public use, nor any interest in the property, shall be condemned if, in the judgment of the court the condemnation of the property or interest in the property will obstruct, prevent, burden, interfere with or unduly inconvenience the continued use of the property for the public use to which it is devoted at the time the property is sought to be condemned; provided, further, that where title to any property sought to be condemned is defective, it shall be passed by decree of court; provided, further, that where condemnation proceedings become necessary, the court in which the proceedings are filed shall, upon application by the cooperative and upon the posting of a bond with the clerk of the court in such amount as the court may deem commensurate with the value of the property, order that the right of possession shall issue immediately or as soon and upon such terms as the court, in its discretion, may deem proper and just; but, provided further, that in cases where condemnation of property already devoted to a public use is sought, no order as to right of possession shall issue until it is finally determined that the condemnor is entitled to condemn the property. The power of eminent domain provided by this subdivision (b)(12)(B) shall be supplemental to, not in lieu of or in conflict with, § 48-51-103; and
13. Enter into one (1) or more agreements providing for the making of payments in lieu of taxation to any state or local taxing jurisdiction within or outside this state to the extent that the G&T cooperative's wholesale sale of capacity and energy to a member or patron of the G&T cooperative results in a diminution in payments in lieu of taxation from the Tennessee Valley authority to such state and local governments. For purposes of this subdivision (b)(13), “payments in lieu of taxation” means payments made by the Tennessee Valley authority to state and local governments on account of its gross proceeds under § 13 of the Tennessee Valley Authority Act of 1933 (16 U.S.C. § 831l ). All such payments shall be ordinary operating expenses of the G&T cooperative.
Neither this chapter nor any other law of this state shall be construed to authorize a G&T cooperative to own or otherwise acquire a legal or beneficial interest in a governmental electric system or in a distribution cooperative, except such interest as the G&T cooperative may acquire as a member-customer of a distribution cooperative.

Acts 2009, ch. 475, § 1; 2010, ch. 1035, § 2.

48-69-107. Bylaws.

The original bylaws adopted by a board of directors of a G&T cooperative created or operating and subject to this chapter shall continue in effect until at any time thereafter the bylaws are changed by adoption, amendment or repeal by the members by the process as established in the bylaws, except that:
1. The members may, by bylaw provision, delegate to the board the power to change all or any specified provision of the bylaws, but the delegation shall not forfeit or restrict any right of the members thereafter as may be established in the bylaws to change the provision whether or not the board has exercised the delegated power; and
2. Either the board or the members of a G&T cooperative may change any bylaw provision when, as established by law, the provision is illegal or has become a legal nullity.
The bylaws shall provide for a process that permits the members to amend or repeal such provisions that are established in the original bylaws or as may have been thereafter amended, repealed or otherwise modified by the board of directors or the members.
The bylaws shall specify the rules of parliamentary procedure applicable to meetings of its board of directors and members; provided, that in the absence of such a specification the then-current edition of Robert's Rules of Order shall apply.

Acts 2009, ch. 475, § 1.

48-69-108. Board of directors.

The business and affairs of a G&T cooperative shall be managed under the direction of a board of directors of not less than five (5) directors or such greater number as may be prescribed by the bylaws of the G&T cooperative. All of the powers of a G&T cooperative shall be vested in and exercised by the board of directors, except those that are conferred upon or reserved to the members pursuant to this chapter, the charter, bylaws or any other applicable law.
To be eligible to serve, a director shall be a full-time employee of a patron member of the G&T cooperative and shall have senior management level managerial, financial, engineering or administrative responsibilities for the electric system of a patron member of the G&T cooperative. No person holding elective office of any state, county or municipal entity or other political subdivision of any state or of the federal government, and no person whose employment or appointed responsibilities are not principally limited to utility operations of a patron member shall be eligible to serve as a director. Additional eligibility requirements for directors may be established pursuant to the bylaws of the G&T cooperative.
The bylaws shall prescribe the number of directors, their qualifications, if any, in addition to those provided for in subsection (b), the manner of holding meetings of the board and of the election and appointment of successors to directors who shall resign, die or otherwise be incapable of or disqualified from acting, and any other rule, manner, procedure or matter relating to the board and its exercise of the powers conferred upon it by this chapter or by other law, the charter of the G&T cooperative or the bylaws.
The bylaws shall provide the manner and method by which directors shall be elected or appointed, as applicable. The bylaws may establish classes of directors to be elected and divide them into classes for terms of office that permit either approximately one half (½), one third (1/3), or one fourth (¼) to be elected each year by the members; provided, that the initial bylaws may provide for a period of time during which the initial board of directors specified in the charter or the initial bylaws shall serve for the purposes of allowing continuity during a start-up period specified in the bylaws, which start-up period may be contingent upon the anticipated date of commencement of both ownership and direct operations and direct control of a plant for the generation of electrical power and energy to be acquired, constructed or operated, all as may be more specifically described in the bylaws.
Directors may, but only if so provided in a G&T cooperative's bylaws, be removed and their successors elected under such process as may be provided in the bylaws.

Acts 2009, ch. 475, § 1.

48-69-109. Election of directors — Composition of districts or divisions.

Notwithstanding any other provision of this chapter or other laws of this state, the bylaws may provide that a G&T cooperative may elect its directors on an at-large basis or by districts or divisions, or by a combination of some number of directors to be elected at-large and some number by districts or divisions, all as the bylaws shall provide.
The composition of districts or divisions shall have an equitable regard for the aggregate number of end-users of the electrical power and energy served by all of the patron members in such district or division, and the amount of electrical power and energy consumed by the end-users served by each of the patron members, other communities of interest and any boundaries or other aggregations of patron members into districts or divisions. Districts or divisions may, but are not required to, be contained in the bylaws of the G&T cooperative; but if not contained in the bylaws shall be ascertainable in a reasonable form and accessible for inspection by members at the offices of the corporation upon reasonable notice and request. The boundaries of districts and divisions and the members to be contained in the districts and divisions may, but are not required to, be contiguous.
To be eligible for election as a district or division director, a person shall meet the qualifications for director as prescribed by § 48-69-108(b) and, in addition, the patron member for whom the person is a full-time employee shall satisfy the eligibility requirements by having its principal office within the district or division for which the person is seeking or has been nominated for election to the office of director.

Acts 2009, ch. 475, § 1.

48-69-110. Principal officers.

The principal officers of the G&T cooperative shall be a chair of the board of directors, a vice chair of the board of directors, a secretary and a treasurer and such other officers as may be determined from time to time by the bylaws or the board of directors; provided, that the other officers appointed are not in conflict with any provision of the bylaws. The offices of secretary and treasurer may be held by the same person.

Acts 2009, ch. 475, § 1.

48-69-111. Chief executive officer.

The board of directors of the G&T cooperative may, but is not required to, appoint a chief executive officer who may have the title of president, and may further appoint one (1) or more vice presidents, one (1) or more assistant secretaries, and one (1) or more assistant treasurers, and may by resolution provide for the creation, appointment and designation of title of other officers that it deems to be necessary or advisable to efficiently conduct the business of the G&T cooperative.

Acts 2009, ch. 475, § 1.

48-69-112. Membership in cooperative.

Only distribution cooperatives, governmental electric systems, energy acquisition corporations, another G&T cooperative and joint action agencies created under the laws of any state shall be eligible to be members of a G&T cooperative. Members must meet such other qualifications and criteria for membership as may be established in the bylaws of the G&T cooperative. To the extent not inconsistent with this chapter, member classifications, qualifications, rights and obligations may be established for patron members and for nonpatron members as the bylaws shall provide.
Members that are governmental electric systems shall act through the board or supervisory body having responsibility for the members' electric systems or pursuant to ordinances or resolutions adopted by such governing boards, which may include ordinances or resolutions that delegate the authorization to act on behalf of the governmental electric system to one (1) or more employees or officials of the system.
Members shall be subject to any other qualifications, limitations, rights and obligations with respect to membership and to other provisions with respect to a member's admission, resignation, withdrawal, suspension, expulsion and termination as the board of directors or the members shall establish through the G&T cooperative's bylaws.

Acts 2009, ch. 475, § 1.

48-69-113. Accounting of revenues — Distribution of excess revenues — Prepayment.

With respect to the supplying or furnishing of service by a G&T cooperative, there shall be an accounting of the revenues for any fiscal year that are in excess of the amount necessary to:
1. Defray expenses of the G&T cooperative, including the operation and maintenance of its facilities during the fiscal year;
2. Pay interest and principal obligations of the G&T cooperative coming due in the fiscal year;
3. Finance, or to provide a reserve to finance, the construction or acquisition by the G&T cooperative of additional facilities to the extent determined by the board;
4. Provide a reasonable reserve for working capital;
5. Provide a major maintenance reserve; and
6. Provide a reserve for the payment of indebtedness of the G&T cooperative maturing more than one (1) year after the date of the incurrence of the indebtedness in an amount up to the maximum amount of interest and principal payments to be made during any future fiscal year.
Any funds in excess of revenues as described in subsection (a) shall be distributed by the cooperative to patrons in the manner provided for in the bylaws, either:
1. As patronage refunds prorated in accordance with the patronage of the cooperative by the respective patrons paid for during or with respect to the fiscal year;
2. By way of general reductions of rates or other charges;
3. By crediting patrons with having furnished the cooperative capital in amounts equal to the amounts of their patronage not refunded pursuant to subdivision (b)(1) and not used for general reduction of rates or other changes pursuant to subdivision (b)(2), all or any portion of the capital to be redeemable and to be retired at such later time as the board in its sole discretion determines that such will not impair the cooperative's financial condition and will be in the cooperative's best interests; or
4. By any combination of the methods described in subdivisions (b)(1)-(3).
Nothing contained in subsection (a) shall be construed to prohibit the payment by a cooperative of all or any part of its indebtedness prior to the date when the payment becomes due.

Acts 2009, ch. 475, § 1.

48-69-114. Liens — Recordation.

Any mortgage, deed of trust or other instrument executed by a G&T cooperative that, by its terms, creates a lien upon real and personal property, then owned or after-acquired, and that is recorded as a mortgage of real property in any county in which the property is located or is to be located, shall have the same force and effect as if the mortgage, deed of trust or other instrument were also recorded or filed in the proper office in the county as a mortgage of personal property.
Recordation of any such mortgage, deed of trust or other instrument shall cause the lien to attach to all after-acquired property of the mortgagor described as being mortgaged or pledged immediately upon the acquisition of the property by the mortgagor, and the lien shall be superior to all claims of creditors of the mortgagor and purchasers of the property and to all other liens, except liens of prior record and tax liens, affecting the property.

Acts 2009, ch. 475, § 1.

48-69-115. Dissolution of cooperative.

A G&T cooperative that has not commenced business may dissolve voluntarily by delivering to the secretary of state articles of dissolution, executed and acknowledged on behalf of the G&T cooperative by a majority of the incorporators, which shall state:
1. The name of the G&T cooperative;
2. The address of its principal office;
3. That the G&T cooperative has not commenced business;
4. That the amount, if any, actually paid in on account of membership fees, less any part disbursed for necessary expenses, has been returned to those entitled to the return and that all easements have been released to the grantors;
5. That no debt of the G&T cooperative remains unpaid; and
6. That a majority of the incorporators elect that the G&T cooperative be dissolved.
The articles of dissolution shall be submitted to the secretary of state for filing as provided in this chapter.
A G&T cooperative that has commenced business may dissolve voluntarily and wind up its affairs in the following manner:
1. The board shall first recommend that the G&T cooperative be dissolved, which recommendation shall be submitted to the members of the G&T cooperative at any annual or special meeting, the notice of which shall set forth the proposition. The proposed voluntary dissolution shall be deemed approved upon the affirmative votes of:
  1. If dissolution is or will be an incident of the sale, lease-sale or other disposition of the assets and properties of the G&T cooperative, as many as, but not fewer than, the percentage of the G&T cooperative's members required to authorize the sale, lease-sale or other disposition as provided in the G&T cooperative's bylaws; or
  2. If dissolution is or will be from any other cause, the number or percentage of its members, or of those voting, whichever may be the case, as provided in the cooperative's charter or bylaws; and
2. Any assets remaining after the discharge or provision for the discharge of all of the G&T cooperative's liabilities and the distribution of any patronage capital still outstanding on its books shall be distributed on a pro rata basis and without priority to all present and former members of the cooperative to the extent practicable, as determined by the board; provided, that if the board determines that the amount of the surplus is so small in relation to the administrative cost of distributing it as to be prohibited, the surplus may be donated by the board to one (1) or more charitable or educational organizations that are exempt from federal income taxation.

Acts 2009, ch. 475, § 1.

48-69-116. Transaction of business by foreign corporations in adjacent states.

Any corporation organized on a nonprofit or a cooperative basis for one (1) or more of the purposes outlined in § 48-69-106(a) and operating in a state adjacent to this state shall be permitted to transact business in this state without complying with any statute of this state pertaining to the qualification of foreign corporations for the transaction of business.
A foreign corporation transacting business in this state, as a prerequisite to its transaction of business in this state, shall, by an instrument executed and acknowledged in its behalf by its president or vice president and attested to by its secretary, designate to the secretary of state its agent to accept service of process in its behalf. In the event any such process is served upon the secretary of state, the secretary of state shall forward the process by registered mail to the corporation at the address specified in the instrument.
A foreign corporation transacting business in this state may sue and be sued in the courts of this state to the same extent that a cooperative under this chapter may sue or be sued in such courts.
A foreign corporation transacting business in this state may secure its notes, bonds or other evidences of indebtedness by mortgage, pledge, deed of trust or other encumbrance of any or all of its then-owned or after-acquired real or personal property, assets or franchise located or to be located in this state, and also upon its revenues and income.

Acts 2009, ch. 475, § 1.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-69-117. No exemption from ad valorem property taxes.

Nothing in this chapter shall be construed to exempt cooperatives and foreign corporations transacting business in this state pursuant to this chapter from ad valorem property taxes. Assessment schedules for such property that is devoted to and used or useful in pursuance of the purposes of the G&T cooperative shall be filed with the comptroller of the treasury, and the payment of such taxes shall be in lieu of all other taxes of every kind or nature, unless it is otherwise specifically provided by law that such other tax or taxes shall be applicable to cooperatives formed or foreign corporations transacting business pursuant to this chapter.

Acts 2009, ch. 475, § 1.

48-69-118. Restrictions on services of cooperatives.

No G&T cooperative shall provide electrical power and energy services to retail customers in the Tennessee Valley authority (TVA) area.
No G&T cooperative shall provide telephony, cable television, video programming, internet access or other telecommunications services to retail customers in the TVA area; provided, however, that nothing in this section shall preclude or prevent a G&T cooperative from owning, leasing, operating and maintaining equipment or facilities for its own purposes or for the purpose of enabling one (1) or more members to provide or utilize advance metering infrastructure, load control, appliance monitoring, power exchange, billing, electric services or functions or any other similar or component service now or hereafter developed in connection with the provision of electricity to end-use customers.

Acts 2009, ch. 475, § 1.

48-69-119. Exemption from control of the Tennessee public utility commission.

G&T cooperatives and foreign corporations transacting business in this state pursuant to this chapter shall be deemed to be nonprofit cooperatives and nonutilities and exempt in all respects from the jurisdiction and control of the Tennessee public utility commission.

Acts 2009, ch. 475, § 1; 2017, ch. 94, § 42.

48-69-120. Chapter 16 of this title not applicable to any note, bond or evidence of indebtedness.

Chapter 16 of this title shall not apply to any note, bond or other evidence of indebtedness issued by any G&T cooperative or foreign corporation transacting business in this state pursuant to this chapter, to the United States or any agency or instrumentality of the United States, or to any mortgage or deed of trust executed to secure the indebtedness. This chapter shall not apply to the issuance of membership certificates by any G&T cooperative or any such foreign corporation.

Acts 2009, ch. 475, § 1.

48-69-121. Utility districts created under title 7, chapter 82 exempt from chapter.

Notwithstanding any provision of this chapter to the contrary, it is the specific intent of this chapter that all utility districts hereafter created under title 7, chapter 82, or any similar provision, shall be specifically exempt from this chapter.

Acts 2009, ch. 475, § 1.

48-69-122. Applicability of certain statutory provisions.

The following provisions in this title shall not be applicable to G&T cooperatives incorporated under or otherwise subject to this chapter: §§ 48-56-103 and 48-56-204, chapter 56, part 3 of this title, §§ 48-56-501, 48-57-102 — 48-57-105, 48-57-108, 48-57-201, 48-57-203 — 48-57-209, 48-57-301, 48-58-103 — 48-58-106, 48-58-108, 48-58-109, 48-58-302, 48-60-103, 48-60-202 — 48-60-204, 48-60-302, chapter 61 of this title, §§ 48-62-101, 48-62-102, 48-63-101, 48-63-102, 48-64-102, and 48-66-108.
The following provisions contained in this title shall, but only as qualified in this subsection (b), be applicable to G&T cooperatives incorporated under or otherwise subject to this chapter:
1. Section 48-51-201, except as provided in § 48-51-201(13) and (31) and in the second sentence of § 48-51-201(15); § 48-51-202, except that § 48-51-202(c) shall apply also as notice to directors of board meetings; § 48-51-601, except that the words “impractical or” in § 48-51-601(a) shall not be in effect;
2. Section 48-52-101, except that incorporators under this chapter may be one (1) or more distribution cooperatives or one (1) or more governmental electric systems whose principal places of business are located in this state;
3. Chapter 55 shall apply to G&T cooperatives:
  1. Unless and until changed, the registered offices and addresses of cooperatives shall be their principal offices and addresses and their registered agents shall be their general or acting managers or authorized individuals or entities, by whatever title known, and the agents' addresses shall be that of the registered offices; and
  2. The G&T cooperatives need not file any statement of their registered offices or agents or of the addresses of such offices or agents until they otherwise are required to file an amendment of their respective charters pursuant to § 48-68-101(b); provided, that if the registered offices or agents or their addresses are changed after July 1, 2009, the G&T cooperatives shall file a statement with the secretary of state pursuant to § 48-68-102;
4. Section 48-58-303, except that a G&T cooperative may make loans to guarantee the obligations of a member who is also a member of the G&T cooperative in the ordinary course of business for the same purposes on the same basis and the same manner and to the same extent as such loans may be made to, or obligation may be guaranteed on behalf of, other members of the G&T cooperative; and
5. Only § 48-60-101(a), and not subsection (b), shall be applicable.
The nonapplicability and qualified applicability set forth in subsections (a) and (b) shall not be exclusive. Chapters 51-68 of this title shall or shall not be applicable, wholly or on a qualified basis, to G&T cooperatives incorporated subject to this chapter, depending upon whether the provisions are consistent with or different from this chapter, as provided for in § 48-51-104.

Acts 2009, ch. 475, § 1; 2014, ch. 884, § 3; 2014, ch. 899, § 93.

48-69-123. Liberal construction of chapter.

This chapter shall be construed liberally. The enumeration of any object, purpose, power, manner, method or thing shall not be deemed to exclude like or similar objects, purposes, powers, manner, methods or things. The authority and powers granted pursuant to this chapter may be exercised in accordance with the terms of this chapter, notwithstanding any other requirements, restrictions or procedural provisions contained in any general law, private act or home rule charter, and notwithstanding any other provisions to the contrary contained in any general law, private act or home rule charter.
Notwithstanding this section or any other provisions in this chapter to the contrary, this chapter shall not be construed to affect the powers conferred or the limitations imposed upon annexing municipalities and electric cooperatives in § 6-51-112.

Acts 2009, ch. 475, § 1.

Chapters 70-100
[Reserved]

Miscellaneous Corporation Provisions

Chapter 101
Special Purpose Corporations and Associations

Part 1
Development Credit Corporation Act

48-101-101. Short title.

This part shall be known as the “Development Credit Corporation Act.”

Acts 1959, ch. 170, § 1; T.C.A., §§ 48-1701, 48-3-101.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Coal cooperative marketing associations, title 59, ch. 13.

Law Reviews.

Shareholder Oppression in Close Corporations: The Unanswered Question on Perspective, 53 Vand. L. Rev. 749 (2000).

The Tennessee Corporation Act and Close Corporations for Profit (James S. Covington, Jr.), 43 Tenn. L. Rev. 183.

48-101-102. Part definitions.

As used in this part, unless the context otherwise requires:

“Board of directors” means the board of directors of a corporation created under this part;
“Corporation” means a development credit corporation created under this part;
“Financial institution” means any banking corporation or institution, trust company, savings bank, cooperative bank, savings and loan association, insurance company, or related corporation, partnership, foundation, or other institution engaged primarily in lending or investing funds;
“Loan limit” means, for any member, the maximum amount permitted to be outstanding at one (1) time on loans made by such member to the corporation, as determined under this part; and
“Member” means any financial institution authorized to do business within this state which shall undertake to lend money to a corporation created under this part, upon its call, and in accordance with this part.

Acts 1959, ch. 170, § 2; T.C.A., §§ 48-1702, 48-3-102.

48-101-103. Persons entitled to incorporate — Certificate of incorporation.

Twenty-five (25) or more persons, a majority of whom shall be residents of this state, who may desire to form a development credit corporation under this part, for the purpose of promoting, developing, and advancing the prosperity and economic welfare of the state and, to that end, to exercise the powers and privileges hereinafter provided, may be incorporated by making, subscribing, acknowledging, and filing, in the manner hereinafter provided, in the office of the secretary of state and of the register of the county in which the corporation elects to have its principal office, a certificate setting forth:

The name of the corporation, which shall include the words “Development Credit Corporation of Tennessee”;
The location of the principal office of the corporation;
The purpose for which the corporation is founded, which shall include the following:
1. To assist, promote, encourage, and, through the cooperative efforts of the institutions and corporations which shall, from time to time, become members thereof, develop and advance the business prosperity and economic welfare of the state;
2. To encourage and assist in the location of new business and industry in the state and to rehabilitate existing business and industry; to stimulate and assist in the expansion of all kinds of business activity which will tend to promote the business development and maintain the economic stability of the state, provide maximum opportunities for employment, encourage thrift, and improve the standard of living of the citizens of the state;
3. To cooperate and act in conjunction with other organizations, public or private, the objects of which are the promotion and advancement of industrial, commercial, agricultural, and recreational developments in the state; and
4. To furnish money and credit to approved and deserving applicants for the promotion, development, and conduct of all kinds of business activity in the state, thereby establishing a source of credit not otherwise readily available therefor;
1. The total amount of authorized capital stock and the number of shares in which it is divided;
2. That all stock shall be common with a par value of ten dollars ($10.00) per share;
3. That shares shall be issued only upon receipt by the corporation of cash in amount of no less than the par value;
4. That the minimum capital stock shall be one hundred thousand (100,000) shares; and
5. That at least twenty percent (20%) of the capital stock shall be paid into the treasury of the corporation before it shall be authorized to transact any business other than such as relates to its organization;
1. Whether or not the corporation is to have perpetual existence, and if not, the time its existence is to cease;
2. That if such corporation fails to subscribe the minimum stock within two (2) years from the filing of the certificate, its existence shall terminate; and
Any other provision or provisions, not contrary to law, which the incorporators may choose to insert for further regulation of the conduct of the corporation, or any provision or provisions creating, dividing, limiting, and regulating the powers of the directors, officers, and stockholders.

Acts 1959, ch. 170, § 3: T.C.A. §§ 48-1703, 48-3-103.

48-101-104. Completion of corporate entity.

The forms and procedure for completing the corporate entity shall be as provided in §§ 48-11-302, 48-12-103 — 48-12-105 or §§ 48-51-302, 48-52-103 — 48-52-105, as appropriate. Filing and recording fees shall be as provided in § 48-11-303 or § 48-51-303, as appropriate. Before the certificate of incorporation shall become effective, it must be approved by the commissioner of commerce and insurance, and from the date the certificate of incorporation is filed in the office of the secretary of state, with such approval, the stock subscribers, their successors and assigns, shall become a body corporate.

Acts 1959, ch. 170, § 4; impl. am. Acts 1968, ch. 523, § 1(17.06); impl. am. Acts 1971, ch. 137, § 2; T.C.A., §§ 48-1704, 48-3-104.

48-101-105. Powers.

Subject to the limitations of this part and the certificate of incorporation, every corporation incorporated under this part has all the powers, privileges, and immunities of private corporations incorporated under the general laws of this state and, in addition, has the powers to:

1. Borrow money for any of the purposes of the corporation;
2. Issue therefor its bonds, debentures, notes, or other evidences of indebtedness, whether secured or unsecured; and
3. Secure the same by mortgage, pledge, deed of trust, or other lien on its property, franchises, rights and privileges of every kind and nature or any part thereof or interest therein;
Lend money to, and to guarantee, endorse, or act as surety on the bonds, notes, contracts, or other obligations of, or otherwise assist financially any person, firm, corporation, joint stock company, association, or trust, and to establish and regulate the terms and conditions with respect to any such loans or financial assistance and the charges for interest and service connected therewith; provided, that the corporation shall not approve any application for a loan unless and until the person, firm, corporation, joint stock company, association, or trust applying for the loan shall show that such person or entity has applied for the loan through ordinary banking channels and that the loan has been refused by at least one (1) bank or other financial institution that would be qualified by statute to make such a loan, it not being the intention hereof to take from any banking organizations any such loans or commitments as may be desired by such organizations generally in the ordinary course of their business;
Purchase, receive, hold, lease, or otherwise acquire, and to sell, convey, transfer, mortgage, lease, pledge, or otherwise dispose of, upon such terms and conditions as its board of directors may deem advisable, real and personal property, together with such rights and privileges as may be incidental and appurtenant thereto and the use thereof, including, but not restricted to, any real or personal property acquired by such corporation from time to time in the satisfaction of debts or enforcement of obligations;
1. Acquire the goodwill, business, rights, real and personal property and other assets, or any part thereof, or interest therein, of such persons, firms, corporations, joint stock companies, and to assume, undertake, guarantee, or pay the obligations, debts, and liabilities of any such person, firm, corporation, joint stock company, association, or trust;
2. Acquire improved or unimproved real estate for the purpose of constructing industrial plants or other business establishments thereon or for the purpose of disposing of such real estate to others for the construction of industrial plants or other business establishments; and
3. Acquire, construct, or reconstruct, alter, repair, maintain, operate, sell, convey, transfer, lease, or otherwise dispose of industrial plants or business establishments;
Acquire, subscribe for, own, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of the stock, shares, bonds, debentures, notes, or other securities and evidences of interest in, or indebtedness of, any person, firm, corporation, joint stock company, association, or trust, and while the owner or holder thereof, to exercise all the rights, powers and privileges of ownership, including the right to vote thereon;
Mortgage, pledge, or otherwise encumber any property, right or thing of value, acquired pursuant to the powers contained in subdivision (3), (4) or (5) as security for the payment of any part of the purchase price thereof;
Cooperate with and avail itself of the facilities of the small business administration and the Small Business Investment Company Act of 1958 (15 U.S.C. § 661 et seq.), or any similar federal agencies or programs;
Cooperate with and avail itself of the facilities of the former Tennessee board for economic growth [repealed] and any similar governmental agencies, and to cooperate with and assist, and otherwise encourage, local organizations in the various communities in the state in the promotion, assistance and development of the business prosperity and economic welfare of such communities or of the state, or of any part thereof; and
Do all acts and things necessary or convenient to carry out the powers expressly granted in this part.

Acts 1959, ch. 170, § 5; impl. am. Acts 1972, ch. 542, § 15; T.C.A., §§ 48-1705, 48-3-105; impl. am. Acts 1995, ch. 347, § 1.

Compiler's Notes. The Tennessee board for economic growth, referred to in this section, was repealed by Acts 2009, ch. 105, §§ 2 and 3, effective April 27, 2009.

48-101-106. First meeting and organization.

The first meeting of the corporation shall be called by a notice signed by three (3) or more of the incorporators, stating the time, place, and purpose of the meeting, a copy of which notice shall be mailed, or delivered, to each incorporator at least five (5) days before the day appointed for the meeting. The first meeting may be held without such notice upon agreement in writing to that effect, signed by all the incorporators. There shall be recorded in the minutes of the meeting a copy of the notice or of such unanimous agreement of the incorporators.
At such first meeting, the incorporators shall organize by choice by ballot of a temporary clerk, by the adoption of bylaws, by the election by ballot of directors, and by action upon such other matters within the powers of the corporation as the incorporators may see fit. The temporary clerk shall be sworn and shall make and attest a record of the proceedings. Ten (10) of the incorporators shall be a quorum for the transaction of business.

Acts 1959, ch. 170, § 14; T.C.A., §§ 48-1706, 48-3-106.

48-101-107. Board of directors and officers.

1. The business and affairs of the corporation shall be managed and conducted by a board of directors, a president and treasurer, and such other officers and such agents as the corporation by its bylaws shall authorize.
2. The board of directors shall consist of such number, not less than fifteen (15) nor more than twenty-one (21), as shall be determined in the first instance by the incorporators and thereafter annually by the members and the stockholders of the corporation.
3. The board of directors may exercise all the powers of the corporation, except such as are conferred by law or by the bylaws of the corporation upon the stockholders or members, and shall choose and appoint all the agents and officers of the corporation and fill all vacancies, except vacancies in the office of director which shall be filled as hereinafter provided.
4. The board of directors shall be elected as hereinafter provided. The board of directors shall be elected in the first instance by the incorporators and thereafter at each annual meeting of the corporation, or, if no annual meeting shall be held in any year at the time fixed by the bylaws, at a special meeting held in lieu of the annual meeting. At each annual meeting, or at each special meeting held in lieu of the annual meeting, the members of the corporation shall elect two thirds (2/3) of the board of directors and the stockholders shall elect the remaining directors.
5. The directors shall hold office until the next annual meeting of the corporation or special meeting held in lieu of the annual meeting after their election and until their successors are elected and qualified, unless sooner removed in accordance with the bylaws.
6. Any vacancy in the office of a director elected by the members shall be filled by the directors elected by the members, and any vacancy in the office of a director elected by the stockholders shall be filled by the directors elected by the stockholders.
Directors and officers shall not be responsible for losses unless the same shall have been occasioned by the willful misconduct of such directors and officers.

Acts 1959, ch. 170, § 11; T.C.A., §§ 48-1707, 48-3-107.

48-101-108. Right to purchase or transfer capital stock or obligations of corporation — Membership.

Notwithstanding any rule of common law or any provision of any general or special law or any provision in their respective charters, agreements of association, articles of organization, or trust indentures:
1. All domestic corporations organized for the purpose of carrying on business within this state, including, without implied limitation, any public utility companies and insurance and casualty companies and foreign corporations licensed to do business in the state, and all trusts, are hereby authorized to acquire, purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of any bonds, securities, or other evidences of indebtedness created by, or the shares of the capital stock of, the corporation, and while owners of the stock to exercise all the rights, powers, and privileges of ownership, including the right to vote thereon, all without the approval of any regulatory authority of the state;
2. All financial institutions are hereby authorized to become members of the corporation and to make loans to the corporation as provided herein;
3. A financial institution which does not become a member of the corporation shall not be permitted to acquire any shares of the capital stock of the corporation; and
4. Each financial institution which becomes a member of the corporation is hereby authorized to acquire, purchase, hold, sell, assign, transfer, mortgage, pledge, or otherwise dispose of, any bonds, securities, or other evidences of indebtedness created by, or the shares of the capital stock of, the corporation and, while owners of the stock, to exercise all the rights, powers, and privileges of ownership, including the right to vote thereon, all without the approval of any regulatory authority of the state; provided, that the amount of the capital stock of the corporation which may be acquired by any member pursuant to the authority granted herein shall not exceed ten percent (10%) of the loan limit of such member. The amount of capital stock of the corporation which any member is authorized to acquire pursuant to the authority granted herein is in addition to the amount of capital stock in corporations which such member may otherwise be authorized to acquire.
Counties and incorporated cities and towns are hereby authorized to purchase capital stock of development credit corporations organized under the laws of this state. Surplus funds may be used or the governing body may levy a tax for such purpose. No stock shall be purchased or tax levied for this purpose except upon an election to be first held for the qualified voters of such county, city, or town, and the assent of three fourths (¾) of the votes cast at the election. An election for this purpose shall be held by the county election commission when requested to do so by a resolution of the governing body of the county, city, or town and after publication of three (3) notices in a newspaper circulating in the county, city, or town, the last publication to be not less than twenty (20) days next preceding the day of the election.

Acts 1959, ch. 170, § 6; 1959, ch. 243, § 1; T.C.A., §§ 48-1708, 48-3-108.

Law Reviews.

Local Government Law — 1959 Tennessee Survey (A.E. Ryman, Jr.), 12 Vand. L. Rev. 1257.

48-101-109. No preemptive rights respecting unissued stock.

No stockholder shall be entitled as of right to purchase or subscribe for any unissued stock of the corporation, whether now or hereafter authorized, or whether of a class not existing or of a class hereafter created, or to purchase or subscribe for any bonds, certificates of indebtedness, debentures, or other obligations convertible into stock of the corporation.

Acts 1959, ch. 170, § 9; T.C.A., §§ 48-1709, 48-3-109.

48-101-110. Membership of financial institutions.

Any financial institution may request membership in the corporation by making application to the board of directors on such form and in such manner as the board of directors may require, and membership shall become effective upon acceptance of such application by the board.

Acts 1959, ch. 170, § 7; T.C.A., §§ 48-1710, 48-3-110.

48-101-111. Duration of membership — Withdrawal.

Membership in the corporation shall be for the duration of the corporation; provided, that upon written notice given to the corporation three (3) years in advance, a member may withdraw from membership in the corporation at the expiration date of such notice. A member shall not be obligated to make any loans to the corporation pursuant to calls made subsequent to the withdrawal of the member.

Acts 1959, ch. 170, § 7; T.C.A., §§ 48-1711, 48-3-111.

48-101-112. Powers of stockholders and members — Voting.

The stockholders and members of the corporation have the following powers of the corporation, to:
1. Determine the number of the elected directors as provided in § 48-101-107;
2. Make, amend, and repeal bylaws;
3. Amend the charter as provided in § 48-101-119; and
4. Exercise such other of the powers of the corporation as may be conferred on the stockholders and the members by the bylaws.
As to all matters requiring action by the stockholders and members of the corporation, the stockholders and the members shall vote separately thereon by classes and, except as otherwise herein provided, such matters shall require the affirmative vote of the majority of the votes to which the stockholders present or represented at the meeting shall be entitled, and the affirmative vote of a majority of the votes to which the members present or represented at the meeting shall be entitled. Each stockholder shall have one (1) vote, in person or by proxy, for each share of capital stock held by the stockholder and each member shall have one (1) vote, in person or by proxy, except that any member having a loan limit of more than one thousand dollars ($1,000) shall have one (1) additional vote, in person or by proxy, for each additional one thousand dollars ($1,000) which such member is authorized to have outstanding on loans to the corporation at any one (1) time as determined under § 48-101-113.

Acts 1959, ch. 170, § 8; T.C.A., §§ 48-1712, 48-3-112.

48-101-113. Loans to the corporation.

Each member of the corporation shall make loans to the corporation as and when called upon by it to do so on such terms and other conditions as shall be approved from time to time by the board of directors, subject to the following conditions:

All loan limits shall be established at the thousand-dollar ($1,000) amount nearest to the amount computed in accordance with this section;
No loan to the corporation shall be made if immediately thereafter the total amount of the obligations of the corporation would exceed ten (10) times the amount then paid in on the outstanding capital stock of the corporation;
The total amount outstanding on loans to the corporation made by any member at any one time, when added to the amount of the investment in the capital stock of the corporation then held by such member, shall not exceed:
1. Twenty percent (20%) of the total amount then outstanding on loans to the corporation by all members, including in the total amount outstanding, amounts validly called for loan but not yet loaned;
2. The following limit, to be determined as of the time such member becomes a member on the basis of the audited balance sheet of such member at the close of its fiscal year immediately preceding its application for membership:
  1. Two percent (2%) of the capital and surplus of commercial banks and trust companies;
  2. One percent (1%) of the total outstanding loans made by a savings and loan association; provided, that any credit corporation created pursuant to this part may in its certificate of incorporation, or by appropriate amendment thereto, provide that the loan limit of a savings and loan association member shall be only one half of one percent (0.5%) of the total outstanding loans made by such savings and loan association member;
  3. One percent (1%) of the capital and unassigned surplus of stock insurance companies, except fire insurance companies;
  4. One percent (1%) of the unassigned surplus of mutual insurance companies, except fire insurance companies;
  5. One tenth of one percent (0.1%) of the assets of fire insurance companies; and
  6. Such limits as may be approved by the board of directors of the corporation for other financial institutions;
Subject to subdivision (3)(A), each call made by the corporation shall be prorated among the members of the corporation in substantially the same proportion that the adjusted loan limit of each member bears to the aggregate of the adjusted loan limits of all members. The adjusted loan limit of a member shall be the amount of such member's loan limit, reduced by the balance of outstanding loans made by such member to the corporation and the investment in capital stock of the corporation held by such member at the time of such call; and
All loans to the corporation by members shall be evidenced by bonds, debentures, notes, or other evidences of indebtedness of the corporation, which shall be freely transferable at all times, and which shall bear interest at a rate of not less than one quarter of one percent (0.25%) in excess of the rate of interest determined by the board of directors to be the prime rate prevailing at the date of issuance thereof on unsecured commercial loans.

Acts 1959, ch. 170, § 7; impl. am. Acts 1978, ch. 708, § 5.25; T.C.A., §§ 48-1713, 48-3-113.

48-101-114. Obligations of corporation are legal investments for members.

Notwithstanding any other law, general or special, the notes or other interest-bearing obligations of such corporation, issued in accordance with and by virtue of this part and the bylaws of such corporation, shall be legal investments for the banking, insurance, and surety organizations which become members of such corporation, up to but in no event exceeding the loan limits established herein.

Acts 1959, ch. 170, § 7; T.C.A., §§ 48-1714, 48-3-114.

48-101-115. Limit on total obligations.

At no time shall the total obligations of such corporation exceed ten (10) times the amount of its paid-in capital and surplus, not including therein the earned surplus.

Acts 1959, ch. 170, § 16; T.C.A., §§ 48-1715, 48-3-115.

48-101-116. Earned surplus.

The corporation shall set apart as an earned surplus all of its net earnings in each and every year until such earned surplus shall equal the total of the paid-in capital and paid-in surplus then outstanding. The earned surplus shall be held in a depository, invested in United States government bonds, or as provided in such corporation's bylaws, and shall be kept and used to meet losses and contingencies of such corporation and, whenever the amount of earned surplus shall become impaired, it shall be built up again to the required amount in the manner provided for its original accumulation.

Acts 1959, ch. 170, § 15; T.C.A., §§ 48-1716, 48-3-116.

48-101-117. Deposit of funds.

The corporation shall not deposit any of its funds in any banking institution, unless such institution has been designated as a depository by a vote of a majority of the directors present at an authorized meeting of the board of directors, exclusive of any director who is an officer or director of the depository so designated.
The corporation shall not receive money on deposit.

Acts 1959, ch. 170, § 12; T.C.A., §§ 48-1717, 48-3-117.

48-101-118. Supervision over corporation — Reports.

The corporation shall be subject to the supervision of and be examined by the commissioner of commerce and insurance and shall make such report of its condition and furnish such other information from time to time as the commissioner shall require.

Acts 1959, ch. 170, § 13; impl. am. Acts 1971, ch. 137, § 2; T.C.A., §§ 48-1718, 48-3-118.

48-101-119. Amendment of charter.

The charter may be amended by the votes of the stockholders and members of the corporation, voting separately by classes, and such amendments shall require approval by the affirmative vote of two thirds (2/3) of the votes to which the stockholders shall be entitled and two thirds (2/3) of the votes to which the members shall be entitled; provided, that no amendment of the charter which is inconsistent with the general purposes expressed herein or which authorizes any additional class of capital stock to be issued or which increases the obligation of a member to make loans to the corporation, or makes any change in the principal amount, interest rate, maturity date, or in the security or credit position, of any outstanding loan of a member to the corporation, or affects a member's right to withdraw from membership of the corporation as provided in § 48-101-111, or affects a member's voting rights as provided in § 48-101-112, shall be made without the consent of each member affected by such amendment. Amendment of the charter shall be completed in the same manner as provided for the corporate entity in § 48-101-104.

Acts 1959, ch. 170, § 10; T.C.A., §§ 48-1719, 48-3-119.

48-101-120. State credit not pledged.

Under no circumstances is the credit of the state pledged herein.

Acts 1959, ch. 170, § 17; T.C.A., §§ 48-1720, 48-3-120.

Part 2
Massachusetts Trust Act of 1961

48-101-201. Short title.

This part may be known and cited as the “Massachusetts Trust Act of 1961.”

Acts 1961, ch. 247, § 1; T.C.A., §§ 48-1801, 48-3-201.

Law Reviews.

The Massachusetts Trust, 31 Tenn. L. Rev. 471.

Attorney General Opinions. Application of Tenn. Const, art. II, § 9, to a local government investing in a mutual fund organized as a business trust that invests in assets authorized under Tennessee law, OAG 07-125, 2007 Tenn. AG LEXIS 125 (8/17/07).

48-101-202. Definition — Levy of tax authorized.

A Massachusetts trust is an unincorporated business association created at common law by an instrument under which property is held and managed by trustees for the benefit and profit of such persons as may be or may become the holders of transferable certificates evidencing beneficial interests in the trust estate, the holders of which certificates are entitled to the same limitation of personal liability extended to stockholders of private corporations.
Nothing contained in this chapter shall be construed or held to authorize the levy of any tax on earnings or distributions from an investment fund organized as a unit investment trust taxable as a grantor trust under 26 U.S.C. §§ 671-677 (whether or not such trust would otherwise constitute a business trust); provided, that not less than seventy-five percent (75%) of the value of the investments of such investment fund shall be in any combination of bonds of the United States, state of Tennessee, or any county or any municipality or political subdivision of the state, including any agency, board, authority, or commission of the state or its subdivisions.

Acts 1961, ch. 247, § 2; T.C.A., § 48-1802; Acts 1989, ch. 524, § 5; T.C.A., § 48-3-202.

48-101-203. Recognized form of association.

A Massachusetts trust is permitted as a recognized form of association for the conduct of business within the state of Tennessee.

Acts 1961, ch. 247, § 3; T.C.A., §§ 48-1803, 48-3-203.

48-101-204. Filing of trust instrument.

Any Massachusetts trust desiring to do business in this state shall file with the secretary of state a verified copy of the trust instrument creating such trust and any amendment thereto, the assumed business name, if any, and the names and addresses of its trustees; it shall also file true copies of the foregoing with the county register in the county in which it has its principal place of business in this state, and also in any county in which it owns any real property.

Acts 1961, ch. 247, § 4; T.C.A., §§ 48-1804, 48-3-204.

48-101-205. Binding effect of trust instrument.

Any person dealing with such Massachusetts trust shall be bound by the terms and conditions of the trust instrument and any amendments thereto so filed.

Acts 1961, ch. 247, § 4; T.C.A., §§ 48-1804, 48-3-205.

48-101-206. Taxation and fees.

Any Massachusetts trust created under this part or entering this state pursuant thereto shall pay such taxes and fees as are imposed by the laws, ordinances, and resolutions of the state of Tennessee, and any counties and municipalities thereof, on domestic and foreign corporations, respectively, on an identical basis therewith. In computing such taxes and fees, the shares of beneficial interest of such a trust shall have the character for tax purposes of shares of stock in private corporations.

Acts 1961, ch. 247, § 4; T.C.A., §§ 48-1804, 48-3-206.

48-101-207. Corporation laws applicable.

Any Massachusetts trust shall be subject to such applicable provisions of law, now or hereafter enacted, with respect to domestic and foreign corporations, respectively, as relate to the issuance of securities, filing of required statements or reports, service of process, general grants of power to act, right to sue and be sued, limitation of individual liability of shareholders, rights to acquire, mortgage, sell, lease, operate and otherwise to deal in real and personal property, and other applicable rights and duties existing under the common law and statutes of this state in a manner similar to those applicable to domestic and foreign corporations.

Acts 1961, ch. 247, § 4; T.C.A., §§ 48-1804, 48-3-207.

Cross-References. Business corporations, title 48, chs. 11-27.

Part 3
Health, Educational and Housing Facility Corporations

48-101-301. Part definitions.

As used in this part, unless the context otherwise requires:

“Bonds” means bonds, notes, interim certificates, or other obligations of a corporation issued pursuant to this part;
“Clinic,” except in the context of a hospital-based facility, means a not for profit, out-patient, nonhospital facility providing:
1. Primary health care;
2. Dental care;
3. Eye care;
4. Child delivery or birthing facilities; or
5. Any other out-patient healthcare service;
“Contracting party” or “other contracting party” means any party to a sale contract or loan agreement except the corporation;
“Corporation” means any corporation organized pursuant to this part;
“Educational institutions for individuals with physical and/or intellectual disability” means any institution organized for-profit or not for profit authorized by law to provide a program for educating and training individuals with physical and/or intellectual disability;
“Enterprise” means the health, educational or housing operations to be carried on with the facilities of a project;
“Governing body” means the legislative body of a county or the board or other body in which the general legislative powers of a city or town are vested;
“Hospital institution” means any city, county, metropolitan government, or other local governmental entity, or any institution organized for-profit or not for profit authorized by law to provide congregate elderly facilities or extended care, hospital, or nursing home facilities in this state, or any finance subsidiary of such hospital institution;
“Housing” means any multi-family housing facilities to be occupied by persons of low and/or moderate income, and/or elderly, and/or handicapped persons as may be determined by the board of directors, which determination shall be conclusive;
“Institution for higher education” means any institution organized for-profit or not for profit authorized by law to provide a program of education at the primary level, secondary level or beyond the secondary level in this state;
“Lease” includes a lease containing an option to purchase the project for a nominal sum upon payment in full, or provision therefor, of all bonds issued in connection with the project and all interest thereon and all other expenses in connection with the project, and a lease containing an option to purchase the project at any time, as provided therein, upon payment of the purchase price which shall be sufficient to pay all bonds issued in connection with the project and all interest thereon and all other expenses incurred in connection with the project, but which payment may be made in the form of one (1) or more notes, debentures, bonds, or other secured or unsecured debt obligations of the lessee providing for timely payments, including, but not limited to, interest thereon sufficient for such purposes and delivered to the corporation or to the trustee under the indenture pursuant to which the bonds were issued;
“Loan agreement” means an agreement providing for a corporation to loan the proceeds derived from the issuance of bonds pursuant to this part to one (1) or more contracting parties to be used to pay the cost of one (1) or more projects and providing for the repayment of such loan by the other contracting party or parties, and which may provide for such loans to be secured or evidenced by one (1) or more notes, debentures, bonds or other secured or unsecured debt obligations of the contracting party or parties, delivered to the corporation or to the trustee under the indenture pursuant to which the bonds were issued;
“Multi-family housing facilities” or “Multi-family residential units” for a project in the case of a housing facility may include or consist of single family structures, on contiguous or non contiguous sites for such a project located in counties having a population in excess of eight hundred thousand (800,000), according to the 1990 federal census or any subsequent federal census;
“Municipality” means any county or incorporated city or town in this state with respect to which a corporation may be organized;
1. “Project,” in the case of an institution for higher education, means a structure, facility, machinery, equipment or other property suitable for use by an institution for higher education in connection with its operations or proposed operations, including, but not limited to, a site therefor, an academic facility, administrative facility, agricultural facility, assembly hall, athletic facility, auditorium, campus, communication facility, computer facility, continuing education facility, classroom, dining hall, dormitory, exhibition hall, firefighting facility, fire prevention facility, food service and preparation facility, gymnasium, health care facility, hospital, housing, laboratory, laundry, maintenance facility, medical facility, museum, offices, parking area, physical education facility, recreational facility, research facility, storage facility, student union, study facility, theatre, utility or any combination of the foregoing;
2. “Project,” in the case of a private institution for higher education, also means, if such institution is organized not for profit, costs and expenses incurred by such institution in connection with the operation thereof, including, but not necessarily limited to, maintenance costs, heating and lighting expenditures, repair and replacement expenses, faculty salaries and administrative costs and expenses; provided, that any agreements entered into between the corporation and the institution as security for the payment of principal and interest on bonds issued to finance such a project must require that a borrowing institution shall repay all amounts received by it for such projects within two (2) years from the date such funds are received by it; provided, that the foregoing two-year limitation shall not apply in the case of bonds issued for the purpose of refinancing, or reimbursing, costs and expenses incurred by a private institution for higher education in connection with the operation by it of hospital and related facilities for the training of students enrolled in its medical education program; and provided further, that bonds for such refinancing or reimbursement purpose are not to be issued after July 1, 1994, but bonds, if any, issued for such purpose before such date shall, if issued in compliance with the other provisions hereof, be and remain valid, from and after such issuance termination date and shall not in any manner be limited or affected by such termination of issuance authority; provided, that the foregoing two-year limitation shall not apply in the case of bonds issued for the purpose of refinancing, or reimbursing, costs and expenses incurred by a private institution for higher education in connection with the operation by it of hospital and related facilities for the training of students enrolled in its medical education program; and provided further, that bonds for such refinancing or reimbursement purpose shall not be issued after July 1, 1995, but bonds, if any, issued for each purpose before such date shall, if issued in compliance with the other provisions hereof, be and remain valid, from and after such issuance termination date and shall not in any manner be limited or affected by such termination of issuance authority;
3. “Project” shall also include loans to a nonprofit corporation by any corporation receiving from the Tennessee state school bond authority pursuant to § 49-3-1210 allocation for the issuance of Qualified Zone Academy Bonds within the meaning of § 1397E of the Internal Revenue Code of 1986 (26 U.S.C. § 1397E) [repealed], when the proceeds of which are granted to or spent on behalf of one or more public institutions for higher education to pay costs of developing course materials for education and to train teachers and other school personnel. Such nonprofit corporation shall be deemed an institution for higher education for purposes of this part;
4. “Project,” in the case of a hospital institution, means a structure, facility, machinery, equipment or other property suitable for use by a hospital institution in connection with its operations or proposed operations, including, without limitation, a site therefor, a communication facility, clinic, computer facility, congregate elderly facilities, dining hall, elderly housing, extended care facilities, firefighting facility, fire prevention facility, food service and preparation facility, health care facility, hospital, interns' residence, laboratory, laundry, maintenance facility, nurses' residence, nursing home, nonprofit home for the aged, nursing school, offices, parking area, pharmacy, recreational facility, research facility, storage facility, utility, x-ray facility, or any combination of the foregoing; and, also, funds to be used by any hospital institution organized not for profit in connection with the operation thereof, including, but not limited to, maintenance and supply costs, heating, lighting and other utility expenditures, repair and replacement expenses, employee compensation and administrative costs and expenses; furthermore, in the case of a hospital institution, “project” means the purchase of the accounts receivable of any hospital institution;
5. “Project,” in the case of an educational facility for individuals with physical and/or intellectual disability, means a structure, facility, machinery, equipment or other property suitable for use by an educational facility for individuals with physical and/or intellectual disability in connection with its operation or proposed operations, including, without limitation, a site therefor, an academic facility, administrative facility, assembly halls, athletic facility, auditorium, campus, communications facility, continuing education facility, classrooms, dining halls, dormitory, exhibition halls, firefighting and fire prevention facility, food service and preparation facility, gymnasium, health care facility, hospital, housing, laboratory, laundry, maintenance facility, medical facilities, museum, offices, parking area, physical education facility, recreation facility, research facilities, storage, student union, study facility, theatre, utility, residence halls, or any combination of the foregoing;
6. “Project” also means a structure, facility, machinery, equipment or other property suitable for use by a not for profit blood bank or blood center in connection with its operations or proposed operations;
7. “Project,” in the case of a housing facility, means a structure, facility, machinery, equipment or other property suitable for use by a housing facility in connection with its operation or proposed operations, including, but not limited to, a site therefor, multi-family residential units, administrative facility, assembly halls, athletic facility, communications facility, dining and food service and preparation facility, gymnasium, health care facility, laundry, maintenance facility, parking area, recreation facility, storage, theatre, utility, or any combination of the foregoing;
8. “Project,” in the case of a housing facility, also means single family residential units for purchase where such units are financed by a for-profit, not-for-profit or governmental entity or any combination of such entities where payments to affected tax jurisdictions are made in lieu of property taxes in amounts equal to the property taxes which would be due if the property were fully taxable, and the bonds or notes for such financing shall:
  1. Be purchased, guaranteed, or otherwise supported by a government sponsored mortgage entity participating in the residential mortgages market that are formed under a federal charter, whether owned by the federal government or by stockholders; and
  2. Not be exempt from taxation under the Internal Revenue Code of 1986 (26 U.S.C.); and
9. “Project,” in the case of a clinic, means a structure, facility, machinery, equipment or other property suitable for use by a clinic, including, without limitation, supporting facilities, including a site therefor, a computer facility, a laboratory, a maintenance facility, administrative offices, parking facilities, x-ray facilities, facilities for specialized diagnostic or out-patient treatment or any combination of the foregoing; and, funds to be used by any such clinic in connection with the operation thereof, including, but not limited to, maintenance and supply costs, heating, lighting and other utility expenditures, repair and replacement expenses, employee compensation and administrative costs and expenses; furthermore, in the case of a clinic, “project” means the purchase of the accounts receivable of any aforedescribed institution;
“Revenues” of a project, or derived from a project, include payments under a lease or sale contract and repayments under a loan agreement, or under notes, debentures, bonds and other secured or unsecured debt obligations of a lessee or contracting party delivered as herein provided; and
“Sale contract” means a contract providing for the sale of one (1) or more projects to one (1) or more contracting parties and includes a contract providing for payment of the purchase price in one (1) or more installments. If the sale contract permits title to the project to pass to the other contracting party or parties prior to payment in full of the entire purchase price, it shall also provide for the other contracting party or parties to deliver to the corporation or to the trustee under the indenture pursuant to which the bonds were issued one (1) or more notes, debentures, bonds or other secured or unsecured debt obligations of such contracting party or parties providing for timely payments, including, without limitation, interest thereon for the balance of the purchase price at or prior to the passage of such title.

Acts 1969, ch. 333, § 1; 1971, ch. 413, §§ 1-4; 1975, ch. 16, § 1; 1975, ch. 29, §§ 1, 2; 1975, ch. 262, § 1; 1976, ch. 514, § 1; impl. am. Acts 1978, ch. 934, §§ 7, 36; 1982, ch. 629, § 1; 1982, ch. 947, § 2; 1983, ch. 76, § 1; 1983, ch. 187, § 1; T.C.A., § 48-1901; Acts 1985, ch. 243, § 1; 1985, ch. 307, § 1; 1988, ch. 1014, §§ 1, 2; 1990, ch. 1086, §§ 1, 2; 1993, ch. 427, § 1; 1994, ch. 912, § 1; T.C.A., § 48-3-301; Acts 1999, ch. 41, § 1; 2000, ch. 979, § 1; 2000, ch. 986, §§ 1-3; 2001, ch. 373, § 1; 2010, ch. 977, §§ 1, 2; 2011, ch. 158, § 21.

Compiler's Notes. For tables of U.S. decennial populations of Tennessee counties, see Volume 13 and its supplement.

26 U.S.C. § 1397E, referred to in the definition of “project,” was repealed by Act Dec. 22, 2017, P.L. 115-97.

Textbooks. Tennessee Jurisprudence, 19 Tenn. Juris., Municipal, State, and County Aid, § 2.

48-101-302. Purpose of part — Liberal construction.

It is hereby determined and declared that for the benefit of the people of the state of Tennessee, the increase of their commerce, welfare and prosperity and the improvement and maintenance of their health and living conditions, it is essential that the people of this state have access to adequate medical care and hospital facilities, that the elderly residents of the state be assisted, and that the youth of this state be given the fullest opportunity to learn and to develop their intellectual and mental capacities; that it is essential that hospital institutions and institutions for higher education within the state be provided with appropriate additional means to assist in the development and maintenance of the public health, especially for the elderly, and to assist such youth in achieving a higher level of learning and the development of their intellectual and mental capacities; that it is the purpose of this part to provide a measure of assistance and an alternative method to enable hospital institutions and institutions for higher education in the state of Tennessee to provide the facilities which are sorely needed to accomplish the purposes of this part, all to the public benefit and good, as more fully provided herein; and it is the intent of the general assembly by the passage of this part to authorize the incorporation in the several municipalities in this state of public corporations to finance, acquire, own, lease and/or dispose of properties to the end that such corporations may be able to promote the health and higher education of the people of this state, and to vest such corporations with all powers that may be necessary to enable them to accomplish such purposes. It is not intended hereby that any such corporation shall itself be authorized to operate any such enterprise. This part shall be liberally construed in conformity with such intention.
In conjunction with the above purposes of this part, it is further determined and declared that it is for the benefit of the people of the state of Tennessee, the increase of their commerce, welfare and prosperity and the improvement and maintenance of their health and living conditions, that provision be made for additional facilities for educational training and related facilities for individuals with physical and/or intellectual disability; that provision should be made for appropriate educational means to assist in the development and maintenance of the physical and mental health of the affected individuals and the development of their mental and intellectual capacities to the extent that they may be actively involved and participate in the normal day-to-day functions of the citizens of the state of Tennessee, and that it is the intent of the general assembly by the passage of this part to facilitate the foregoing purposes stated herein and above.
In conjunction with the above purposes of this part, it is further determined and declared that it is for the benefit of the people of the state of Tennessee, the increase of their commerce, welfare and prosperity and the improvement and maintenance of their health and living conditions, that provision be made for additional safe and sanitary multi-family housing facilities to be used by persons of low and/or moderate income; that provisions should be made for appropriate safe and sanitary housing of the affected individuals and the improvement of their living standards to the extent that they may be actively involved and participate in the normal day-to-day functions of the citizens of the state of Tennessee, and that it is the intent of the general assembly by the passage of this part to facilitate the foregoing purposes stated herein to the fullest extent allowed the several states of the union pursuant to the laws and regulations of the United States.

Acts 1969, ch. 333, § 2; 1975, ch. 29, § 3; 1976, ch. 514, § 2; 1982, ch. 947, § 3; T.C.A., §§ 48-1902, 48-3-302; Acts 2011, ch. 158, § 22.

48-101-303. Application for incorporation.

Whenever any number of natural persons, not less than three (3), each of whom shall be a duly qualified elector of and taxpayer in the municipality, shall file with the governing body thereof an application in writing seeking permission to apply for the incorporation of a health, educational and housing facility corporation of such municipality, the governing body shall proceed to consider such application.
If the governing body shall, by appropriate resolution duly adopted, find and determine that it is wise, expedient, necessary or advisable that the corporation be formed and shall authorize the persons making such application to proceed to form such corporation and shall approve the form of certificate of incorporation proposed to be used in organizing the corporation, then the persons making such application shall execute, acknowledge and file a certificate of incorporation for the corporation as hereinafter provided.
No corporation may be formed unless such application shall have first been filed with the governing body of the municipality and the governing body shall have adopted a resolution as provided in this section.

Acts 1969, ch. 333, § 3; 1982, ch. 947, § 4; T.C.A., §§ 48-1903, 48-3-303.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

48-101-304. Certificate of incorporation.

The certificate of incorporation shall set forth:
1. The names and residences of the applicants, together with a recital that each of them is an elector of and taxpayer in the municipality;
2. The name of the corporation which shall be The Health, Educational and Housing Facility Board of the of (the blanks to be filled in with the name of the municipality), if such name shall be available for use by the corporation and if not available then the incorporators shall designate some other similar name that is available;
3. A recital that permission to organize the corporation has been granted by resolution duly adopted by the governing body of the municipality and the date of the adoption of such resolution;
4. The location of the principal office of the corporation (which shall be in the municipality);
5. The purposes for which the corporation is proposed to be organized;
6. The number of directors of the corporation;
7. The period, if any, for the duration of the corporation; and
8. Any other matter which the applicants may choose to insert therein which shall not be inconsistent with this part or with the laws of the state of Tennessee.
The certificate of incorporation shall be subscribed and acknowledged by each of the applicants before an officer authorized by the laws of Tennessee to take acknowledgments to deeds.

Acts 1969, ch. 333, § 4; 1982, ch. 947, § 5; T.C.A., §§ 48-1904, 48-3-304.

48-101-305. Filing of certificate of incorporation.

When executed and acknowledged in conformity with § 48-101-304, the certificate of incorporation shall be filed with the secretary of state. The secretary of state shall thereupon examine the certificate of incorporation and, if the secretary of state finds that the recitals contained therein are correct, that the requirements of § 48-101-304 have been complied with, and that the name is not identical with or so nearly similar to that of another corporation already in existence in this state as to lead to confusion and uncertainty, the secretary of state shall approve the certificate of incorporation and record it in an appropriate book or record in the secretary of state's office. When such certificate has been so made, filed and approved, the applicants shall constitute a public corporation under the name set out in the certificate of incorporation.

Acts 1969, ch. 333, § 5; T.C.A., §§ 48-1905, 48-3-305.

48-101-306. Amendment of certificate of incorporation.

The certificate of incorporation may at any time and from time to time be amended so as to make any changes therein and add any provisions thereto which might have been included in the certificate of incorporation in the first instance. Any such amendment shall be effected in the following manner:
1. The members of the board of directors of the corporation shall file with the governing body of the municipality an application in writing seeking permission to amend the certificate of incorporation, specifying in such application the amendment proposed to be made;
2. Such governing body shall consider such application and, if it shall by appropriate resolution duly find and determine that it is wise, expedient, necessary or advisable that the proposed amendment be made and shall authorize the same to be made, and shall approve the form of the proposed amendment, then the persons making such application shall execute an instrument embodying the amendment specified in such application, and shall file the same with the secretary of state;
3. The proposed amendment shall be subscribed and acknowledged by each member of the board of directors before an officer authorized by the laws of Tennessee to take acknowledgments to deeds;
4. The secretary of state shall thereupon examine the proposed amendment and, if the secretary of state finds that the requirements of this section have been complied with and the proposed amendment is within the scope of what might be included in an original certificate of incorporation, the secretary of state shall approve the amendment and record it in an appropriate book in the secretary of state's office;
5. When such amendment has been so made, filed and approved, it shall thereupon become effective and the certificate of incorporation shall thereupon be amended to the extent provided in the amendment.
No certificate of incorporation shall be amended except in the manner provided in this section.

Acts 1969, ch. 333, § 6; T.C.A., §§ 48-1906, 48-3-306.

48-101-307. Board of directors.

The corporation shall have a board of directors in which all powers of the corporation shall be vested and which shall consist of any number of directors, not less than seven (7), all of whom shall be duly qualified electors of and taxpayers in the municipality.
The directors shall serve as such without compensation except that they shall be reimbursed for their actual expenses incurred in and about the performance of their duties hereunder.
No director shall be an officer or employee of the municipality.
The directors shall be elected by the governing body of the municipality, and they shall be so elected that they shall hold office for staggered terms. At the time of the election of the first board of directors, the governing body of the municipality shall divide the directors into three (3) groups containing as near equal whole numbers as may be possible. The first term of the directors included in the first group shall be two (2) years, the first term of the directors included in the second group shall be four (4) years, the first term of the directors included in the third group shall be six (6) years, and thereafter the terms of all directors shall be six (6) years; provided, that if at the expiration of any term of office of any director a successor thereto shall not have been elected, then the director whose term of office shall have expired shall continue to hold office until a successor shall be so elected.
The directors shall meet and organize as a board and shall elect one (1) of its members as chair, one (1) as vice chair, one (1) as treasurer and one (1) as secretary and such officers shall annually be elected thereafter in like manner.
The duties of secretary and treasurer may be performed by the same director.
Any action taken by the directors under this part may be authorized by resolution at any regular or special meeting, and such resolution shall take effect immediately and need not be published or posted.
Any meeting held by the board of directors for any purpose whatsoever shall be open to the public.

Acts 1969, ch. 333, §§ 7, 8; 1975, ch. 29, § 4; 1976, ch. 514, § 3; T.C.A., §§ 48-1907, 48-1908, 48-3-307.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

48-101-308. Powers of corporations.

The corporation has the following powers, together with all powers incidental thereto or necessary for the performance of those hereinafter stated, to:
1. Have succession by its corporate name for the period specified in the certificate of incorporation, unless sooner dissolved as hereinafter provided;
2. Sue and be sued and prosecute and defend, at law or in equity, in any court having jurisdiction of the subject matter and of the parties;
3. Have and use a corporate seal and alter the same at pleasure;
4. Acquire, whether by purchase, construction, exchange, gift, lease, or otherwise, and improve, maintain, extend, equip and furnish one (1) or more projects, which projects may be either within or without the corporate limits of the municipality with respect to which the corporation was organized, including all real and personal properties which the board of directors of the corporation may deem necessary in connection therewith and regardless of whether or not any such projects shall then be in existence;
5. Finance or undertake one (1) or more projects, which may be located in one (1) or more municipalities in this state or outside this state, for one (1) or more institutions described in § 48-101-301. However:
  1. No project located in this state, but outside the corporate limits of the municipality with respect to which the corporation was organized, may be financed or undertaken except after the approval of the financing or undertaking thereof by appropriate resolution duly adopted by either:
    1. A corporation organized pursuant to this part by any municipality within the corporate limits of which the project is located; or
    2. The governing body of any municipality within the corporate limits of which the project is located; and
  2. No project located outside this state may be financed or undertaken unless the hospital institution or institution of higher education for which the project is financed or undertaken maintains its principal place of business in this state prior to issuance of the debt and throughout the entire life of the debt;
6. Lease to a hospital institution, clinic, not for profit blood bank or blood center, or an institution for higher education or a housing facility, one (1) or more projects upon such terms and conditions as the board of directors shall deem proper and charge and collect rent therefor and terminate any such lease upon the failure of the lessee to comply with any of the obligations thereof; and include in any such lease, if desired, provisions that the lessee thereof shall have options to renew the term of the lease for such period or periods and at such rent as shall be determined by the board of directors of the corporation and/or to purchase any or all of its projects or that, upon payment of all of the indebtedness of the corporation, it may lease or convey any or all of its projects to the lessees thereof with or without consideration;
7. Sell to a hospital institution, clinic, not for profit blood bank or blood center, or an institution for higher education or a housing facility or educational institution for individuals with physical and/or intellectual disability, one (1) or more projects for such payments and upon such terms and conditions as the board of directors of the corporation may deem advisable in accordance with sale contracts entered into pursuant to this part;
8. Enter into loan agreements with a hospital institution, clinic, not for profit blood bank or blood center, or an institution for higher education or educational institutions for individuals with physical and/or intellectual disability or a housing facility with respect to one (1) or more projects for such payments and upon such terms and conditions as the board of directors of the corporation may deem advisable in accordance with this part;
9. Sell, exchange, donate and convey any or all of its properties whenever its board of directors shall find any such action to be in furtherance of the purposes for which the corporation was organized;
10. Borrow money and issue its bonds for the purpose of carrying out any of its powers;
11. As security for the payment of the principal of and interest on any bonds so issued and any agreements made in connection therewith, mortgage and pledge any or all of its projects or any part or parts thereof, whether then owned or thereafter acquired, and pledge the revenues and receipts therefrom or from any thereof, and/or assign and pledge all or any part of its interest in and rights under the leases, sale contracts or loan agreements relating thereto or to any thereof;
12. Employ and pay compensation to such employees and agents, including attorneys, as the board of directors shall deem necessary for the business of the corporation;
13. Exercise all powers expressly given in its certificate of incorporation and establish bylaws and make all rules and regulations not inconsistent with the certificate of incorporation or this part, deemed expedient for the management of the corporation's affairs; and
14. Provide information in accordance with § 9-21-134.
The corporation does not have power to operate any project financed under this part as a business or in any manner except as specifically provided in this part.

Acts 1969, ch. 333, § 8; 1975, ch. 29, § 4; 1976, ch. 514, § 3; 1982, ch. 629, §§ 2, 3; 1982, ch. 947, § 6; 1983, ch. 76, §§ 2, 3; T.C.A., § 48-1908; Acts 1990, ch. 704, § 1; T.C.A., § 48-3-308; Acts 2010, ch. 977, § 3; 2011, ch. 158, § 23; 2015, ch. 91, § 1.

Compiler's Notes. This section is set out in the supplement to update an internal reference.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

48-101-309. Terms of contracts.

Any lease, sale contract or loan agreement with respect to a project entered into pursuant to this part shall be for a term not shorter than the longest maturity of any bonds issued to finance such project, and shall provide for revenues adequate to pay principal of and interest on such bonds as the same falls due and to pay such portion of the operating expenses of the corporation as the board of directors shall determine to be necessary.

Acts 1969, ch. 333, § 8; 1975, ch. 29, § 4; 1976, ch. 514, § 3; 1982, ch. 629, §§ 2, 3; 1982, ch. 947, § 6; 1983, ch. 76, §§ 2, 3; T.C.A., §§ 48-1908, 48-3-309.

48-101-310. Bonds of corporation.

1. Except as herein otherwise expressly provided, all bonds issued by the corporation shall be payable solely out of revenues and receipts derived from the corporation's projects or of any thereof as may be designated in the proceedings of the board of directors under which the bonds shall be authorized to be issued, including debt obligations of the lessee or contracting party obtained from or in connection with the financing of a project; provided, that notes issued in anticipation of the issuance of bonds may be retired out of the proceeds of such bonds.
2. Such bonds may be executed and delivered by the corporation at any time and from time to time, may be in such form and denominations and of such terms and maturities, may be in fully registered form or in bearer form registrable either as to principal or interest, or both, may bear such conversion privileges and be payable in such installments and at such time or times not exceeding forty (40) years from the date thereof, may be payable at such place or places whether within or without the state of Tennessee, may bear interest at such rate or rates payable at such time or times and at such place or places and evidenced in such manner, may be executed by such officers of the corporation, and may contain such provisions not inconsistent herewith, all as shall be provided in the proceedings of the board of directors whereunder the bonds shall be authorized to be issued.
3. If deemed advisable by the board of directors, there may be retained in the proceedings under which any bonds of the corporation are authorized to be issued, an option to redeem all or any part thereof as may be specified in such proceedings, at such price or prices and after such notice or notices and on such terms and conditions as may be set forth in such proceedings and as may be briefly recited in the face of the bonds, but nothing herein contained shall be construed to confer on the corporation any right or option to redeem any bonds except as may be provided in the proceedings under which they shall be issued.
4. Any bonds of the corporation may be sold at public or private sale for such price and in such manner and from time to time as may be determined by the board of directors of the corporation to be most advantageous, and the corporation may pay all expenses, premiums and commissions which its board of directors may deem necessary or advantageous in connection with the issuance of such bonds.
5. Issuance by the corporation of one (1) or more series of bonds for one (1) or more purposes shall not preclude it from issuing other bonds in connection with the same project or any other project, but the proceedings whereunder any subsequent bonds may be issued shall recognize and protect any prior pledge or mortgage made for any prior issue of bonds.
1. Proceeds of bonds issued by the corporation may be used for the purpose of constructing, acquiring, incurring, reconstructing, improving, equipping, furnishing, bettering, or extending any project or projects, including the payment of interest on the bonds during construction of any such project and for two (2) years after the estimated date of completion, the refinancing of any of the foregoing, the payment of engineering, fiscal, architectural, and legal expenses incurred in connection with such project and the issuance of the bonds, and the establishment of a reasonable reserve fund for the payment of principal of and interest on such bonds in the event of a deficiency in the revenues and receipts available for such payment.
2. Notwithstanding any provision of this part to the contrary, proceeds of bonds or notes issued by the corporation may be used to provide funds to any hospital institution organized not for profit to be used in connection with the operation thereof; provided, that any loan, note, pledge or other obligation under which such funds are provided shall require that a borrowing hospital institution which is in operation on the date it receives such funds shall repay all amounts received for use in connection with its operation within no longer than one (1) year from the date such funds are received by it or that a hospital institution which commences operation after the date it receives such funds shall repay all amounts received for use in connection with its operation within no longer than three (3) years from the date such funds are received by it.
Any bonds or notes of the corporation at any time outstanding may at any time and from time to time be refunded by the corporation by the issuance of its refunding bonds in such amount as the board of directors may deem necessary, but not exceeding the sum of the following:
1. The principal amount of the obligations being refinanced;
2. Applicable redemption premiums thereon;
3. Unpaid interest on such obligations to the date of delivery or exchange of the refunding bonds;
4. In the event the proceeds from the sale of the refunding bonds are to be deposited in trust as hereinafter provided, interest to accrue on such obligations from the date of delivery to the first or any subsequent available redemption date or dates selected, in its discretion, by the board of directors, or to the date or dates of maturity, whichever shall be determined by the board of directors to be most advantageous or necessary to the corporation;
5. A reasonable reserve for the payment of principal of and interest on such bonds and/or a renewal and replacement reserve;
6. If the project to be constructed from the proceeds of the obligations being refinanced has not been completed, an amount sufficient to meet the interest charges on the refunding bonds during the construction of such project and for two (2) years after the estimated date of completion (but only to the extent that interest charges have not been capitalized from the proceeds of the obligations being refinanced); and
7. Expenses, premiums and commissions of the corporation, including bond discount, deemed by the board of directors to be necessary for the issuance of the refunding bonds. A determination by the board of directors that any refinancing is advantageous or necessary to the corporation, or that any of the amounts provided in the preceding sentence should be included in such refinancing, or that any of the obligations to be refinanced should be called for redemption on the first or any subsequent available redemption date or permitted to remain outstanding until their respective dates of maturity, shall be conclusive.
Any such refunding may be effected whether the obligations to be refunded shall have then matured or shall thereafter mature, either by the exchange of the refunding bonds for the obligations to be refunded thereby with the consent of the holders of the obligations so to be refunded, or by sale of the refunding bonds and the application of the proceeds thereof to the payment of the obligations to be refunded thereby, and regardless of whether or not the obligations to be refunded were issued in connection with the same projects or separate projects, and regardless of whether or not the obligations proposed to be refunded shall be payable on the same date or different dates or shall be due serially or otherwise.
If, at the time of delivery of the refunding bonds, the obligations to be refunded will not be retired or a valid and timely notice of redemption of the outstanding obligations is not given in accordance with the resolution, indenture or other instrument governing the redemption of the outstanding obligations, then, prior to the issuance of the refunding bonds, the board of directors shall cause to be given a notice of its intention to issue the refunding bonds. The notice shall be given either by mail to the owners of all of the outstanding obligations to be refunded at their addresses shown on the bond registration records for the outstanding obligations or given by publication one (1) time each in the newspaper having a general circulation in the municipality with respect to which the corporation was organized and in a financial newspaper published in New York, New York, having a national circulation. The notice shall set forth the estimated date of delivery of the refunding bonds and identify the obligations, or the individual maturities thereof, proposed to be refunded; provided, that if portions of individual maturities are proposed to be refunded, the notice shall identify the maturities subject to partial refunding in the aggregate principal amount to be refunded within each maturity. If the issuance of the refunding bonds does not occur as provided in the notice, the board of directors shall cause notice thereof to be given as provided above. Except as otherwise set forth in this section, the notice required pursuant to this section shall be given whether or not any of the obligations to be refunded are to be called for redemption.
If any of the obligations to be refunded are to be called for redemption, the board of directors shall cause notice of redemption to be given in the manner required by the resolution or ordinance authorizing such outstanding obligations.
The principal proceeds from the sale of any refunding bonds shall be applied only as follows: either,
1. To the immediate payment and retirement of the obligations being refunded; or
2. To the extent not required for the immediate payment of the obligations being refunded, then such proceeds shall be deposited in trust to provide for the payment and retirement of the obligations being refunded and to pay any expenses incurred in connection with such refunding, but provision may be made for the pledging and disposition of any surplus, including, without limitation, provision for the pledging of any such surplus to the payment of the principal of and interest on any issue or series of refunding bonds. Money in any such trust fund may be invested in direct obligations of, or obligations the principal of and interest on which are guaranteed by, the United States government, or obligations of any agency or instrumentality of the United States government, or in certificates of deposit issued by a bank or trust company located in the state of Tennessee if such certificates shall be secured by a pledge of any obligations having an aggregate market value, exclusive of accrued interest, equal at least to the principal amount of the certificates so secured. Nothing herein shall be construed as a limitation on the duration of any deposit in trust for the retirement of obligations being refunded but which shall not have matured and which shall not be presently redeemable or, if presently redeemable, shall not have been called for redemption.

Acts 1969, ch. 333, § 9; 1973, ch. 309, § 5; 1976, ch. 514, § 4; 1977, ch. 229, § 2; 1983, ch. 76, § 4; 1983, ch. 187, § 2; T.C.A., § 48-1909; Acts 1985, ch. 243, § 2; 1988, ch. 827, § 1; 1994, ch. 806, § 11; § 48-3-310.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

48-101-311. Security for bonds.

The principal of and interest on any bonds issued by the corporation shall be secured by a pledge of the revenues and receipts out of which the same shall be made payable, and may be secured by a mortgage or deed of trust covering all or any part of the projects from which the revenues or receipts so pledged may be derived, including any enlargements of and additions to any such projects thereafter made, and by an assignment and pledge of all or any part of the corporation's interest in and rights under the leases, sale contracts or loan agreements relating to such projects, or any thereof.
The resolution under which the bonds are authorized to be issued and any such mortgage or deed of trust may contain any agreements and provisions respecting the maintenance of the projects covered thereby; the fixing and collection of rents or payments with respect to any projects or portions thereof covered by such resolution, mortgage or deed of trust, the creation and maintenance of special funds from such revenues and from the proceeds of such bonds, and the rights and remedies available in the event of default, all as the board of directors shall deem advisable and not in conflict with this part.
Each pledge, agreement, mortgage and deed of trust made for the benefit or security of any of the bonds of the corporation shall continue effective until the principal of and interest on the bonds for the benefit of which the same were made shall have been fully paid. In the event of default in such payment or in any agreement of the corporation made as a part of the contract under which the bonds were issued, whether contained in the proceedings authorizing the bonds or in any mortgage and deed of trust executed as security therefor, the payment or agreement may be enforced by suit, mandamus, the appointment of a receiver in equity or by foreclosure of any such mortgage and deed of trust, or any one (1) or more of these remedies.

Acts 1969, ch. 333, § 10; 1976, ch. 514, § 5; T.C.A., §§ 48-1910, 48-3-311.

48-101-312. Exemption from taxation — Payments in lieu of taxes — Reporting.

The corporation is hereby declared to be performing a public function in behalf of the municipality with respect to which the corporation is organized and to be a public instrumentality of such municipality. Accordingly, the corporation and all properties at any time owned by it and the income and revenues therefrom and all bonds issued by it and the income therefrom shall be exempt from all taxation in the state of Tennessee. Also, for purposes of the Securities Act of 1980, compiled in chapter 1, part 1 of this title, and any amendment thereto or substitution therefor, bonds issued by the corporation shall be deemed to be securities issued by a public instrumentality or a political subdivision of the state of Tennessee.
1. The municipality may delegate to a corporation the authority to negotiate and enter into with a corporation's lessees, payments in lieu of ad valorem taxes; provided, that such authorization shall be granted only upon a finding that such payments are deemed to be in furtherance of the corporation's public purposes as defined in this subsection (b). The legislative body of the municipality making such delegation may, in its sole discretion, require the corporation to submit any such agreement to the legislative body for its approval.
2. If the project is located within the corporate limits of a municipality, the payments shall be apportioned between the municipality and the county in the same manner as ad valorem taxes are apportioned on the date of execution of the agreement for payments in lieu of taxes.
3. The trustee shall bill and collect all in lieu of tax payments based on the agreement and the apportioned taxes.
4. 1. Notwithstanding this section to the contrary, and unless the municipality adopts an ordinance or resolution requiring that any agreement with respect to the payments in lieu of taxes entered into pursuant to this subdivision (b)(4) be approved by the municipality, a corporation may negotiate and receive from any lessee of the corporation, without any delegation from the municipality, payments in lieu of taxes with respect to a tax-credit housing project; provided, that:
    1. The payments in lieu of taxes are payable to all applicable taxing jurisdictions in which the project is located and are not less than the taxes that would have been paid to each such taxing jurisdiction for the tax year prior to the year the project became a tax-credit housing project; and
    2. The chief executive officer of the municipality has executed a letter supporting the project that is filed with the corporation.
  2. As used in this subdivision (b)(4), “tax-credit housing project” or “project” means a project that has received an allocation of low-income housing tax credits under Section 42 of the Internal Revenue Code of 1986 (26 U.S.C. § 42), or any successor provision, from the Tennessee housing development agency or is otherwise eligible for the tax credits as the result of the issuance of bonds, the interest on which is not subject to federal income taxation.
  3. In any municipality in which a corporation does not exist or has been administratively dissolved, a housing authority formed by the municipality pursuant to the Housing Authorities Law, compiled in title 13, chapter 20, may negotiate and receive from any lessee payments in lieu of taxes with respect to a tax-credit housing project in accordance with this subdivision (b)(4), and in that case, the housing authority shall have all rights and powers granted to the corporation pursuant to this chapter necessary to acquire and lease a tax-credit housing project in order to effectuate this subdivision (b)(4).
  4. Nothing in this subdivision (b)(4) shall limit the authority of a corporation to negotiate and receive from a lessee of the corporation payments in lieu of taxes with respect to a tax-credit housing project when that authority has been delegated to the corporation by a municipality.
An agreement for payment in lieu of taxes shall contain such terms and conditions as the corporation may determine, which may include, but shall not be limited to, provisions to:
1. Defer and/or subordinate payment of all or a portion of the payment in lieu of taxes to such future time as the corporation may determine;
2. Require interest to accrue on such deferred amount;
3. Require that payments in lieu of taxes, including any interest, expenses or costs of collection of same, shall be secured by a deed of trust upon the project; or
4. Provide that such deed of trust may be subordinate to other liens or indebtedness of the project.
On or before October 1 each year, the corporation lessee or sublessee shall file with the comptroller of the treasury a report listing leased properties and details of the lease and payment in lieu of tax (PILOT) agreements in the format provided in § 7-53-305. A copy of the report shall be filed with the assessor of property on or before October 15. The assessor may audit or review the report and conduct comparative analysis to ensure that all agreements and reports are filed. Failure to timely complete and file the report with the comptroller of the treasury shall subject the lessee or sublessee to a late filing fee of fifty dollars ($50.00) payable to the comptroller of the treasury. In addition, failure to file the report with the comptroller of the treasury or assessor within thirty (30) days after written demand for the report shall subject the lessee or sublessee to an additional payment in lieu of tax in the amount of five hundred dollars ($500).
For purposes of this part, the corporation or municipality shall at all times be immune from suit, and any legal and financial obligations whatsoever pertaining to the subject of real property, while the corporation is performing its public function by holding legal title to real property pursuant to a lease and payment in lieu of tax (PILOT) agreement; provided, that the person who transferred title to the corporation or municipality pursuant to such PILOT agreement shall remain liable for suits, and any legal and financial obligations whatsoever, pertaining to the real property.

Acts 1969, ch. 333, § 11; 1976, ch. 514, § 6; T.C.A., §§ 48-1911, 48-3-312; Acts 1998, ch. 804, § 1; 2000, ch. 914, § 2; 2002, ch. 605, § 2; 2008, ch. 1013, § 6; 2011, ch. 162, § 1; 2015, ch. 519, § 1; 2016, ch. 588, §§ 5, 6.

Compiler's Notes. Pursuant to Acts 1998, ch. 804, § 2, Acts 1998, ch. 804 applies to the 1998 tax year.

Acts 2000, ch. 914, § 3 provided that the act shall apply to reports due for tax year 2000.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

NOTES TO DECISIONS

1. Constitutionality.

Health and education facilities board was for public purpose and exemption of board's property from taxation was not unconstitutional. Ft. Sanders Presbyterian Hospital v. Health & Educational Facilities Board, 224 Tenn. 240, 453 S.W.2d 771, 1970 Tenn. LEXIS 383 (1970).

48-101-313. Nonliability of municipality.

The municipality shall not in any event be liable for the payment of the principal of or interest on any bonds of the corporation, or for the performance of any pledge, mortgage, obligation or agreement of any kind whatsoever, which may be undertaken by the corporation, and none of the bonds of the corporations or any of its agreements or obligations shall be construed to constitute an indebtedness of the municipality within the meaning of any constitutional or statutory provision whatsoever.

Acts 1969, ch. 333, § 12; T.C.A., §§ 48-1912, 48-3-313.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

NOTES TO DECISIONS

1. Constitutionality.

This part does not provide for the giving or loaning of the credit of a municipal corporation so as to require a referendum under Tenn. Const., art. II, § 29. Ft. Sanders Presbyterian Hospital v. Health & Educational Facilities Board, 224 Tenn. 240, 453 S.W.2d 771, 1970 Tenn. LEXIS 383 (1970).

48-101-314. Disposition of earnings.

The corporation shall be a nonprofit corporation and no part of its net earnings remaining after payment of its expenses shall inure to the benefit of any individual, firm or corporation, except that in the event the board of directors of the corporation shall determine that sufficient provision has been made for the full payment of the expenses, bonds, and other obligations of the corporation, then any net earnings of the corporation thereafter accruing shall be paid to the municipality with respect to which the corporation was organized; provided, that nothing herein contained shall prevent the board of directors from transferring all or any part of its properties in accordance with the terms of any lease, sale contract, loan agreement, mortgage or deed of trust entered into by the corporation.

Acts 1969, ch. 333, § 13; 1976, ch. 514, § 7; T.C.A., §§ 48-1913, 48-3-314.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

48-101-315. Completion of corporate purpose — Dissolution.

Whenever the board of directors of the corporation shall by resolution determine that the purposes for which the corporation was formed have been substantially complied with and all bonds theretofore issued and all obligations theretofore incurred by the corporation have been fully paid, the then members of the board of directors of the corporation shall thereupon execute and file for record in the office of the secretary of state a certificate of dissolution reciting such facts and declaring the corporation to be dissolved. Such certificate of dissolution shall be executed under the corporate seal of the corporation.
Upon the filing of such certificate of dissolution, the corporation shall stand dissolved, the title to all funds and properties owned by it at the time of such dissolution shall vest in the municipality, and possession of such funds and properties shall forthwith be delivered to such municipality.

Acts 1969, ch. 333, § 14; T.C.A., §§ 48-1914, 48-3-315.

Law Reviews.

Two Methods of Financing Health Care Facilities, 4 Mem. St. U.L. Rev. 118.

48-101-316. Joint operation.

The authorities and powers herein conferred upon corporations created under this part may be exercised by two (2) or more such corporations acting jointly. Two (2) or more municipalities may by acting jointly incorporate a public corporation to effectuate the purposes of this part. When two (2) or more municipalities incorporate such a public corporation, each and every requisite pertaining to the application for incorporation, qualifications of applicants, certificate of incorporation and amendment of certificate shall be incumbent in like manner upon each municipality joining in the creation of this public corporation. Officers, but not employees, of a municipality within a public corporation organized among two (2) or more municipalities may serve as directors of such a corporation.

Acts 1969, ch. 333, § 15; T.C.A., §§ 48-1915, 48-3-316.

48-101-317. Transfer of project sites.

Any municipality may acquire a project site by gift, purchase or lease, and may transfer any project site to a corporation by sale, lease, or gift. Such transfer may be authorized by a resolution of the governing body of the municipality without submission of the question to the voters, and without regard to the requirements, restrictions, limitations or other provisions contained in any other general, special or local law. Such project site may be within or without the municipality or partially within and partially without the municipality.

Acts 1969, ch. 333, § 17; T.C.A., §§ 48-1917, 48-3-317.

48-101-318. Construction with other laws — Severability.

Neither this part nor anything herein contained shall be construed as a restriction or limitation upon any powers which the corporation might otherwise have under any laws of this state, but shall be construed as cumulative of any such powers. No proceedings, notice or approval shall be required for the organization of the corporation or the issuance of any bonds or any instrument as security therefor, except as herein provided, any other law to the contrary notwithstanding; provided, that nothing herein shall be construed to deprive the state and its governmental subdivisions of their respective police powers over properties of the corporation, or to impair any power thereover of any official or agency of the state and its governmental subdivisions which may be otherwise provided by law.
The powers conferred by this part shall be in addition and supplementary to, and the limitations by this part shall not affect the powers conferred by, any other general, special or local law. Projects may be acquired, purchased, constructed, reconstructed, improved, bettered and extended and bonds may be issued under this part for these purposes, notwithstanding that any other general, special or local law may provide for the acquisition, purchase, construction, reconstruction, improvement, betterment and extension of a like project, or the issuance of bonds for like purposes, and without regard to the requirements, restrictions, limitations or other provisions contained in any other general, special or local law.
If any one (1) or more sections or provisions of this part (including, without limitation, the provisions of § 48-101-317 authorizing the transfer of a project site by a municipality to a corporation and the provisions of § 48-101-312 exempting the corporation and its properties from taxation), or the application thereof to any person or circumstance, shall ever be held by any court of competent jurisdiction to be invalid, the remaining provisions of this part and the application thereof to persons or circumstances, other than those to which it is held to be invalid, shall not be affected thereby, it being the intention of the general assembly to enact the remaining provisions of this part, notwithstanding such invalidity.
If any provision of § 48-101-301(8) or § 48-101-301(15)(D), as amended by Acts 1988, ch. 1014, or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of § 48-101-301(8) or § 48-101-301(15)(D), as amended by chapter 1014 of the Acts of 1988, which can be given effect without the invalid provision or application, and to that end § 48-101-301(8) or (15)(D), as amended by chapter 1014 of the Acts of 1988, are declared to be severable.

Acts 1969, ch. 333, §§ 16, 18; T.C.A., §§ 48-1916, 48-1918; Acts 1988, ch. 1014, § 3; T.C.A., § 48-3-318.

NOTES TO DECISIONS

1. Constitutionality.

Property and revenue bonds of county health and educational facilities board could constitutionally be exempt from taxation as being for a public purpose even though one of the projects financed was commenced prior to the passage of this part. Ft. Sanders Presbyterian Hospital v. Health & Educational Facilities Board, 224 Tenn. 240, 453 S.W.2d 771, 1970 Tenn. LEXIS 383 (1970).

Part 4
[Reserved]

Part 5
Solicitation of Charitable Funds

48-101-501. Part definitions.

As used in this part, unless the context otherwise requires:

“Charitable organization” means a group which is or holds itself out to be a benevolent, educational, voluntary health, philanthropic, humane, patriotic, religious or eleemosynary organization, or for the benefit of law enforcement personnel, firefighters, or other persons who protect the public safety, or any person who solicits or obtains contributions solicited from the public for charitable purposes. A chapter, branch, area, office or similar affiliate or any person soliciting contributions within the state for a charitable organization which has its principal place of business outside the state shall be a charitable organization for the purposes of this part. “Charitable organization” does not include any authorized individual who solicits, by authority of the organization, solely on behalf of a registered or exempt organization, or on behalf of an organization excluded from the definition of charitable organization;
“Commercial co-venturer” means any person who:
1. Is organized for profit;
2. Is regularly and primarily engaged in trade or commerce, other than in connection with soliciting for charitable or civic organizations or charitable purposes; and
3. Conducts an advertised charitable sales promotion for a specified limited period of time;
“Contributions” means the promise or grant of any money or property of any kind or value, including the payment or promise to pay in consideration of a sale, performance or show of any kind which is advertised or offered in conjunction with the name of any charity. “Contribution” does not include bona fide fees, dues or assessments paid by members; provided, that membership is not conferred solely as consideration for making a contribution in response to a solicitation;
“Disaster” means any natural, technological, or civil emergency that causes damage of sufficient severity and magnitude to result in a declaration of a state of emergency by a county, the governor, or the president of the United States;
“Federated fund raising organization” means a federation of independent charitable organizations which have voluntarily joined together, including, but not limited to, a united fund or community chest, for purposes of raising and distributing money for and among themselves, and where membership does not confer operating authority and control of the individual agencies upon the federated group organization;
“Knowingly” or “knowing” means actual awareness of the falsity or deception, but actual awareness may be inferred when objective manifestations indicate that a reasonable person would have known or would have reason to know of the falsity or deception;
“Person” means any individual, organization, trust, foundation, group, association, partnership, corporation, society or any combination of them;
“Professional solicitor” means any person who, for a financial or other consideration, solicits contributions for, or on behalf of, a charitable organization, whether such solicitation is performed personally or through such person's agents, servants or employees or through agents, servants or employees specially employed by or for a charitable organization, who are engaged in the solicitation of contributions under the direction of such person, or a person who plans, conducts, manages, carries on or advises a charitable organization in connection with the solicitation of contributions. Any independent marketing agent or entity to whom a professional solicitor assigns fund raising or solicitation responsibilities shall be deemed to be a professional solicitor for purposes of this part. A salaried officer or permanent employee of a charitable organization is not deemed to be a professional solicitor. However, any salaried officer or employee of a charitable organization that engages in the solicitation of contributions for compensation in any manner for more than one (1) charitable organization is deemed a professional solicitor. A professional solicitor does not include an attorney, investment counselor, or banker who in the conduct of such person's profession advises a client;
“Secretary of state” means the secretary of state or the secretary of state's authorized representative;
“Solicit” or “solicitation” means any oral or written request, however communicated, whether directly or indirectly, for a contribution; and
“Solicitee” or “donor” means any person from whom a charitable contribution or donation is solicited, directly or indirectly, by whatever means by any professional solicitor, a charitable organization or other person, whether any contribution is received in response to the solicitation.

Acts 1976, ch. 735, § 1; T.C.A., § 48-2201; Acts 1989, ch. 285, §§ 1, 2; 1990, ch. 901, § 1; 1991, ch. 299, §§ 1, 2; 1993, ch. 252, § 12; 1994, ch. 667, §§ 1-5; T.C.A., § 48-3-501; Acts 1995, ch. 158, § 2; 1996, ch. 907, §§ 1-3; 2007, ch. 523, §§ 1-5; 2011, ch. 232, § 1; 2017, ch. 146, § 1.

Cross-References. Nonprofit corporations, title 48, chs. 51-68.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Charities, § 3, 20.

Attorney General Opinions. Trusts and life insurance agents involved in a LILAC transaction, a trust arrangement formed to pay the proceeds of life annuity contracts and life insurance policies to investors and charities, are not required to register under the Solicitation of Charitable Funds Act, OAG 04-168, 2004 Tenn. AG LEXIS 180 (11/23/04).

“Charitable purposes” and “noncharitable purposes” are not defined in the Charitable Solicitations Act. However, given the context in which those terms are used, “charitable purposes” would include activities in substantial furtherance of the benevolent, educational, voluntary health, philanthropic, humane, patriotic, religious, and eleemosynary work of a charitable organization. Whether lobbying at any governmental level or in any particular “amount” constitutes a “charitable purpose” or a “noncharitable purpose” within the meaning of the Act will depend on the particular facts and circumstances involved in any given instance. An “action organization” may or may not be a charitable organization, depending on the particular facts and circumstances in any given instance. Attempting to influence legislation and advocating or campaigning for objectives that may only be attained via the legislative process may or may not constitute a charitable purpose depending on the particular facts and circumstances involved in any given instance. Participating or intervening in any political campaign in support of or in opposition to any candidate for public office does not constitute a charitable purpose. OAG 16-41, 2016 Tenn. AG LEXIS 41 (12/6/2016).

NOTES TO DECISIONS

1. Constitutionality.

The exemption of employees and volunteers of charitable organizations from the definition of a professional solicitor does not create a classification violative of the freedom of speech or equal protection provisions of the federal or state constitutions. State v. Smoky Mt. Secrets, 937 S.W.2d 905, 1996 Tenn. LEXIS 695 (Tenn. 1996).

48-101-502. Exemptions.

The registration requirements of this part do not apply to:
1. Bona fide religious institutions, educational institutions, or cooperative scholarship corporations regulated by title 49, chapter 4, part 1;
2. A charitable organization that does not raise or receive gross contributions (total solicited revenue before any solicitation expenses have been deducted) from the public in excess of fifty thousand dollars ($50,000) during a fiscal year; provided, that if the contributions raised from the public by any charitable organization during any fiscal year exceed fifty thousand dollars ($50,000), the charitable organization, within thirty (30) days after the date it receives total contributions exceeding fifty thousand dollars ($50,000), shall register with, and report to, the secretary of state as required by this part;
3. Volunteer fire departments, rescue squads or local civil defense organizations;
4. Community fairs, county fairs, district fairs and division fairs, as defined in § 43-21-104, that have been qualified by the commissioner of agriculture to receive state aid grants, pursuant to title 43, chapter 21, part 1;
5. Political parties, candidates for federal or state office, and political action committees required to file financial information with federal or state election commissions;
6. Hospitals and nursing homes that are subject to regulation by the Tennessee department of health; and
7. Any corporation established by an act of congress of the United States that is required by federal law to submit annual reports of its activities to congress containing itemized accounts of all receipts and expenditures after being fully audited by the department of defense.
“Educational institution”, for the purposes of this section, means an organization organized and operated exclusively for educational purposes and which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on, and which is accredited by a recognized accrediting agency or has been approved to operate by a local board of education, the achievement school district, or the state board of education. Included in such definition are organizations composed of parents of students and other persons connected with the institution, which are organized and operated for the purpose of conducting activities in support of the operations or extracurricular activities of such institutions. “Educational institution” also includes private foundations soliciting contributions exclusively for such organizations.
“Bona fide religious institutions,” for the purpose of this part, includes:
1. Ecclesiastical or denominational organizations, churches or established physical places for worship in this state, at which nonprofit religious services and activities are regularly conducted and carried on, and also includes those bona fide religious groups which do not maintain specific places of worship and which are not subject to federal income tax and are not required to file an IRS Form 990 under any circumstance; and
2. Such separate groups or corporations which form an integral part of those institutions which are exempt from federal income tax as exempt organizations under § 501(c)(3), of the Internal Revenue Code of 1954 (26 U.S.C. § 501(c)(3)), or of a corresponding section of any subsequently enacted federal revenue act, and which are not required to file an IRS Form 990 under any circumstance, and which are not primarily supported by funds solicited outside their own membership or congregation; and
3. Such institutions soliciting contributions for the construction and maintenance of a house of worship or residence of a clergy member.
1. Any charitable organization that claims to be exempt from the registration provisions pursuant to subdivision (a)(2) and that intends to or does solicit charitable contributions shall submit, to the secretary of state, a statement of the name, address and purpose of the organization and a statement setting forth the reason for the claim for exemption. This statement shall be on a form prescribed by the secretary of state and shall be sworn to or affirmed by the principal officer of the charitable organization. No registration fee shall be required of any exempt charitable organization.
2. Each organization claiming to be exempt pursuant to subdivision (a)(2) shall file annually the form required by this part with the secretary of state within six (6) months of the close of its fiscal year.
Exemption from the registration requirements of this part shall not limit the applicability of other provisions of this part to a charitable organization.

Acts 1976, ch. 735, § 2; 1983, ch. 363, § 1; 1984, ch. 827, § 1; T.C.A., § 48-2202; Acts 1991, ch. 110, § 1; 1994, ch. 667, §§ 6-11; T.C.A., § 48-3-502; Acts 1996, ch. 907, §§ 4, 5; 2005, ch. 457, § 1; 2007, ch. 523, §§ 6-10; 2009, ch. 253, § 1; 2011, ch. 232, §§ 2, 3; 2014, ch. 630, § 1; 2016, ch. 928, § 1; 2019, ch. 132, § 1.

Amendments. The 2019 amendment, in (a)(2), substituted “fifty thousand dollars ($50,000)” for “thirty thousand dollars ($30,000)” throughout, substituted “A charitable organization that does not raise” for “A charitable organization which does not intend to solicit and receive and does not actually raise” at the beginning, substituted “exceed” for “shall be in excess of”, deleted “shall” preceding “, within thirty (30) days”, substituted “receives” for “shall have received” and substituted “shall register with” for “register with” near the end.

Effective Dates. Acts 2019, ch. 132, § 2. July 1, 2019.

Law Reviews.

Selected Tennessee Legislation of 1983 (N. L. Resener, J. A. Whitson, K. J. Miller), 50 Tenn. L. Rev. 785 (1983).

Attorney General Opinions. Scope of exemption for “bona fide religious institutions,” OAG 97-003, 1997 Tenn. AG LEXIS 7 (1/14/97).

Habitat for Humanity, International is not a bona fide religious institution within the meaning of T.C.A. § 48-101-502(c)(1), OAG 01-018, 2001 Tenn. AG LEXIS 18 (2/6/01).

48-101-503. Secretary of state's duties.

The secretary of state may review registrations and enforce registration requirements for charitable organizations and professional solicitors.
The secretary of state shall prescribe a uniform system of accounting to determine “fund-raising costs” and “gross contributions” and may adopt rules and regulations to carry out the provisions of this part. Rules and regulations shall be adopted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5. The secretary of state is authorized to promulgate rules and regulations as the secretary of state may deem necessary to effectuate the purposes of Acts 1989, ch. 285. All such rules and regulations shall be promulgated in accordance with the Uniform Administrative Procedures Act.
The secretary of state shall make such individual investigations of all applicants for registration and of any violations of this part as the secretary of state may deem necessary and impose authorized and appropriate sanctions.

Acts 1976, ch. 735, § 3; T.C.A., § 48-2203; Acts 1989, ch. 285, §§ 3-5; T.C.A., § 48-3-503; Acts 2007, ch. 523, § 11; 2017, ch. 146, § 2.

48-101-504. Filing of registration statement — Initial registration — Fee.

1. Every charitable organization that intends to solicit contributions from or within this state, or have funds solicited on its behalf, shall, prior to any solicitation, file a registration statement with the secretary of state, upon forms prescribed by the secretary of state. The secretary of state may prescribe and furnish forms and filing methods for all filings required by this part. Any registration statement that contains false, misleading, deceptive, or incomplete information or documentation is not considered sufficient, except as specifically otherwise provided in this part.
2. The initial registration statement shall contain the following information:
  1. The name of the organization and the purpose for which it was organized;
  2. The principal address of the organization and the address of any offices in this state. If the organization does not maintain an office, the name and address of the person having custody of its financial records;
  3. The names and addresses of any chapters, branches or affiliates in this state;
  4. The place where, and the date when, the organization was legally established, the form of its organization, and a reference to any determination of its tax exempt status under the Internal Revenue Code (26 U.S.C.);
  5. The names and addresses of the officers, directors, trustees and the principal salaried executive staff officer;
  6. A statement as to whether the organization intends to solicit contributions from the public directly or have such done on its behalf by others and submit a true copy of any contract or agreement with any professional solicitor or any other person who is directly or indirectly involved with the solicitation of contributions;
  7. A statement as to whether the organization is authorized by any other governmental authority to solicit contributions and whether it is or has ever been enjoined by any court from soliciting contributions;
  8. The general purpose or purposes for which the contributions to be solicited shall be used;
  9. The name or names under which it intends to solicit contributions;
  10. The names of the individuals or officers of the organization who will have final responsibility for the custody of the contributions;
  11. The names of the individuals or officers of the organization responsible for the final distribution of the contributions; and
  12. A statement as to whether any officer, director, manager, operator, or principal of the charitable organization has been the subject of an injunction, judgment, or administrative order or has been convicted of a felony.
Except as otherwise herein provided, the registration forms and any other documents prescribed by the secretary of state shall be signed by two (2) authorized officers of the charitable organization, and such forms and documents shall be accompanied by an initial registration fee of fifty dollars ($50.00); provided, that bona fide Indian organizations whose principal purpose is to assist and promote the welfare of Indians shall be exempt from the registration fee. For the purposes of this subsection (b), a bona fide Indian organization shall be one that has been in existence for more than twenty (20) years and that carries out programs and provides services to federally recognized Indians.
During its first year of operation, a newly registered charitable organization shall provide quarterly financial reports, due within thirty (30) days after the end of each quarter of its current fiscal year, containing the following information:
1. The gross amount of contributions received;
2. The amount of contributions disbursed or to be disbursed to each charitable organization or charitable purpose represented;
3. The aggregate amounts paid to any professional solicitor; and
4. The amounts spent for overhead, expenses, commissions and similar purposes.
Every charitable organization required to register pursuant to this part, having completed a fiscal year of operation, shall file with the secretary of state a financial report for its most recently completed fiscal year, in accordance with § 48-101-506(b)(1) and (2).
Any organization which has applied for but not received a determination of tax exempt status shall file a copy of the completed application which has been submitted to the internal revenue service, and any letters received from the internal revenue service acknowledging receipt of the application.
Any senior citizen center that obtains funding for the operation of its programs with funds provided through a contract with the state of Tennessee or through the federal government, as provided by the Older Americans Act of 1965 (42 U.S.C. § 3001 et seq.), or other contracts primarily designed for the benefit of aged persons, is exempt from the annual registration fee of this section, if the center attaches a complete copy of the contract to the registration form, and the secretary of state certifies the contract is valid. For the purposes of this subsection (f), “senior citizen center” means a charitable organization represented and held out to the general public as a facility which contracts for meals, education, physical fitness, social contact and comfort to be provided to aged persons for the general welfare of the local community.

Acts 1976, ch. 735, § 4; T.C.A., § 48-2204; Acts 1989, ch. 285, §§ 6-8; 1991, ch. 299, § 3; 1993, ch. 252, § 1; 1994, ch. 667, §§ 12-16; T.C.A., § 48-3-504; Acts 1996, ch. 575, § 1; 1996, ch. 907, § 6; 2007, ch. 474, § 1; 2007, ch. 523, § 12; 2017, ch. 146, §§ 3, 4; 2020, ch. 719, §§ 12, 13.

Compiler's Notes. Section 48-101-506(b)(3), referred to in this section, was repealed by Acts 2007, ch. 523, § 15, effective July 1, 2007.

Amendments. The 2020 amendment in (a)(1), substituted “that intends” for “which intends” near the beginning, added the second sentence, and, in the third sentence, substituted “that contains” for “which contains” and substituted “is not considered” for “shall not be considered” near the middle; and deleted “or (b)(3)” following “§ 48-101-506(b)(1) and (2)” in (d).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-101-505. Affiliates of parent organization — Filing registration statement — Fee.

Each chapter, branch or affiliate of a parent organization or independent member agency of a federated fund-raising organization, may separately report the information required by § 48-101-504, or report the information to its parent organization or to the federated fund-raising organization with which it is affiliated, which shall then transmit such information as to its affiliates, branches, chapters or independent agency members to the secretary of state along with its own statement.
A parent organization filing the registration statements of one (1) or more of its chapters, branches, or affiliates along with its own statement, and a federated fund-raising organization filing the statements of one (1) or more of its independent member agencies along with its own statement, shall pay a single registration fee in accordance with the schedule as provided in § 48-101-504(b) for itself and for such chapters, branches, affiliates or independent member agencies whose statements are filed by it at the same time as its own statement. However, when an independent member agency of a federated fund-raising organization solicits or receives contributions from any source other than the federated fund-raising organization or a governmental agency, such independent member agency shall be required to register independently and pay its own filing fee, unless otherwise exempt by this part. When a chapter, branch, or affiliate of a parent organization solicits or receives contributions from any source other than the parent organization or a governmental agency, such chapter, branch, or affiliate shall register independently and pay its own filing fee, unless otherwise exempt by this part.

Acts 1976, ch. 735, § 5; T.C.A., § 48-2205; Acts 1989, ch. 285, § 9; 1993, ch. 252, § 13; T.C.A., § 48-3-505.

48-101-506. Issuance of registration — Renewal — Withdrawal of registration.

The secretary of state shall examine each application for conformity with the requirements of this part and all relevant rules and regulations.
A renewal of registration shall be made in the same manner as the initial registration. The renewal registration shall be accompanied by the following:
1. 1. A copy of a financial statement on forms approved by the secretary of state. Such report shall also specifically identify the amount of funds raised and all costs and expenses incidental thereto, all publicity costs, and costs of allocation or disbursement of funds raised. This report shall be signed by at least two (2) authorized officers of the organization, one of whom shall be the chief fiscal officer. Such officers shall certify that such report is true and correct to the best of their knowledge; and
  2. The secretary of state may require, by regulation, a copy of any and all forms required to be filed by the organization with the United States internal revenue service, and any other information the secretary deems appropriate to substantiate how funds were raised and spent by the organization;
2. 1. The annual report of every charitable organization which received in excess of five hundred thousand dollars ($500,000) in gross revenue during the most recently completed fiscal year shall be accompanied by:
    1. An audited financial statement, presented in accordance with generally accepted accounting principles which has been examined by an independent certified public accountant for the purpose of expressing an opinion thereon; and
    2. Any and all forms required to be filed by a charitable organization with the United States internal revenue service;
  2. For the purpose of determining gross revenue for this subdivision (b)(2) only, grants received from government agencies and private foundations, designated by the internal revenue service as § 501(c)(3) organizations (26 U.S.C. § 501(c)(3)), shall be excluded.
1. The registration renewal statement shall be signed by two (2) authorized officers of the charitable organization, one (1) of whom shall be the chief fiscal officer, and such forms and documents shall be accompanied by a registration renewal fee in accordance with the following schedule:
  Organization's Gross Revenue Annual Filing Fee $0--$50,000.00 $ 80.00 $50,000.01--$99,999.99 $ 120.00 $100,000.00--$249,999.99 $ 160.00 $250,000.00--$499,999.99 $ 200.00 $500,000.00--ABOVE $ 240.00
  
  Click to view table.
2. For purposes of this subsection (c), “organization's gross revenue” means the latest figures for annual gross revenue from whatever source reported by the organization to the secretary of state pursuant to subsection (b).
Each charitable organization shall file all information required by this part with the secretary of state within six (6) months of the close of its fiscal year. The last day of the sixth month following the month in which the fiscal year of the organization ends shall be the anniversary date of the organization. All registrations shall expire each year on the anniversary date of the organization. Each annual registration application shall be received by the secretary of state on or before the anniversary date. Each charitable organization shall be required to supplement its registration application during the registration period as changes occur which affect the documentation required by § 48-101-504(a).
The secretary of state may extend the time for filing a renewal application for a period not to exceed ninety (90) days, during which time the previous registration remains in effect. If an organization has been permitted additional time to file an exempt organization return with the internal revenue service, upon submission of proof of such extension, the secretary may extend the time for filing a renewal application for an additional period not to exceed sixty (60) days, during which time the previous registration remains in effect.
Applications received after the expiration of the current registration period shall be assessed a late fee of twenty-five dollars ($25.00) for each month, or portion thereof, that the report is late filed. The late filing fee shall accompany every late filed application. In addition to the late fee provided for herein, any organization which files a late application is also subject to the imposition of civil penalties for violation of any portion of this part.
Any person that intends to continue to solicit contributions after its anniversary date and fails to renew its registration by the time of the expiration thereof is in violation of this part.
Any person that ceases solicitation activities after registration must notify the secretary of state of such fact within thirty (30) days after solicitation activities end. Within ninety (90) days after the end of the solicitation activities or ninety (90) days after its fiscal year ends, that person shall file with the secretary financial documentation, pursuant to subsection (b).

Acts 1976, ch. 735, § 4; T.C.A., § 48-2204; Acts 1989, ch. 285, §§ 10, 11; 1993, ch. 252, § 14; 1994, ch. 667, §§ 17, 18; T.C.A., § 48-3-506; Acts 1996, ch. 907, § 7; 1997, ch. 227, §§ 1-3; 2001, ch. 97, § 1; 2007, ch. 523, §§ 13-16, 37; 2014, ch. 630, § 2; 2016, ch. 928, § 2; 2020, ch. 586, § 1.

Amendments. The 2020 amendment substituted “$50,000.00” for “$48,999.99” and “$50,000.01” for “$49,000.00” in (c)(1).

Effective Dates. Acts 2020, ch. 586, § 2. March 20, 2020.

Attorney General Opinions. Constitutionality, OAG 89-35, 1989 Tenn. AG LEXIS 17 (3/20/89).

48-101-507. Professional solicitor — Registration — Qualifications — Bond — Fee — Reports.

1. No person shall act as a professional solicitor for any charitable organization, whether exempt from this part or not, unless such person has first registered with the secretary of state. Registration shall include the filing of a complete application, bond and filing fee.
2. No person who has been convicted within the past five (5) years for a violation of any provision of this part, and no person convicted of a felony in this or any other state, shall serve as an employee, member, officer or agent of any professional solicitor until such person's civil rights have been restored. The professional solicitor shall maintain during each solicitation campaign and for three (3) years after its completion the name and address of each employee, agent, or other person involved in the solicitation campaign.
3. Application for registration shall be in writing in the form prescribed by the secretary of state and contain such information as the secretary of state may require. A registration application that contains false, misleading, deceptive or incomplete information or document shall not be considered sufficient or complete. All registrations for professional solicitors shall expire on December 31 of the year for which they are issued.
4. Applications received after December 31 shall be assessed a late fee of twenty-five dollars ($25.00) for each month, or portion thereof, that the report is late filed. The late filing fee shall accompany every late-filed application. In addition to the late fee provided for herein, any organization which files a late application is also subject to the imposition of civil penalties for violation of any portion of this section.
5. A bond in the sum of twenty-five thousand dollars ($25,000) shall be filed with the registration application and shall be approved by the secretary of state. The bond shall name the applicant as the principal obligor with one (1) or more sureties, satisfactory to the secretary of state, whose liability in the aggregate as such sureties will at least equal that sum. It shall be payable to the State of Tennessee for the use of the secretary of state and any person who may have a cause of action against the obligor of the bond for any violations under this part or for any losses resulting from malfeasance, nonfeasance or misfeasance in the conduct of solicitation activities. An individual, partnership or corporation, which is a professional solicitor, may file a consolidated bond on behalf of all its members, officers and employees. The bond shall continue in effect so long as a registration is in effect.
6. The annual registration fee for every person who is a professional solicitor shall be two hundred fifty dollars ($250).
1. A professional solicitor shall file a financial report for a solicitation campaign with the secretary of state within ninety (90) days after a solicitation campaign has been completed or within ninety (90) days after the end of the fiscal year end of any campaign which lasts for more than one (1) year. The financial report shall include gross revenue and an itemization of all expenditures from those funds. The report shall be completed on a form prescribed by the secretary of state and signed by an authorized official of the professional solicitor and two (2) authorized officials of the charitable organization, who shall certify that such report is true and complete to the best of their knowledge. The financial report shall be audited by an independent certified public accountant in accordance with generally accepted auditing standards or regulations which may be issued by the secretary of state. If the solicitation campaign which is conducted by a professional solicitor is one conducted nationally or regionally and is not confined only to this state, the financial information required to be filed pursuant to this subsection (b) shall be inclusive of the national or regional campaign. Each charitable organization shall make available to its professional solicitor any necessary fiscal or other records needed to enable the professional solicitor to comply with this subsection (b).
2. Financial reports for solicitation campaigns shall be assessed a late fee of twenty-five dollars ($25.00) for each month, or portion thereof, that the report is late filed. The late filing fee shall accompany every late-filed campaign report. In addition to the late fee provided for herein, any person who files a late financial report is also subject to the imposition of civil penalties for violation of any portion of this section.
3. A professional solicitor who, by contractual agreement with a charitable organization, does not receive donations on behalf of a charitable organization, does not have access to the funds raised and does not make deposits to and does not have signature authority with, or any other authority over, a charitable organization's bank accounts, shall not be required to file an audited financial statement as set forth in subdivision (b)(1). In lieu of the audited financial statement, the professional solicitor shall be required to file with the secretary of state, on a form approved by the secretary of state, a financial report which provides an itemization of expenses, costs, reimbursements and fees the charitable organization is charged for each solicitation campaign performed. The form shall be due within ninety (90) days after the completion of any campaign or within ninety (90) days after the end of the fiscal year of any campaign which lasts longer than one (1) year. The report shall be signed by an authorized official of the professional solicitor and two (2) authorized officials of the charitable organization, who shall certify under oath that such report is true and complete to the best of their knowledge.

Acts 1976, ch. 735, § 7; T.C.A., § 48-2207; Acts 1989, ch. 285, §§ 12-17; 1991, ch. 299, §§ 4-7; 1993, ch. 252, §§ 2, 3; 1994, ch. 667, §§ 19-24; T.C.A., § 48-3-507; Acts 1997, ch. 227, §§ 4-11; 2001, ch. 97, §§ 2-4; 2007, ch. 523, §§ 17-23, 38; 2014, ch. 630, §§ 3, 4; 2017, ch. 146, §§ 5, 6.

Cross-References. Restoration of citizenship, title 40, ch. 29.

NOTES TO DECISIONS

1. Constitutionality.

In order to establish that the fees and bond required by this section are consistent with guarantees of free expression and equal protection, the state must prove that the charges are no more than the amount necessary to pay administrative and enforcement costs, and that the bond provides protection to the public. State v. Smoky Mt. Secrets, 937 S.W.2d 905, 1996 Tenn. LEXIS 695 (Tenn. 1996).

48-101-508. Denial of exemption or registration — Hearing — Review.

The division shall examine each registration statement and supporting documents filed by all applicants and shall determine whether the registration requirements are satisfied. If the division determines that the registration requirements are not satisfied, the department shall notify the applicant within ten (10) working days of its receipt of its registration statement or the registration statement is deemed to be approved. Within seven (7) days after receipt of notification that the regulation requirements are not satisfied, the applicant may request a hearing. The hearing shall be held within seven (7) days of receipt of the request, and a determination shall be rendered within three (3) business days of the hearing.
Judicial review of final decisions shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1976, ch. 735, § 8; 1977, ch. 95, § 1; T.C.A., §§ 48-2208, 48-3-508; Acts 1996, ch. 907, § 8; 2007, ch. 523, § 24.

48-101-509. Fiscal records — Charitable campaign records — Inspection.

Every charitable organization and professional solicitor, subject to this part, shall, as to their activities in Tennessee as may be covered by this part and in accordance with the rules and regulations prescribed by the secretary of state, keep:
1. True and accurate fiscal records, including, but not limited to, all income and expenses; and
2. True records regarding the conduct of any solicitation campaigns, including records of any documents, information, notices or applications required to be prepared or filed pursuant to § 48-101-513. Unless otherwise provided, such records shall be retained for a period of at least three (3) years after the end of the period of registration to which they relate.
Upon request and at a reasonable time and place within Tennessee, such records, as well as any other records regarding solicitation campaigns within this state, shall be made available to the secretary of state, the attorney general and reporter or an appropriate district attorney general for inspection.

Acts 1976, ch. 735, § 9; T.C.A., § 48-2209; Acts 1989, ch. 285, §§ 18, 19; 1991, ch. 299, § 8; 1993, ch. 252, § 4; T.C.A., § 48-3-509.

48-101-510. Reciprocity.

The secretary of state may enter into reciprocal agreements with the appropriate authority of any other state for the purpose of exchanging information with respect to charitable organizations. Pursuant to such agreements, the secretary of state may accept information filed by a charitable organization with the appropriate authority of another state, in lieu of the information required to be filed in accordance with this part, if such information is substantially similar to the information required under this part.
The secretary of state shall also grant an exemption from the requirement for the filing of the annual registration statement to charitable organizations organized under the laws of another state, having their principal place of business outside the state, whose funds are derived principally from sources outside the state, and which have been granted exemption from the filing of registration statements by the state under whose laws they are organized, if such state has a statute similar in substance to this part.

Acts 1976, ch. 735, § 10; T.C.A., §§ 48-2210, 48-3-510.

Attorney General Opinions. The Georgia solicitations statute is similar in substance to the Tennessee solicitations statute so that the Georgia solicitations statute can be used as a basis for making a determination that Habitat for Humanity, International is exempt from registration under the reciprocity provisions of the Solicitations of Charitable Funds Act, OAG 01-018, 2001 Tenn. AG LEXIS 18 (2/6/01).

48-101-511. Documents and records as public records — Inspection.

Registration statements and applications, reports, and all other documents and information required to be filed under this part or by the secretary of state shall be public records in the office of the secretary of state and shall be open to the general public for inspection at such time and under such conditions as the secretary of state may prescribe. The secretary of state, in the secretary of state's discretion, may compile, summarize, publish or otherwise release to the public any information contained in applications and any other documents filed with or received by the secretary of state under this part.

Acts 1976, ch. 735, § 11; T.C.A., § 48-2211; Acts 1989, ch. 285, § 20; T.C.A., § 48-3-511.

48-101-512. Identification of solicitor.

It is the duty of every charitable organization to furnish identification to persons who solicit contributions from the public on behalf of the charitable organization, including, but not limited to, those persons soliciting on behalf of an exempt organization or nonexempt organization and all professional solicitors. The solicitor shall be required to have and produce or display, on demand, identification indicating that the solicitor has been duly authorized by the organization for which the solicitor is soliciting. Such identification shall include, but not be limited to, the name of the holder of the identification and the name and the registration number of the charitable organization.

Acts 1976, ch. 735, § 12; T.C.A., § 48-2212; Acts 1989, ch. 285, §§ 21, 22; T.C.A., § 48-3-512.

48-101-513. Violations — Required notices, disclosures, records.

No charitable organization subject to this part shall solicit funds from the public, except for charitable purposes, or expend funds raised for charitable purposes for noncharitable purposes.
Unfair, false, misleading or deceptive acts and practices affecting the conduct of solicitations for contributions are declared unlawful. No person shall use or intend to use false or materially misleading advertising or promotional material in connection with any solicitation for a charitable organization or a charitable purpose. It is the intent of the general assembly that the courts in interpreting this provision should look to the judicial interpretations given the Tennessee Consumer Protection Act, compiled in title 47, chapter 18, part 1, and § 5(A)(1) of the Federal Trade Commission Act (15 U.S.C. § 45(a)(1)), for guidance.
No charitable organization subject to this part shall use or exploit the fact of registration so as to lead the public to believe that such registration in any manner constitutes an endorsement or approval by the state, but the use of the following statement shall not be deemed a prohibited exploitation: “Registered with the Tennessee Secretary of State as required by law. Registration No. .”
No person shall, in connection with the solicitation of contributions for or the sale of goods or services of, a person other than a charitable organization, misrepresent to or mislead anyone by any manner, means, practice or device whatsoever, to believe that the person on whose behalf such solicitation or sale is being conducted is a charitable organization, or that the proceeds of such solicitation or sale will be used for charitable purposes, if such is not the fact.
No person shall, in connection with the solicitation of contributions or the sale of goods or services for charitable purposes, represent to or lead anyone by any manner, means, practice or device whatsoever, to believe that any other person sponsors or endorses such solicitation of contributions, sale of goods or services for charitable purposes or approves of such charitable purposes, or a charitable organization connected therewith, when such person has not given written consent to the use of such person's name for these purposes; any member of the board of directors or trustees of a charitable organization or any other person who has agreed either to serve or to participate in any voluntary capacity in the campaign shall be deemed thereby to have given such member's consent to the use of such member's name in the campaign.
No person shall make any representation that such person is soliciting contributions for or on behalf of a charitable organization or shall use or display any emblem, device or printed matter belonging to or associated with a charitable organization for the purpose of soliciting or inducing contributions from the public without first being authorized to do so by the charitable organization.
No professional solicitor shall solicit, in any manner whatsoever, in the name of a charitable organization, whether exempt from this part or not, unless:
1. Prior to the commencement of each solicitation campaign, a completed solicitation campaign notice has been filed by a professional solicitor with the secretary of state on forms prescribed by the secretary of state. Such notice shall include, but not be limited to, a description of the solicitation event or campaign, the location and the telephone number from which the solicitation is to be conducted, and the names and residence addresses of each employee or other person who is working in connection with such campaign. An authorized official of the charitable organization on whose behalf the professional solicitor is acting, as well as an authorized official of the professional solicitor, shall certify that the solicitation campaign notice is true and complete. Within seventy-two (72) hours after any modifications or changes in the information or documentation required herein, the secretary of state shall be notified in writing of such changes;
2. 1. Prior to beginning any solicitation, such professional solicitor has filed with the secretary of state a true copy of any written agreement or contract which may have been entered into between a charitable organization and the professional solicitor, which shall state the minimum amount or percentage, if any, which a charitable organization shall receive of revenues solicited, after solicitation expenses, as a result of a solicitation campaign;
  2. If any agreement or contract between a professional solicitor and a charitable organization is oral, a written summary of the agreement or contract which sets forth the terms, conditions, fees, percentage splits and costs of the oral agreement or contract must be submitted to the secretary of state prior to beginning any solicitation or sales promotion campaigns;
  3. Within seven (7) days of any change, modification or termination of any agreement or contract that a professional solicitor has entered into with a charitable organization, a notice of such change, modification or termination must be filed with the secretary of state, along with a true copy of the new agreement which includes the changes and modifications in the terms, conditions, fees, percentage splits and costs.
1. A paid solicitor shall be responsible for complying with, or for causing compliance with, each of the following requirements:
  1. Prior to orally requesting a contribution, or contemporaneously with a written request for a contribution, it shall be clearly and conspicuously disclosed at the point of solicitation the name of the paid solicitor as on file with the division and that the solicitation is being conducted by a paid solicitor;
  2. In the case of a solicitation campaign conducted orally, whether by telephone or otherwise, a written confirmation shall be sent to each person who has contributed or pledged to contribute, within five (5) days after that person has been solicited, which shall include a clear and conspicuous disclosure of the information required by subdivision (h)(1)(A); and
  3. It shall not be represented that tickets to events will be donated for use by another, unless the following requirements have been met:
The paid solicitor has commitments in writing from charitable organizations stating that they will accept donated tickets and specifying the number of tickets they are willing to accept; and
1. No person or organization, subject to this part, who fails to file any registration application, statement, report, or other information required to be filed with the secretary of state under this part as a prerequisite to registration shall engage in any of the activities permitted duly registered persons or organizations under this part. No person or organization shall engage in charitable solicitation without a current registration; and
2. No professional solicitor shall engage in solicitations on behalf of a nonexempt charitable organization, if such professional solicitor has knowledge that such nonexempt organization has failed to file a registration application with the secretary of state.
A professional solicitor, such professional solicitor's agent, servant or employee shall disclose upon request by the solicitee the percentage of gross contributions raised by the professional solicitor which shall be received by the charitable organization after solicitation expenses, if known, or otherwise disclose the guaranteed minimum contract amount, which the charitable organization shall receive as a result of the solicitation campaign.
1. Any charitable organization that places or maintains a collection receptacle in public view for the purpose of collecting donated clothing, household items, or similar goods shall clearly and conspicuously display on two (2) sides, including the front, of each collection receptacle a permanent sign or label with the charitable organization's name, address, phone number, electronic mail address, and a statement expressing the charitable purpose for which the charitable organization exists.
2. Any person who is not a charitable organization and who places or maintains a collection receptacle in public view for the purpose of collecting donated clothing, household items, or similar goods, for resale for the purpose of retaining the proceeds of the sale of the items, shall clearly and conspicuously display on two (2) sides, including the front, of each collection receptacle a permanent sign or label with the person's name, address, phone number, electronic mail address, and the following statement:
  THIS IS NOT A CHARITY. DONATIONS MADE HERE WILL BE SOLD BY A FOR-PROFIT BUSINESS AND ARE NOT TAX-DEDUCTIBLE.
3. 1. Any person who is not a charitable organization and who places or maintains a collection receptacle in public view for the purpose of collecting donated clothing, household items, or similar goods, for resale for the purpose of paying over all or a portion of the proceeds from the sales to a charitable organization, shall display on two (2) sides, including the front, of each collection receptacle a permanent sign or label with the following statement:
    DONATIONS MADE HERE WILL BE SOLD BY A FOR-PROFIT BUSINESS, AND A PORTION OF THE PROCEEDS WILL BE PAID TO [NAME OF CHARITABLE ORGANIZATION]. FURTHER INFORMATION ABOUT THESE PAYMENTS CAN BE OBTAINED FROM [NAME OF PERSON OPERATING COLLECTION RECEPTACLE] AT [PHONE NUMBER AND ELECTRONIC MAIL ADDRESS] AND FROM [NAME OF CHARITABLE ORGANIZATION] AT [PHONE NUMBER AND ELECTRONIC MAIL ADDRESS].
  2. The provisions of § 48-101-507 regarding professional solicitors shall apply to any person who places or maintains a collection receptacle pursuant to this subdivision (l )(3).
  3. Any person who places or maintains a collection receptacle pursuant to this subdivision (l )(3) is not required to comply with the recordkeeping requirements of subdivision (h)(2).
4. The sign or labels required by this subsection (l ) shall be placed on two (2) sides of the collection receptacle, including the front, with the required information printed in letters that are at least two inches (2”) in height or as large as the largest letter on the box, whichever is greater, and in a color that contrasts with the color of the collection receptacle so that the sign or label is clearly visible.
5. 1. Prior to placing any collection receptacle that is subject to this subsection (l ), the person placing the collection receptacle shall obtain notarized written permission to place and operate the collection receptacle from the owner or all leaseholders of the property where the collection receptacle is to be located. Copies of the notarized written permission shall be maintained by the person placing the collection receptacle and provided to the owner or any leaseholder of the property at any time upon request. If the notarized written permission to place and operate the collection receptacle is obtained from the property owner, the person placing the collection receptacle shall notify all leaseholders, tenants, or other occupants of the property owner's consent to the placement of the collection receptacle on the property.
  2. The notarized written permission required by this subdivision (l )(5) shall include the signature of the person placing the collection receptacle, or that person's authorized agent, and of the owner or all leaseholders of the property who have the authority to permit or allow structures, such as collection receptacles, to be placed on the property.
6. The person placing the collection receptacle shall maintain the collection receptacle in a structurally sound, clean, and sanitary condition, and regularly empty the collection receptacle at least every two (2) weeks. The person placing the collection receptacle shall also be responsible for ensuring that no donations are present on the ground area surrounding the collection receptacle for a time period exceeding twenty-four (24) hours.
7. 1. The owner or any one (1) leaseholder of the property may request removal of a collection receptacle by submitting a written request and sending it to the address listed on the collection receptacle pursuant to subdivision (l )(1), (l )(2), or (l )(3), as applicable. The owner or leaseholder of the property shall also send a copy of the written request to the office of the secretary of state.
  2. The person placing the collection receptacle shall remove the collection receptacle as well as any contents left in and around the collection receptacle within thirty (30) days of receiving written notification of removal from the owner or any one (1) leaseholder of the property.
  3. If the person placing the collection receptacle fails to remove the collection receptacle following the expiration of the thirty-day period, the owner or any one (1) leaseholder of the property shall have the right, without providing any additional notice to the person who placed the collection receptacle on the property, to take possession of, remove, and dispose of the collection receptacle and the contents thereof without incurring any civil or criminal liability for such actions. Any charges incurred in the removal and disposal of the collection receptacle by the owner or leaseholder of the property shall be invoiced to, and paid by, the person who placed the collection receptacle on the property.
  4. Notwithstanding subdivisions (l )(7)(A)-(C), the owner or any one (1) leaseholder of the property may request immediate removal of a collection receptacle if the person who placed the collection receptacle on the property never received notarized written permission pursuant to subdivision (l )(5).
8. 1. Any violation of subdivisions (l )(1)-(5) constitutes a solicitation of contributions by unfair, false, misleading, or deceptive means or manner, and may be investigated under § 48-101-514.
  2. The secretary of state may impose a civil penalty of not more than five thousand dollars ($5,000) for any violation of this subsection (l ).
  3. Any person who is sanctioned by the secretary of state for a violation of this subsection (l ) may seek review of the secretary of state's decision by requesting a contested case hearing, which shall be conducted pursuant to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
  4. Civil penalties imposed under this subsection (l ) shall be enforced in the manner prescribed by § 48-101-514.
9. 1. Any owner or leaseholder of the property who suffers loss of money for removing or disposing of any collection receptacle or its contents following the expiration of the thirty-day period referred to in subdivision (l )(7)(B), or for any violation of subdivision (l )(6), may bring an action individually to recover actual damages.
  2. The action may be brought in a court of competent jurisdiction in the county where the collection receptacle was removed, in the county in which the person who placed the collection receptacle conducts, transacts, or has transacted business, or, if the person who placed the collection receptacle cannot be found in any of the foregoing locations, in the county in which the person who placed the collection receptacle can be found.

No more contributions for donated tickets shall be solicited than the number of ticket commitments received from charitable organizations.

The professional solicitor shall maintain a record of the names of donors, their addresses and the date that their donations were received for a three-year period after a solicitation campaign has been completed. No donor list, information or documentation, required to be maintained under this subsection (h), which is obtained by the secretary of state pursuant to this part, unless otherwise ordered by a court for good cause shown, shall be produced for inspection, copied by or its contents disclosed to any person other than an authorized representative of the secretary of state, the attorney general and reporter or the attorney general and reporter's representative, or other proper law enforcement officials for the purpose of enforcing this part or prosecuting other criminal or civil violations, without the consent of the person who produced the information or documentation. The secretary of state, the attorney general and reporter or the attorney general and reporter's representative or other proper law enforcement officials may use such information or documentation as determined necessary in the enforcement of this part or other criminal or civil laws, including the presentation as part of any administrative or judicial proceedings.

Prior to the commencement of each solicitation campaign, a professional solicitor shall file with the secretary of state copies, or samples, of each type of solicitation campaign literature or promotional materials utilized in the solicitation campaign, including, but not limited to, the text of any solicitation scripts or pitches made to the public orally, which is utilized in the campaign. Within seven (7) days after any modification or changes in campaign solicitation literature or promotional materials utilized by the professional solicitor, the secretary of state shall be notified in writing and be given samples or copies of such changes and modifications.

No person shall, in connection with the solicitation of contributions or the sale of goods, magazines, newspaper advertising, or any other service, use the name “POLICE,” “FIREFIGHTER,” or “FIREMEN,” unless properly authorized by a bona fide police or firefighter organization or police or fire department. Such authorization must bear the signatures of two (2) bona fide members of the organization or department.

Acts 1976, ch. 735, § 13; T.C.A., § 48-2213; Acts 1989, ch. 285, §§ 23-29; 1991, ch. 299, § 9; 1993, ch. 252, § 5; 1994, ch. 667, §§ 25-30; T.C.A., § 48-3-513; Acts 2007, ch. 523, §§ 25-33; 2015, ch. 221, § 1; 2017, ch. 146, §§ 7, 8.

Compiler's Note. Acts 2015, ch. 221, § 2 provided that the act, which added (m) [now (l )], shall apply to conduct occurring on or after July 1, 2015.

Attorney General Opinions. “Charitable purposes” and “noncharitable purposes” are not defined in the Charitable Solicitations Act. However, given the context in which those terms are used, “charitable purposes” would include activities in substantial furtherance of the benevolent, educational, voluntary health, philanthropic, humane, patriotic, religious, and eleemosynary work of a charitable organization. Whether lobbying at any governmental level or in any particular “amount” constitutes a “charitable purpose” or a “noncharitable purpose” within the meaning of the Act will depend on the particular facts and circumstances involved in any given instance. An “action organization” may or may not be a charitable organization, depending on the particular facts and circumstances in any given instance. Attempting to influence legislation and advocating or campaigning for objectives that may only be attained via the legislative process may or may not constitute a charitable purpose depending on the particular facts and circumstances involved in any given instance. Participating or intervening in any political campaign in support of or in opposition to any candidate for public office does not constitute a charitable purpose. OAG 16-41, 2016 Tenn. AG LEXIS 41 (12/6/2016).

NOTES TO DECISIONS

1. Constitutionality.

Prohibition of telephone solicitations by professional solicitors by former subsection (i) was in violation of U.S. Const., amends. 1 and 14, and Tenn. Const., art. I, §§ 8 and 19. WRG Enterprises, Inc. v. Crowell, 758 S.W.2d 214, 1988 Tenn. LEXIS 176 (Tenn. 1988).

A percentage based regulation upon the fees to be collected by professional solicitors is an unconstitutional invasion upon the rights of charities and fund raisers alike. Former subsection (k) fell within the ambit of that prohibition, and violated U.S. Const., amends. 1 and 14, and Tenn. Const., art. I, §§ 8 and 19. WRG Enterprises, Inc. v. Crowell, 758 S.W.2d 214, 1988 Tenn. LEXIS 176 (Tenn. 1988).

The requirement for the filing of solicitation notices, solicitation literature and the text of oral solicitations is not an impermissible burden on free speech and the provisions do not violate equal protection. State v. Smoky Mt. Secrets, 937 S.W.2d 905, 1996 Tenn. LEXIS 695 (Tenn. 1996).

The disclosure provisions of T.C.A. § 48-101-513 do not violate the freedom of speech provisions of the federal and state constitutions. State v. Smoky Mt. Secrets, 937 S.W.2d 905, 1996 Tenn. LEXIS 695 (Tenn. 1996).

48-101-514. Enforcement by secretary of state.

1. The secretary of state, upon the secretary of state's own motion or upon complaint of any person, if the secretary of state has reasonable ground to suspect any violation of this part or any rule thereunder or to aid in enforcement of this part, may publicly or privately investigate as the secretary of state deems necessary any charitable organization, professional solicitor or other person to determine whether such person or organization has filed any registration application or other information required under this part that contains false or misleading statements, has conducted any solicitation of contributions by any unfair, false, misleading or deceptive means or manner, or has otherwise violated any provision of this part. If the secretary of state finds that any application or other information contains false or misleading statements or that a registrant under this part has violated the provisions thereof, the secretary of state may find that such registrant's registration is improper or unlawful. Further, the secretary of state, or the secretary of state's authorized representative, may impose a civil penalty of not more than five thousand dollars ($5,000) for each and any violation of this part or a rule thereunder. Upon notice to the affected parties of an order by the secretary of state that registration is improper or unlawful and/or that sanctions should be imposed, including civil penalties, the affected party may seek review of that decision by requesting a contested case hearing, which shall be conducted pursuant to the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
2. Any civil penalty shall be enforced in the following manner:
  1. If a petition for review of the assessment of a penalty through a contested case hearing is not filed within thirty (30) days after the date the assessment is served, the affected party shall be deemed to have consented to the assessment and it shall become final;
  2. Whenever any assessment has become final, because of a person's failure to appeal the secretary of state's assessment or otherwise, the secretary of state, in the name of the state, may apply to the appropriate court for a judgment and seek execution on such judgment. The court, in such proceedings, shall treat the failure to appeal such assessment as a confession of judgment in the amount of the assessment; and
  3. The secretary of state may institute proceedings for assessment in the chancery court of Davidson County or in the chancery court of the county in which all or part of the violation or failure to comply occurred, or in the county in which such person resides, has such person's principal place of conducting solicitations, or has conducted or transacted business or solicitation campaigns.
1. In conducting a public or private investigation as set forth in this part, the secretary of state or the secretary of state's authorized representative may issue subpoenas and summon witnesses, administer oaths to such witnesses, take the depositions of witnesses, compel the production of documents, exhibits, records or things, and require testimony on any issue related to the investigation.
2. The secretary of state may visit, investigate or place investigative personnel in the office or places of operation of a charitable organization or professional solicitor.
3. In addition to the authority to inspect fiscal or other records set forth in § 48-101-509, the secretary of state, in conducting a public or private investigation, may compel by either a request for production of documents, exhibits or things or subpoena duces tecum the presentation or delivery of all books, records, documents or other tangible items, by any person, which the secretary of state believes to be pertinent to the conduct of such investigation.
4. Subpoenas under this part may be served by registered mail, return receipt requested, to the addressee's registered mailing address, or by such personnel as the secretary of state may designate, or shall be directed for service to the sheriff of the county where such witness resides is conducting a solicitation campaign or is found or where such person in custody of any books, records or papers resides or is found.
5. In case of a refusal to obey a subpoena issued to any person under this part, any circuit or chancery court of this state within the jurisdiction in which the person refusing to obey the subpoena resides or is found may issue to such person, upon application by the secretary of state, an order requiring such person to appear before the court to show cause why such person should not be held in contempt for refusal to obey the subpoena. Failure to obey a subpoena may be punished by the court as a contempt of court.
6. At any time prior to the return date specified in the secretary of state's subpoena or request for production of documents, exhibits, or things pursuant to this subsection (b), or within the ten (10) days following service of such subpoena or request, whichever is shorter, any person from whom information has been requested may petition the circuit or chancery court of Davidson County, stating good cause, for a protective order to extend the return date for a reasonable time, or to modify or set aside the subpoena or request for production. The secretary of state shall receive at least one (1) day's notice of such a petition and shall be given an opportunity to respond.
7. Any person who has received a subpoena or request for production pursuant to this part, and who, with intent to avoid, evade or prevent compliance, in whole or in part, removes from any place, conceals, withholds, destroys, mutilates, falsifies or by any other means alters any documentary material in the possession, custody or control of any person subject to such notice, is subject to a civil penalty of not more than two thousand five hundred dollars ($2,500) recoverable by the state in addition to any other appropriate sanction.
1. Whenever it appears to the secretary of state that any person has engaged or is about to engage in any act or practice constituting a violation of any provision of this part or any rule or order hereunder, and that proceeding would be in the public interest, the secretary of state may in the secretary of state's discretion bring an action, in the name of the state, through the attorney general and reporter in the circuit or chancery court of any county of this state, to:
  1. Enjoin the acts, practices or violations of this part;
  2. Impose civil penalties;
  3. Appropriately remedy damages caused directly or indirectly by any violations of this part;
  4. Prohibit the disposing of any contributions or altering in any other way the financial status of that person or organization;
  5. Enforce compliance with this part or any rule or order hereunder; and
  6. Provide other appropriate relief for violations of this part.
2. The action may be brought in a court of competent jurisdiction in the county where the alleged violation of this part took place, is taking place, or is about to take place, or in the county in which such person resides, has such person's principal place of conducting solicitations, conducts, transacts, or has transacted solicitations or, if the person cannot be found in any of the foregoing locations, in the county in which such person can be found.
3. Upon a showing of a violation of this part, the courts are authorized to:
  1. Issue orders to restrain or enjoin, temporarily or permanently, violations of this part;
  2. Disgorge proceeds from unlawful solicitations;
  3. Provide restitution to solicitees or injured charitable organizations;
  4. Forfeit to the state any unlawfully obtained contributions;
  5. Prohibit the disposal of assets or any contributions or the altering of the financial status of any person or organization in violation of this part;
  6. Appoint a receiver or conservator of a defendant's assets; and
  7. Grant other proper equitable relief.
4. The court may not require the secretary of state to post a bond, and no costs shall be taxed to the secretary of state in actions commenced under this part.
5. Whenever any order for injunctive relief or other relief is granted in an action, or pursuant to an application by the secretary of state in the name of the state under this part, reasonable costs, including the costs of investigation, and attorney's fees may be awarded to the secretary of state, for use by the secretary of state in defraying the costs of administering this part.
6. Any knowing violation of the terms of an injunction or order for other relief issued pursuant to subdivision (3) shall be prima facie evidence of a violation of this part in any action brought pursuant to this section and is punishable by a civil penalty of not more than ten thousand dollars ($10,000) recoverable by the state for each violation, in addition to any other appropriate relief.
The secretary of state, or the secretary of state's designee, may appear before any court of competent jurisdiction empowered to issue warrants of arrest in criminal cases and request the issuance of a warrant; upon presentation of probable cause, the court shall issue a warrant directed to any sheriff, deputy sheriff, or police officer.

Acts 1976, ch. 735, § 14; T.C.A., § 48-2214; Acts 1989, ch. 285, §§ 30-32; 1991, ch. 299, §§ 10, 11; 1993, ch. 252, §§ 6-11; T.C.A., § 48-3-514.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Contempt of court, title 3, ch. 3; title 29, ch. 9.

48-101-515. Penalties.

Any person who willfully and knowingly violates any provisions of this part or who willfully and knowingly gives false or incorrect information to the secretary of state, in filing statements or reports required by this part, whether such report or statement is verified or not, commits a Class B misdemeanor for the first offense, punishable as provided in § 40-35-111, and for the second and any subsequent offense commits a Class E felony.

Acts 1976, ch. 735, § 16; T.C.A., § 48-2216; Acts 1989, ch. 591, §§ 43, 113; 1994, ch. 667, § 31; T.C.A., § 48-3-515.

Cross-References. Penalty for Class B misdemeanor, § 40-35-111.

Penalty for Class E felony, § 40-35-111.

48-101-516. Foreign organizations and solicitors — Service of process.

Any charitable organization or professional solicitor which has its principal place of business without the state, or which is organized under and by virtue of the laws of a foreign state, and which solicits contributions from people in this state, shall be subject to this part and shall be deemed to have irrevocably appointed the secretary of state as its agent upon whom may be served any summons, subpoena duces tecum or other process directed to such charitable organization or professional solicitor or any partner, principal officer or director thereof in any action or proceeding brought under this part.
Service of such process upon the secretary of state shall be made by personally delivering to and leaving with the secretary of state a copy thereof at the capitol in Nashville. Such service shall be sufficient service; provided, that notice of such service and a copy of such process are forthwith sent to such charitable organization or professional solicitor by registered or certified mail with return receipt requested at its office, as set forth in the registration form required to be filed with the secretary of state pursuant to this part or, in default of the filing of such forms, at the last address known.

Acts 1976, ch. 735, § 15; T.C.A., §§ 48-2215, 48-3-516.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-101-517. Use of funds.

Funds collected under this part shall be used by the secretary of state to defray the cost of administering this part.

Acts 1976, ch. 735, § 20; T.C.A., §§ 48-2218, 48-3-517; Acts 2007, ch. 523, § 34.

48-101-518. Construction of part.

The powers and remedies provided in this part shall be cumulative and supplementary to all other powers and remedies otherwise provided by law. The invocation of one (1) power or remedy herein shall not be construed as excluding or prohibiting the use of any other available remedy.
This part shall not be construed to preempt any more stringent county or municipal provisions or to restrict local units of government from adopting more stringent provisions, and, in such case, such provisions shall be complied with if the registrant desires to solicit within the geographic district of the local unit of government.
Nothing in this part shall be construed to preempt any municipality from exercising general police powers of municipalities by ordinance or otherwise over organizations which are excluded from the application of this part or from organizations which are included within this part.
In the event this part, insofar as prohibited practices are concerned, conflicts with any ordinance or regulation of any municipality, the most restrictive provisions shall apply; further, such regulations or ordinances adopted by a municipality may be broader in scope and more restrictive in their application than this part.
Insofar as reporting or disclosure of financial reports is concerned, the right to require information not included in this part is hereby expressly reserved unto the municipalities of this state. Any municipality in this state is authorized to accept financial reports to the secretary of state as financial reports which may be required by municipal ordinances or regulations.
Nothing in this part shall be construed to require any municipality which has adopted, prior to July 1, 1977, ordinances or regulations controlling, omitting, or prohibiting certain types of solicitation practices to adopt the accounting practices provided for in this part; provided, that any municipality which adopts such ordinances after July 1, 1977, shall conform to the accounting practices as provided for in this part.

Acts 1976, ch. 735, § 17; T.C.A., § 48-2217; Acts 1989, ch. 285, § 33; T.C.A., § 48-3-518.

NOTES TO DECISIONS

1. Excessive Discretion In Local Ordinance.

Where plaintiff charitable organization filed suit against defendants, a local government and the chairman of its solicitations board, challenging the Charitable Solicitations Ordinance, Nashville & Davidson County, Tenn., Metro. Code §§ 6.64.070-6.64.230 (1999), as unconstitutional in violation of the first and fourteenth amendments, the organization's motion for a preliminary injunction was granted prohibiting the enforcement of the ordinance; while T.C.A. § 48-101-518(a)-(f) allow a municipality to enact a more “stringent” regulation of charitable solicitations, the board was granted sweeping discretion in its determination of whether to issue a permit, such as in the requirement that the board consider an applicant's character and integrity and in the requirement that the board determine if the solicitation was in the interest of the public welfare. Feed the Children, Inc. v. Metro. Gov't of Nashville, 330 F. Supp. 2d 935, 2002 U.S. Dist. LEXIS 27482 (M.D. Tenn. 2002).

48-101-519. Registration — Written agreement.

No commercial co-venturer shall conduct any charitable sales promotion in this state on behalf of a charitable or civic organization unless the charitable or civic organization is duly registered or granted the appropriate exemption.
Prior to any charitable sales promotion in this state, the commercial co-venturer shall have a written agreement with the charitable or civic organization on whose behalf the charitable sales promotion is to be conducted. The agreement shall be signed by an authorized representative of the commercial co-venturer and two (2) officers of the charitable or civic organization.
The commercial co-venturer shall maintain all records in connection with the charitable sales promotion for a period of three (3) years after the end date of the charitable sales promotion. All charitable sales promotion records shall be made available to the division upon request.

Acts 2007, ch. 523, § 35.

48-101-520. Recovery of damages — Actions — Treble damages — Settlement — Attorney's fees.

1. Any solicitee or person who suffers an ascertainable loss of money or property, real, personal, or mixed, or any other article, commodity, or thing of value wherever situated, as a result of the use or employment by another person of an unfair, false, misleading or deceptive act or practice declared to be unlawful by this part or any other violation of this part, may bring an action individually to recover actual damages.
2. The action may be brought in a court of competent jurisdiction in the county where the alleged unfair, false, misleading or deceptive act or practice, or other violation of this part, took place, is taking place, or is about to take place, or in the county in which such person conducting solicitations resides, has such person's principal place of conducting solicitations, conducts, transacts, or has transacted solicitations, or, if the person cannot be found in any of the foregoing locations, in the county in which such person can be found.
3. Any private action commenced under this part shall be brought within one (1) year from a person's discovery of the violation of this part, but in no event shall an action under this part be brought after four (4) years from the date of the solicitation giving rise to the claim for relief.
1. If the court finds that the use or employment of the unfair, false, misleading or deceptive act or practice or other violation was a willful or knowing violation of this part, the court may award three (3) times the actual damages sustained and may provide such other relief as it considers necessary and proper.
2. In determining whether treble damages should be awarded, the trial court may consider, among other things:
  1. The competence of the solicitee;
  2. The nature of the deception or coercion practiced upon the solicitee;
  3. The damage to the solicitee; and
  4. The good faith of the person found to have violated this part.
Without regard to any other remedy or relief to which a person is entitled, anyone affected by a violation of this part may bring an action to obtain a declaratory judgment that the act or practice violates this part and to enjoin the person who has violated, is violating or who is otherwise likely to violate this part; provided, that such action shall not be filed once the secretary of state has commenced a proceeding pursuant to § 48-101-514(c).
Any person who has been affected by an act or practice declared to be a violation of this part may accept any written reasonable offer of settlement made by the person or persons considered to have violated this part; provided, that the tender of acceptance of such a settlement offer shall not abate any proceeding commenced by the secretary of state pursuant to § 48-101-514(c).
Any permanent injunction, judgment, or final court order made pursuant to § 48-101-514(c), which has not been complied with, shall be prima facie evidence of the violation of this part in any action brought pursuant to this section.
Upon a finding by the court that a provision of this part has been violated, the court may award to the person bringing such action reasonable attorney's fees and costs.
Upon the commencement of any action brought under subsections (a) and (b), the clerk of the court shall mail a copy of the complaint or other initial pleading to the secretary of state and, upon the entry of any judgment, order, or decree shall mail a copy to the secretary of state.

Acts 1989, ch. 285, § 34; T.C.A., § 48-3-520.

48-101-521. Requirement of filing financial reports by charitable organizations soliciting and receiving contributions for disasters.

Any charitable organization, other than a bona fide religious institution, that solicits and receives contributions exceeding twenty-five thousand dollars ($25,000) for a charitable purpose related to a disaster in this state shall file quarterly financial reports with the secretary of state, on forms prescribed by the secretary of state, detailing the money raised and expended by the organization as a result of the solicitation, until the funds are expended. The first quarterly report shall be filed on the last day of the third month following the commencement of solicitations.
Any charitable organization other than a bona fide religious institution, which solicited and received contributions exceeding twenty-five thousand dollars ($25,000) for a charitable purpose related to a disaster in this state between May 1, 2010, and May 20, 2011, shall file a financial report with the secretary of state, on a form prescribed by the secretary of state, on June 30, 2011. The report shall detail all funds received and expended by the organization as a result of the solicitation. After June 30, 2011, the organization shall file quarterly financial reports with the secretary of state, on forms prescribed by the secretary of state, detailing the money raised and expended by the organization as a result of the solicitation, until the funds are expended.

Acts 2011, ch. 232, § 4; T.C.A § 48-101-522.

Code Commission Notes.

This section was renumbered from § 48-101-522 by authority of the Code Commission in 2019.

Part 6
Tennessee Professional Corporation Act

48-101-601. Short title.

This part shall be known and may be cited as the “Tennessee Professional Corporation Act.”

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-601.

Attorney General Opinions. Applicability, OAG 90-30, 1990 Tenn. AG LEXIS 37 (3/2/90).

Textbooks. Tennessee Jurisprudence, 3 Tenn. Juris., Attorney and Client, § 4; 8 Tenn. Juris., Creditors' Suits, § 5.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Bankruptcy.

The (former) Tennessee Professional Corporation Act does not contain any express provisions as to the effect of the filing of a bankruptcy petition by a shareholder on the shareholder's interest in such a corporation. McAllester v. Andrews, 14 B.R. 356, 1981 Bankr. LEXIS 3018 (Bankr. M.D. Tenn. Sep. 4, 1981).

48-101-602. Applicability of Tennessee Business Corporation Act.

The Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, applies to professional corporations, both domestic and foreign, to the extent not inconsistent with this part.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-602.

48-101-603. Part definitions.

As used in this part, unless the context otherwise requires:

“Disqualified person” means an individual or entity that for any reason is or becomes ineligible under this part to be issued shares by a professional corporation;
“Domestic professional corporation” means a professional corporation;
“Foreign professional corporation” means a corporation or association for profit incorporated for the purpose of rendering professional services under a law other than the law of this state;
“Law” includes rules promulgated in accordance with § 48-101-630;
“Licensing authority” means the officer, board, agency, court or other authority in this state empowered to license or otherwise authorize the rendition of a professional service;
“Professional corporation” means a corporation for profit, other than a foreign professional corporation, subject to this part;
“Professional service” means a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in this state to render the service, and that may not be lawfully rendered by a corporation under the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title; and
“Qualified person” means an individual, general partnership or professional corporation to whom shares under this part may be issued.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-603.

48-101-604. Incorporation.

One (1) or more persons may incorporate a professional corporation by delivering to the secretary of state for filing a charter that states:
1. It is a professional corporation; and
2. Its purpose is to render the specified professional services.
A corporation incorporated under a general law of this state whose charter has not been repealed by this part may elect professional corporation status by amending its charter to comply with subsection (a) and § 48-101-609.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-604.

48-101-605. Election.

Except to the extent authorized by subsection (b), a corporation may elect professional corporation status under § 48-101-604 solely for the purpose of rendering professional services (including services ancillary to it) and solely within a single profession.
A corporation may elect professional corporation status under § 48-101-604 for the purpose of rendering professional services within two (2) or more professions, and for the purpose of engaging in any lawful business authorized by the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, only if the combination of professional purposes or of professional and business purposes is specifically authorized by the licensing law of this state applicable to each profession in the combination.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-605.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-301, 5-303, 5-304.

48-101-606. Powers — Professional services.

Except as provided in subsection (b), a professional corporation has the powers enumerated in chapter 13 of this title.
A professional corporation may be a promoter, general partner, member, associate or manager of a partnership, joint venture, trust or other entity only if the entity is engaged solely in rendering professional services or in carrying on business authorized by the professional corporation's charter.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-606.

48-101-607. Rendering professional services in this state — Requirements.

A domestic or foreign corporation may render professional services in this state only through individuals licensed or otherwise authorized in this state to render the services.
Subsection (a) does not:
1. Require an individual employed by a professional corporation to be licensed to perform services for the corporation if a license is not otherwise required;
2. Prohibit a licensed individual from rendering professional services in such person's individual capacity although such person is a shareholder, director, officer, employee or agent of a domestic or foreign professional corporation; or
3. Prohibit an individual licensed in another state from rendering professional services for a domestic or foreign professional corporation in this state if not prohibited by the licensing authority.

Acts 1992, ch. 698, § 1.; T.C.A., § 48-3-607.

NOTES TO DECISIONS

1. Personal Liability.

Chapter 7 debtor, an attorney, denied a bankruptcy discharge after he failed to satisfactorily explain the disposition of client funds, could not hide behind the legal fiction that his professional corporation was a separate entity in order to escape liability because he was liable for his own wrongful acts in rendering services as an employee of the professional corporation. Hendon v. Lufkin (In re Lufkin), 393 B.R. 585, 2008 Bankr. LEXIS 5099 (Bankr. E.D. Tenn. Aug. 18, 2008).

2. Fraud.

Chapter 7 debtor, an attorney, denied a bankruptcy discharge after he failed to satisfactorily explain the disposition of client funds, could not hide behind the legal fiction that his law firm, a limited liability corporation, was a separate entity in order to escape liability because he was personally liable for his wrongful conduct. Hendon v. Lufkin (In re Lufkin), 393 B.R. 585, 2008 Bankr. LEXIS 5099 (Bankr. E.D. Tenn. Aug. 18, 2008).

48-101-608. Professional services limited by charter.

A professional corporation may not render any professional service or engage in any business other than the professional service and business authorized by its charter.
Subsection (a) does not prohibit a professional corporation from investing its funds in real estate, mortgages, securities or any other type of investment.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-608.

48-101-609. Name.

The name of a domestic professional corporation and of a foreign professional corporation authorized to transact business in this state, in addition to satisfying the requirements of chapter 14 (except for § 48-14-101(a)(1)) and chapter 25 of this title:
1. Must contain the words “professional corporation,” “professional association,” or “service corporation” or the abbreviation “P.C.,” “P.A.,” or “S.C.”; and
2. May not contain language stating or implying that it is incorporated for a purpose other than that authorized by § 48-101-605 and its charter.
Chapters 14 and 25 of this title do not prevent the use of a name otherwise prohibited by those sections if it is the personal name of a shareholder or former shareholder of the domestic or foreign professional corporation or the name of an individual who was associated with a predecessor of the corporation.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-609.

48-101-610. Stock — Limitations on ownership.

1. A professional corporation may issue shares, fractional shares, and rights to purchase shares.
2. A professional corporation may only issue shares for sale to other persons not licensed to practice such profession in Tennessee if the licensing authority which licenses the professionals forming such corporations specifically authorizes the issuance of such shares. If permitted by the authority which licenses such professionals, and if such professionals form corporations, such corporations may issue such shares, fractional shares and rights or options to purchase shares only to:
  1. Individuals who are authorized by law in this or another state to render a professional service described in the corporation's charter;
  2. General partnerships in which all the partners are qualified persons with respect to the professional corporation and in which at least one (1) partner is authorized by law in this state to render a professional service described in the corporation's charter;
  3. Professional corporations, domestic or foreign, authorized by law in this state to render a professional service described in the corporation's charter; or
  4. Professional limited liability companies, domestic or foreign, authorized by law in this state to render a professional service described in the professional limited liability company's articles.
If a licensing authority with jurisdiction over a profession considers it necessary to prevent violation of the ethical standards of the profession, the authority may by rule restrict or condition, or revoke in part, the authority of professional corporations subject to its jurisdiction to issue shares. A rule promulgated under this section does not, of itself, make a shareholder of a professional corporation at the time the rule becomes effective a disqualified person.
Shares issued in violation of this section or a rule promulgated under this section are void.
1. Notwithstanding any other provision of this chapter, the following health care professionals shall have a right to form and own shares in the same professional corporation formed pursuant to this part:
  1. Optometrists licensed under title 63, chapter 8, and ophthalmologists licensed under title 63, chapter 6 or 9;
  2. Podiatrists licensed under title 63, chapter 3, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, or anesthesiologists;
  3. Doctors of chiropractic licensed under title 63, chapter 4, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, and anesthesiologists; and
  4. Physician assistants licensed under title 63, chapter 19, part 1, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, and anesthesiologists.
2. The services rendered by these health care professionals are considered related and complementary to one another; provided, that nothing in this chapter shall be construed to alter the lawful scope of practice of a professional forming a professional corporation pursuant to this subsection (d); and provided further, that nothing in this part shall be construed to allow any professional forming a professional corporation pursuant to this subsection (d) to conduct the professional's practice in a manner contrary to the standards of ethics applicable to the profession. Such individual shall accurately state the individual's professional credentials on any advertisement to the public.

Acts 1992, ch. 698, § 1; 1994, ch. 868, § 9; T.C.A., § 48-3-610; Acts 2002, ch. 742, § 1; 2003, ch. 45, § 1; 2005, ch. 59, § 1.

Textbooks. Tennessee Forms (Robinson, Ramsey and Harwell), Nos. 5-302, 5-305.

Attorney General Opinions. Any health care professionals possessing a statutory right to form and become members of the same professional corporation or professional limited liability company, respectively, may serve as officers and directors of that professional corporation, or as governors or managers of that professional limited liability company, OAG 03-010, 2003 Tenn. AG LEXIS 11 (1/24/03).

NOTES TO DECISIONS

1. Conduct of Medical Professional Corporation.

Tennessee Board of Chiropractic Examiners had authority to revoke a chiropractor's license under T.C.A. § 63-4-114(4) as under T.C.A. § 48-101-610(d), a chiropractor could not conduct a practice in a manner that was contrary to the standards of ethics applicable to the profession simply by using the shield of a professional corporation; the chiropractor could not circumvent Tenn. Comp. R. & Regs. § 0260-02-.20(6)(a) by having a medical professional corporation's employees or agents conduct telemarketing that would otherwise be prohibited. Byrd v. Tenn. Bd. of Chiropractic Examiners, — S.W.3d —, 2011 Tenn. App. LEXIS 440 (Tenn. Ct. App. Aug. 11, 2011), appeal denied, — S.W.3d —, 2011 Tenn. LEXIS 1178 (Tenn. Dec. 13, 2011), cert. denied, Byrd v. Tenn. Bd of Chiropractic Exam’rs, 182 L. Ed. 2d 869, 132 S. Ct. 2109, 566 U.S. 975, 2012 U.S. LEXIS 3329.

Decisions Under Prior Law

1. Construction.

The general assembly's use of the word “retire” meant to retire from, withdraw from, or terminate employment. Vawter, Kennedy & Kennedy, P.C. v. Vawter, 776 S.W.2d 520, 1989 Tenn. LEXIS 422 (Tenn. 1989).

2. Execution on Judgment.

The effect of a judgment creditor's levy on a professional's shares in a professional corporation should be the same as if a professional shareholder had become disqualified from practicing the profession. McAllester v. Andrews, 14 B.R. 356, 1981 Bankr. LEXIS 3018 (Bankr. M.D. Tenn. Sep. 4, 1981).

Although alienation of a professional's shares in a professional corporation may be restricted, they nevertheless are subject to execution by a judgment creditor even though the new owner may not be a qualified professional. McAllester v. Andrews, 14 B.R. 356, 1981 Bankr. LEXIS 3018 (Bankr. M.D. Tenn. Sep. 4, 1981).

3. Bankruptcy.

Trustee was entitled to the redemption value of bankrupt professional's shares in a professional corporation as of the date of the filing of the bankruptcy petition since the bylaws of the corporation, as authorized by former subsection (c), provided for redemption in the event of professional disqualification. McAllester v. Andrews, 14 B.R. 356, 1981 Bankr. LEXIS 3018 (Bankr. M.D. Tenn. Sep. 4, 1981).

48-101-611. Required statement to appear on each share certificate.

The following statement must appear conspicuously on each share certificate issued by a professional corporation:
The transfer of shares of a professional corporation is restricted by the Tennessee Professional Corporation Act, and is subject to further restriction imposed from time to time by the licensing authority. Shares of a professional corporation are also subject to a statutory compulsory repurchase obligation.
Within a reasonable time after the issuance or transfer of shares of a professional corporation that do not contain such statement, the corporation shall send the shareholders a written notice containing the statement required by subsection (a).

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-611.

48-101-612. Transfer or pledge of shares.

1. A shareholder of a professional corporation may transfer or pledge shares, fractional shares, and rights or options to purchase shares of the corporation only to individuals, general partnerships, professional limited liability companies and professional corporations qualified under § 48-101-610 to be issued shares.
2. Nothing in this section shall be construed as prohibiting such a shareholder from pledging shares to a financial institution as collateral for a loan.
A transfer of shares made in violation of subsection (a), except one made by operation of law or court judgment, is void.

Acts 1992, ch. 698, § 1; 1994, ch. 868, § 8; T.C.A., § 48-3-612.

48-101-613. When professional corporation must acquire the shares of its stockholder.

A professional corporation must acquire (or cause to be acquired by a qualified person) the shares of its shareholder, at a price the corporation believes represents their fair value as of the date of death, disqualification, transfer, retirement or termination of employment, if:
1. The shareholder dies;
2. The shareholder becomes a disqualified person, except as provided in subsection (c);
3. The shares are transferred by operation of law or court judgment to a disqualified person, except as provided in subsection (c); or
4. The shareholder retires, withdraws from or terminates employment with the professional corporation.
If a price for the shares is fixed in accordance with the charter or bylaws or by private agreement, that price controls. If the price is not so fixed, the corporation shall acquire the shares in accordance with § 48-101-614. If the disqualified person rejects the corporation's purchase offer, either the person or the corporation may commence a proceeding under § 48-101-615 to determine the fair value of the shares.
This section does not require the acquisition of shares in the event of disqualification if the disqualification lasts no more than five (5) months from the date the disqualification or transfer occurs.
This section and § 48-101-614 do not prevent or relieve a professional corporation from paying pension benefits or other deferred compensation for services rendered to a former shareholder if otherwise permitted by law.
A provision for the acquisition of shares contained in a professional corporation's charter or bylaws, or in a private agreement, is specifically enforceable.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-613.

48-101-614. Notice of acquisition of shares — Acceptance — Termination of interest.

If shares must be acquired under § 48-101-613, the professional corporation shall deliver a written notice to the personal representative of the estate of its deceased shareholder, or to the disqualified person, the transferee, the retiree, or the shareholder terminating such shareholder's employment with the corporation, offering to purchase the shares at a price the corporation believes represents their fair value as of the date of death, disqualification, transfer, retirement or termination. The offer notice must be accompanied by the corporation's balance sheet for a fiscal year ending not more than sixteen (16) months before the effective date of the offer notice, an income statement for that year, a statement of changes in shareholders' equity for that year, and the latest available interim financial statements, if any.
The disqualified person has thirty (30) days from the effective date of the notice to accept the corporation's offer or demand that the corporation commence a proceeding under § 48-101-615 to determine the fair value of such person's shares. If such person accepts the offer, the corporation shall make payment for the shares within sixty (60) days from the effective date of the offer notice (unless a later date is agreed on) upon the disqualified person's surrender of such person's shares to the corporation.
After the corporation makes payment for the shares, the disqualified person has no further interest in them.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-614.

48-101-615. Commencement of proceedings to determine fair value of shares.

If the disqualified shareholder does not accept the professional corporation's offer under § 48-101-614(b) within the thirty-day period, the shareholder during the following thirty-day period may deliver a written notice to the corporation demanding that it commence a proceeding to determine the fair value of the shares. The corporation may commence a proceeding at any time during the sixty (60) days following the effective date of its offer notice. If it does not do so, the shareholder may commence a proceeding against the corporation to determine the fair value of the shareholder's shares.
The corporation or disqualified shareholder shall commence the proceeding in the chancery or circuit court of the county where the corporation's principal office (or, if none in this state, its registered office) is located. The corporation shall make the disqualified shareholder a party to the proceeding court in which the proceeding is commenced is plenary and exclusive.
The court may appoint one (1) or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers have the power described in the order appointing them, or in any amendment to it.
The disqualified shareholder is entitled to judgment for the fair value of such shareholder's shares determined by the court as of the date of death, disqualification, transfer, retirement or termination of employment, together with interest from that date at a rate found by the court to be fair and equitable.
The court may order the judgment paid in installments determined by the court.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-615.

48-101-616. Assessment of proceeding costs.

The court in an appraisal proceeding commenced under § 48-101-615 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and shall assess the costs against the professional corporation. But the court may assess costs against the disqualified shareholder, in an amount the court finds equitable, if the court finds the shareholder acted arbitrarily, vexatiously or not in good faith in refusing to accept the corporation's offer.
The court may also:
1. Assess the fees and expenses of counsel and experts for the disqualified shareholder against the corporation and in favor of the shareholder if the court finds that the fair value of such shareholder's shares substantially exceeded the amount offered by the corporation or that the corporation did not make an offer; or
2. Assess the fees and expenses of counsel and experts for the corporation against the disqualified shareholder and in favor of the corporation if the court finds that the fair value of such shareholder's shares did not substantially exceed the amount offered by the corporation.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-616.

48-101-617. Shares of a disqualified person.

If the shares of a disqualified person are not acquired under § 48-101-614 or § 48-101-615 within ten (10) months after the death of the shareholder or within five (5) months after the disqualification, transfer, retirement or termination of employment, the professional corporation shall immediately cancel the shares on its books, and the disqualified person has no further interest as a shareholder in the corporation other than such disqualified person's right to payment of the fair value of the shares under § 48-101-614 or § 48-101-615.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-617.

48-101-618. Officers and directors.

If persons other than qualified persons are permitted by the licensing authority to serve as officers or directors, not less than one half (½) of the directors of a professional corporation and all of its officers, except the secretary and assistant secretary, and treasurer (if any) and any assistant treasurer (if any), of any professional corporation shall be qualified persons with respect to the corporation.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-618.

48-101-619. Proxy to vote shares.

Only a qualified person may be appointed a proxy to vote shares of a professional corporation.
A voting trust with respect to shares of a professional corporation is not valid unless all of its trustees and beneficiaries are qualified persons. But if a beneficiary who is a qualified person dies or becomes disqualified, a voting trust valid under this subsection (b) continues to be valid for ten (10) months after the date of death or for five (5) months after the disqualification occurred.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-619.

48-101-620. Privileged communications.

A privilege applicable to communications between an individual rendering professional services and the person receiving the services recognized under the statutes or common law of this state is not affected by this part. The privilege applies to a domestic or foreign professional corporation and to its employees in all situations in which it applies to communications between an individual rendering professional services on behalf of the corporation and the person receiving the services.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-620.

48-101-621. Liability.

Each individual who renders professional services as an employee of a domestic or foreign professional corporation is liable for such individual's own negligent or wrongful acts or omissions to the same extent as if that individual rendered the services as a sole practitioner. An employee of a domestic or foreign professional corporation is not liable, however, for the conduct of other employees of the corporation unless that employee is also at fault.
A domestic or foreign professional corporation whose employees perform professional services within the scope of their employment or of their apparent authority to act for the corporation is liable to the same extent as its employees.
Except as otherwise provided by statute, the personal liability of a shareholder of a domestic or foreign professional corporation is no greater in any respect than the liability of a shareholder of a corporation incorporated under the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-621.

NOTES TO DECISIONS

1. Personal Liability.

The existence of the professional corporation could not serve to insulate an attorney personally from the attorney's own actions and inactions. In re Timbs, 178 B.R. 989, 1994 Bankr. LEXIS 2187 (Bankr. E.D. Tenn. 1994).

Attorney prepared a deed indicating that the property was unencumbered, and under T.C.A. § 48-101-621(a), he would be individually liable for damages arising from appellees' reliance on the incorrect statement, plus his work on the erroneous settlement statement could also form the basis for appellees' negligent misrepresentation claim; the in the course of business, profession or employment criterion for the negligent misrepresentation claim was met and the finding of negligent misrepresentation was affirmed. Faerber v. Troutman & Troutman, P.C., — S.W.3d —, 2017 Tenn. App. LEXIS 413 (Tenn. Ct. App. June 22, 2017), appeal denied, — S.W.3d —, 2017 Tenn. LEXIS 758 (Tenn. Nov. 16, 2017).

48-101-622. Merger.

If all the shareholders of the disappearing and surviving corporations are qualified to be shareholders of the surviving corporation, a professional corporation may merge with another domestic or foreign professional corporation or with a domestic or foreign business corporation.
If the surviving corporation is to render professional services in this state, it must comply with this part.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-622.

48-101-623. Where professional corporation ceases to render professional services.

If a professional corporation ceases to render professional services, it must amend or restate its charter to delete references to rendering professional services and to conform its corporate name to the requirements of chapter 14 of this title. After the amendment becomes effective, the corporation may continue in existence as a business corporation under the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, and it is no longer subject to this part.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-623.

48-101-624. Dissolution of professional corporations.

The attorney general and reporter may commence a proceeding under chapter 24, part 3 of this title to dissolve a professional corporation if:

The secretary of state or a licensing authority with jurisdiction over a professional service described in the corporation's charter serves written notice on the corporation under § 48-15-104, that it has violated or is violating a provision of this part;
The corporation does not correct each alleged violation, or demonstrate to the reasonable satisfaction of the secretary of state or licensing authority that it did not occur, within sixty (60) days after service of the notice is perfected under § 48-15-104; and
The secretary of state or licensing authority certifies to the attorney general and reporter a description of the violation, that it notified the corporation of the violation, and that the corporation did not correct it, or demonstrate that it did not occur, within sixty (60) days after perfection of service of the notice.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-624.

48-101-625. Foreign professional corporation — Requirements for obtaining a certificate of authority.

Except as provided in subsection (c), a foreign professional corporation may not transact business in this state until it obtains a certificate of authority from the secretary of state.
A foreign professional corporation may not obtain a certificate of authority unless:
1. Its corporate name satisfies the requirements of § 48-101-609;
2. It is incorporated for one (1) or more of the purposes described in § 48-101-605; and
3. All of its shareholders, not less than one half (½) of its directors, and all of its officers other than its secretary and any assistant secretary and treasurer (if any) and any assistant treasurer are licensed in one (1) or more states to render a professional service described in its charter.
A foreign professional corporation is not required to obtain a certificate of authority to transact business in this state unless it maintains or intends to maintain an office in this state for conduct of business or professional practice.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-625.

48-101-626. Foreign professional corporation — Application for certificate of authority.

The application of a foreign professional corporation for a certificate of authority to render professional services in this state shall contain the information required in § 48-25-103, state its purpose to render a specified professional service, and include a statement that all of its shareholders, not less than one half (½) of its directors, and all of its officers other than its secretary and any assistant secretary and treasurer (if any) and any assistant treasurer, are qualified persons with respect to the corporation.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-626.

48-101-627. Foreign professional corporation — Revocation of certificate of authority.

The secretary of state may administratively revoke under chapter 25, part 3 of this title the certificate of authority for a foreign professional corporation authorized to transact business in this state if a licensing authority with jurisdiction over a professional service described in this corporation's charter certifies to the secretary of state that the corporation has violated or is violating a provision of this part and describes the violation in the certificate.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-627.

48-101-628. Filing of charter with licensing authorities required.

A domestic or foreign professional corporation authorized to transact business in this state may not render professional services in this state until it delivers a certified copy of its charter for filing to each licensing authority with jurisdiction over a professional service described in the charter if required by a rule promulgated by the licensing authority having authority over professional services rendered by employees of the corporation.

Acts 1992, ch. 698, § 1; 1994, ch. 846, § 1; T.C.A., § 48-3-628.

Attorney General Opinions. Applicablity, OAG 94-050, 1994 Tenn. AG LEXIS 43 (4/6/94).

48-101-629. Annual statement of qualifications — When required — Contents.

If required by a rule promulgated by the licensing authority having authority over professional services rendered by employees of the corporation, each domestic professional corporation, and each foreign professional corporation authorized to transact business in this state, shall deliver for filing to each licensing authority having jurisdiction over a professional service described in the corporation's charter an annual statement of qualification setting forth:
1. The names and usual business addresses of its directors and officers; and
2. Information required by rule promulgated by the licensing authority to determine compliance with this part and other rules promulgated under it.
The first qualification statement required under this section must be delivered to the licensing authority between January 1 and April 1 of the year following the adoption of a rule requiring such statements and the calendar year in which a domestic corporation became a professional corporation or a foreign professional corporation was authorized to transact business in this state. Subsequent qualification statements must be delivered to the licensing authority between January 1 and April 1 of the following calendar years.
Any information required by a licensing authority pursuant to this section shall be submitted in the annual statement of qualification, and the licensing authority shall have no authority to require the professional corporation to include in its charter filed pursuant to § 48-12-101 any information other than that which is specifically prescribed by § 48-12-102 or other statutes.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-629; Acts 1998, ch. 927, § 1.

48-101-630. Power of licensing authority to promulgate rules.

Each licensing authority is empowered to promulgate rules expressly authorized by this part if the rules are consistent with the public interest or required by the public health or welfare or by generally recognized standards of professional conduct.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-630.

48-101-631. Jurisdiction of licensing authority and laws pertaining to standards of professional conduct not restricted.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-631.

48-101-632. Offense — Penalty.

A person commits an offense if such person signs a document such person knows is false in any material respect with intent that the document be delivered to the licensing authority for filing.
An offense under this section is a Class A misdemeanor.
The offense created by this section is in addition to any other offense created by law for the same conduct.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-632.

Cross-References. Penalty for Class A misdemeanor, § 40-35-111.

48-101-633. Applicability.

This part applies to all professional corporations in existence on July 1, 1993, that were incorporated under any general statute of this state providing for incorporation of corporations for profit.
Section 48-101-609(a)(1) does not apply to the charter of any corporation existing on July 1, 1993, unless and until a charter amendment is filed. The first charter amendment filed after June 30, 1993, by a corporation whose charter does not comply with § 48-101-609(a)(1) shall include provisions complying with such section.
Section 48-101-611(a) does not apply to shares outstanding on July 1, 1993, until such shares are transferred by the shareholder or otherwise reissued by the corporation. Upon such transfer or reissuance, such section shall apply.
This part does not affect an existing or future right or privilege to render professional services through the use of any other form of business entity.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-633.

48-101-634. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of this part at any time, and all domestic and foreign professional corporations subject to this part are governed by the amendment or repeal.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-634.

48-101-635. Repeal of a statute by this part.

Except as provided in subsection (b), the repeal of a statute by this part does not affect:
1. The operation of the statute or any action taken under it before its repeal;
2. Any ratification, right, remedy, privilege, obligation or liability acquired, accrued or incurred under the statute before its repeal;
3. Any violation of the statute or any penalty, forfeiture or punishment incurred because of the violation, before its repeal; or
4. Any proceeding, reorganization or dissolution commenced under the statute before its repeal and the proceeding, reorganization or dissolution may be completed in accordance with the statute as if it had not been repealed.
If a penalty or punishment imposed for violation of a statute repealed by this part is reduced by this part, the penalty or punishment if not already imposed shall be imposed in accordance with this part.

Acts 1992, ch. 698, § 1; T.C.A., § 48-3-635.

Part 7
Nonprofit Limited Liability Company Act of 2001

48-101-701. Short title.

This part shall be known and may be cited as the “Nonprofit Limited Liability Company Act of 2001.”

Acts 2001, ch. 418, § 1.

48-101-702. Part definitions.

As used in this part, unless the context otherwise requires:

“Limited liability company” or “LLC” means a limited liability company, foreign or domestic, organized under or subject to the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title;
“Nonprofit corporation,” for the purposes of this part, means a nonprofit corporation, foreign or domestic, incorporated under or subject to chapters 51-68 of this title and exempt from franchise and excise tax as not-for-profit as defined in § 67-4-2004;
“Nonprofit limited liability company” or “nonprofit LLC” means a limited liability company:
1. That is disregarded as an entity for federal income tax purposes; and
2. Whose sole member is a nonprofit corporation, foreign or domestic, incorporated under or subject to chapters 51-68 of this title and who is exempt from franchise and excise tax as not-for-profit as defined in § 67-4-2004;
“Parent nonprofit corporation” means a nonprofit corporation that is the sole member of a nonprofit corporation; and
“Subsidiary nonprofit corporation” means a nonprofit corporation whose sole member is a nonprofit corporation.

Acts 2001, ch. 418, § 1.

48-101-703. Application.

The Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title shall apply to nonprofit limited liability companies, both domestic and foreign, to the extent not inconsistent with this part.

Acts 2001, ch. 418, § 1.

48-101-704. Organization as a nonprofit LLC.

A nonprofit corporation may organize a nonprofit LLC by filing articles of organization prominently designating it as a nonprofit limited liability company with the office of the secretary of state consistent with the Tennessee Limited Liability Company Act; provided, that an LLC shall qualify as a nonprofit LLC only if the LLC is disregarded as an entity for federal income tax purposes. No more than one (1) nonprofit corporation may be a member of a nonprofit LLC.

Acts 2001, ch. 418, § 1.

48-101-705. Standard of conduct for LLC members — Indemnification — Limitation on actions — Application to private foundations.

The standards of conduct established in §§ 48-58-301, 48-58-302, 48-58-303, and 48-58-403 applicable to the directors, officers, employees and agents of the nonprofit corporation that is the sole member of a nonprofit LLC shall likewise apply to the governors, managers, employees and agents of the nonprofit LLC.
The indemnification provisions of chapter 58, part 5 of this title applicable to the directors, officers, employees and agents of the nonprofit corporation that is the sole member of a nonprofit LLC shall likewise apply to the governors, managers, employees and agents of the nonprofit LLC.
The limitation of actions and immunity from actions provided in chapter 58, part 6 of this title applicable to the directors, officers, trustees and members of the nonprofit corporation that is the sole member of a nonprofit LLC shall likewise apply to the governors and managers of the nonprofit LLC.
The attorney general and reporter shall have such authority, rights and obligations over nonprofit LLCs as the attorney general and reporter has over nonprofit corporations pursuant to chapters 51-68 of this title.
If the nonprofit corporation that is the sole member of the nonprofit LLC is a “private foundation” as defined in § 509(a) of the Internal Revenue Code of 1986 (26 U.S.C. § 509(a)), the requirements of § 48-51-501 shall likewise apply to the nonprofit LLC.

Acts 2001, ch. 418, § 1; 2014, ch. 899, § 95.

48-101-706. Limitation on tax liability — Annual filings.

Consistent with § 67-4-2007(d) for excise tax purposes and § 67-4-2106(c) for franchise tax purposes, a nonprofit LLC shall be disregarded as an entity separate from the nonprofit corporation that is the sole member of the nonprofit LLC for purposes of all state and local Tennessee taxes. The nonprofit LLC shall file annual reports and other filings with the office of the secretary of state as required of all LLCs.

Acts 2001, ch. 418, § 1.

48-101-707. Conversion of subsidiary nonprofit corporations.

A subsidiary nonprofit corporation incorporated in this state may be converted to a nonprofit LLC pursuant to this section.
The terms and conditions of a conversion of a subsidiary nonprofit corporation to a nonprofit LLC must be approved by the board of directors of the subsidiary nonprofit corporation and the parent nonprofit corporation.
After the conversion is approved under subsection (b), the subsidiary nonprofit corporation shall file articles of conversion with the office of the secretary of state that satisfy the requirements of § 48-205-101, and designate the LLC as a nonprofit limited liability company. Such articles shall also include:
1. A statement that the nonprofit corporation was converted to a nonprofit LLC;
2. The name and principal address of the former nonprofit corporation; and
3. A statement that the terms and conditions of the conversion have been approved by the board of directors of the subsidiary nonprofit corporation and the parent nonprofit corporation.
The conversion is effective when the articles of conversion are filed with the secretary of state or at any later date on or before ninety (90) days from filing of the articles of conversion if specified in such articles. The filing of articles of conversion with the secretary of state, in compliance with this section, shall constitute and, for purposes of chapter 64 of this title, be deemed to be a certificate of cancellation of the subsidiary nonprofit corporation.
Articles of conversion shall be amended in the same manner as the articles of organization of a limited liability company.

Acts 2001, ch. 418, § 1.

48-101-708. Effect of conversion.

Upon the effective date of the conversion from a subsidiary nonprofit corporation to a nonprofit LLC:
1. All property owned by the converting nonprofit corporation remains vested in the nonprofit LLC;
2. All obligations of the converting nonprofit corporation continue as obligations of the nonprofit LLC; and
3. An action or proceeding pending against the converting nonprofit corporation may be continued as if the conversion had not occurred.
The converting nonprofit corporation shall not be required to wind up its affairs or to pay its liabilities and distribute its assets, and such conversion shall be deemed to constitute a dissolution of such subsidiary nonprofit corporation.
The ownership interests or membership of the parent nonprofit corporation in the subsidiary nonprofit corporation shall become membership interests in the nonprofit LLC.

Acts 2001, ch. 418, § 1.

Part 8
Tennessee Revised Nonprofit Limited Liability Company Act

48-101-801. Short title.

This part shall be known and may be cited as the “Tennessee Revised Nonprofit Limited Liability Company Act.”

Acts 2006, ch. 620, § 2.

48-101-802. Part definitions.

As used in this part, unless the context otherwise requires:

“LLC” means a limited liability company, whether foreign or domestic, that is formed under, that is subject to, or that has elected to be governed by, as applicable, the Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title, except where expressly indicated otherwise;
“Nonprofit corporation,” means a nonprofit corporation, whether foreign or domestic, incorporated pursuant to or subject to chapters 51-68 of this title and exempt from franchise and excise tax as not-for-profit as defined in § 67-4-2004;
“Nonprofit LLC” means an LLC that has complied with the requirements of this part;
“Parent nonprofit corporation” means a nonprofit corporation that is the sole member of a nonprofit corporation; and
“Subsidiary nonprofit corporation” means a nonprofit corporation, the sole member of which is also a nonprofit corporation.

Acts 2006, ch. 620, § 3.

48-101-803. Application of the Tennessee Revised Limited Liability Company Act.

The Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title, shall apply to nonprofit LLCs, both domestic and foreign, to the extent not inconsistent with this part.

Acts 2006, ch. 620, § 4.

48-101-804. Organization as a nonprofit LLC.

A nonprofit corporation may form a domestic nonprofit LLC that meets the requirements of § 48-101-805, by filing articles of organization with the secretary of state that prominently designate it as a nonprofit LLC and that comply with the Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title. A foreign nonprofit LLC may obtain a certificate of authority to transact business in this state under the Tennessee Revised Limited Liability Company Act and thereby become subject to and governed by this part as a nonprofit LLC, only if the foreign nonprofit LLC meets the requirements of § 48-101-805.

Acts 2006, ch. 620, § 5.

48-101-805. Requirements of domestic and foreign LLCs.

A domestic or foreign nonprofit LLC under this part must:

Be disregarded as an entity for federal income tax purposes; and
Have as its sole member a nonprofit corporation, whether foreign or domestic, that is incorporated under or subject to chapters 51-68 of this title and that is exempt from franchise and excise tax as not-for-profit as defined in § 67-4-2004.

Acts 2006, ch. 620, § 6.

48-101-806. Standards of conduct — Indemnification — Limitation on actions and immunity — Authority of attorney general and reporter — Application to private foundations.

The standards of conduct established in §§ 48-58-301 — 48-58-303 and 48-58-403 that are applicable to the directors, officers, employees and agents of the nonprofit corporation that is the sole member of a domestic nonprofit LLC shall likewise apply to the directors, managers, officers, employees and agents, as applicable, of the domestic nonprofit LLC.
The indemnification provisions of title 48, chapter 58, part 5 that are applicable to the directors, officers, employees and agents of the nonprofit corporation that is the sole member of a domestic nonprofit LLC shall likewise apply to the directors, managers, officers, employees and agents, as applicable, of the domestic nonprofit LLC.
The limitation of actions and immunity from actions provided in title 48, chapter 58, part 6 that are applicable to the directors, officers, trustees and members of the nonprofit corporation that is the sole member of a domestic nonprofit LLC shall likewise apply to the directors and managers, as applicable, of the domestic nonprofit LLC.
The attorney general and reporter shall have any authority, rights and obligations over nonprofit LLCs that the attorney general and reporter have over nonprofit corporations pursuant to chapters 51-68 of this title.
If the nonprofit corporation that is the sole member of a domestic nonprofit LLC is a private foundation as defined in § 509(a) of the Internal Revenue Code of 1986 (26 U.S.C. § 509(a)), or any successor provision thereof, the requirements of § 48-51-501 shall likewise apply to the domestic nonprofit LLC.

Acts 2006, ch. 620, § 7; 2014, ch. 899, § 94.

48-101-807. Limitation on tax liability — Annual filings.

Consistent with § 67-4-2007(d) for excise tax purposes and § 67-4-2106(c) for franchise tax purposes, a nonprofit LLC shall be disregarded as an entity separate from the nonprofit corporation that is the sole member of the nonprofit LLC for purposes of all state and local taxes. The nonprofit LLC shall file annual reports and other filings with the office of the secretary of state as required of all LLCs.

Acts 2006, ch. 620, § 8.

48-101-808. Conversion of subsidiary nonprofit corporations.

A subsidiary nonprofit corporation incorporated in this state may be converted to a domestic nonprofit LLC pursuant to this section.
The terms and conditions of a conversion of a subsidiary nonprofit corporation to a domestic nonprofit LLC must be approved by the board of directors of the subsidiary nonprofit corporation and the parent nonprofit corporation.
After the conversion is approved under subsection (b), the converting subsidiary nonprofit corporation shall file with the secretary of state a certificate of conversion that satisfies the requirements of § 48-249-703 and articles of organization that satisfy the requirements of § 48-101-804. The certificate of conversion shall prominently designate the LLC as a nonprofit LLC and shall also include:
1. A statement that the converting subsidiary nonprofit corporation is being converted to a nonprofit LLC;
2. The name of the converting subsidiary nonprofit corporation and the address of its principal office; and
3. A statement that the terms and conditions of the conversion have been approved by the board of directors of the converting subsidiary nonprofit corporation and the parent nonprofit corporation.
The conversion is effective when the certificate of conversion is filed with the secretary of state or at any future effective date or time specified in the certificate of conversion. The filing of a certificate of conversion with the secretary of state, in compliance with this section, shall constitute and, for purposes of chapter 64 of this title, be deemed to be articles of termination of corporate existence of the subsidiary nonprofit corporation.
When any conversion of a subsidiary nonprofit corporation to a domestic nonprofit LLC has become effective under this section, for all purposes of the laws of this state:
1. The domestic nonprofit LLC shall be deemed to be the same entity as the converting subsidiary nonprofit corporation;
2. All of the rights, privileges and powers of the converting subsidiary nonprofit corporation, and all property, real, personal and mixed, of and all debts due to the converting subsidiary nonprofit corporation, as well as all other things and causes of action belonging to the converting subsidiary nonprofit corporation, shall be and remain vested in the domestic nonprofit LLC and shall be the property of the domestic nonprofit LLC;
3. Title to any real property vested by deed or otherwise in the converting nonprofit subsidiary corporation shall not revert or be in any way impaired by reason of this section;
4. All rights of creditors and all liens upon any property of the converting subsidiary nonprofit corporation shall be preserved unimpaired;
5. All debts, liabilities, and obligations of the converting subsidiary nonprofit corporation shall remain attached to the domestic nonprofit LLC, and may be enforced against it to the same extent as if the debts, liabilities, and obligations had originally been incurred or contracted by it in its capacity as a domestic nonprofit LLC;
6. Any action or proceeding pending against the converting subsidiary nonprofit corporation may be continued against the domestic nonprofit LLC as if the conversion had not occurred; and
7. The rights, privileges, powers and interests in property of the converting subsidiary nonprofit corporation, as well as the debts, liabilities, and obligations of the converting subsidiary nonprofit corporation, shall not be deemed, as a consequence of the conversion, to have been transferred to the domestic nonprofit LLC for any purpose of the laws of this state.
The converting subsidiary nonprofit corporation shall not be required to wind up its affairs or to pay its liabilities and distribute its assets, and the conversion of the converting subsidiary nonprofit corporation to the domestic nonprofit LLC shall not be deemed to constitute a dissolution of the converting subsidiary nonprofit corporation.
The ownership interests or membership of the parent nonprofit corporation in the converting subsidiary nonprofit corporation shall become membership interests in the domestic nonprofit LLC.

Acts 2006, ch. 620, § 9.

48-101-809. Applicability of part — Election to be governed by part.

1. This part applies to:
  1. Every domestic nonprofit LLC formed on or after July 1, 2006; and
  2. Any domestic nonprofit LLC that was formed prior to July 1, 2006, and that has elected to be governed by the Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title, pursuant to § 48-249-1002.
2. If there are other specific statutory provisions that govern the formation of, impose restrictions or requirements on, confer special powers, privileges or authorities on or fix special procedures or methods for special categories of LLCs, then to the extent those provisions are inconsistent with or different from this part, those provisions shall prevail.
3. A domestic nonprofit LLC that was formed between December 31, 2005, and July 1, 2006, may elect to be governed by the Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title, pursuant to § 48-249-1002, to the same extent as a domestic nonprofit LLC that was formed prior to January 1, 2006.
Any domestic nonprofit LLC that was formed prior to July 1, 2006, under the Nonprofit Limited Liability Company Act of 2001, compiled in chapter 101, part 7 of this title, and that does not voluntarily elect to be governed by the Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title, as provided in subsection (a), shall continue to be governed by the Nonprofit Limited Liability Company Act of 2001.
This part applies to every foreign nonprofit LLC that first files an application for a certificate of authority under the Tennessee Revised Limited Liability Company Act, compiled in chapter 249 of this title, on or after July 1, 2006. With respect to each foreign nonprofit LLC that first filed an application for a certificate of authority prior to July 1, 2006, the Nonprofit Limited Liability Company Act of 2001 shall apply to the foreign nonprofit LLC, until the due date of the first annual report required to be filed by the foreign nonprofit LLC on or after July 1, 2006, after which due date this part shall apply to the foreign nonprofit LLC, except that the foreign nonprofit LLC shall not be required to obtain a new certificate of authority.
This part does not affect an action or proceeding commenced or right accrued under the Nonprofit Limited Liability Company Act of 2001.

Acts 2006, ch. 620, § 10.

Part 9
Neighborhood Preservation Nonprofit Corporation Act

48-101-901. Short title.

This part shall be known and may be cited as the “Neighborhood Preservation Nonprofit Corporation Act.”

Acts 2014, ch. 963, § 1.

Compiler's Notes. Acts 2014, ch. 963, § 5 provided that the secretary of state is authorized to promulgate rules to effectuate the purposes of the act. All such rules shall be promulgated in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

48-101-902. Part definitions.

As used in this part:

“Bylaws” means the code or codes of rules, other than the charter, adopted pursuant to chapters 51-68 of this title for the regulation or management of the affairs of the corporation irrespective of the name or names by which such rules are designated;
“Corporation” means a public benefit or mutual benefit corporation which is not a foreign corporation, incorporated under or subject to chapters 51-68 of this title, and is recognized as exempt under § 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3)), or any successor section;
“Foreign corporation” means a nonprofit corporation incorporated under a law other than the law of this state, which would be a nonprofit corporation if formed under the laws of this state;
“Mutual benefit corporation” means a domestic corporation which becomes by operation of law a mutual benefit corporation pursuant to § 48-68-104 or is formed as a mutual benefit corporation pursuant to chapter 52 of this title; and
“Public benefit corporation” means a domestic corporation which becomes by operation of law a public benefit corporation pursuant to § 48-68-104 or is formed as a public benefit corporation pursuant to chapter 52 of this title.

Acts 2014, ch. 963, § 1.

48-101-903. Registration of neighborhood preservation nonprofit corporation — Filing of plat for subject real property.

A corporation seeking designation as a neighborhood preservation nonprofit corporation under this part shall register with the secretary of state by requesting the designation of neighborhood preservation nonprofit corporation in its charter.
In addition to any other fee for registering the corporation pursuant to applicable law, the secretary of state may also require a fee for acquiring the designation as a neighborhood preservation nonprofit corporation.
Prior to registering with the secretary of state as set forth in subsection (a), a corporation shall file in the office of the register of deeds in the county that the real property is located a plat that shows the real property that the corporation shall apply its assets towards to preserve and protect from blight, crime, and other purposes.

Acts 2014, ch. 963, § 1.

48-101-904. Required contents of bylaws for designation as neighborhood preservation nonprofit corporation.

In order to qualify for the designation as a neighborhood preservation nonprofit corporation under this part, a corporation shall first include in its bylaws:

That all members shall be owners of real property located within the area designated in the plat described in § 48-101-903(c);
That decisions of the corporation involving the protection or preservation of real property within the area designated in the plat described in § 48-101-903(c) shall be made by a two-thirds (2/3) vote of its members;
That each member shall pay a minimum monthly amount in dues of twenty-five dollars ($25.00) to the corporation and agree, prior to membership, to pay any outstanding dues prior to selling the member's real property located within the area designated in the plat described in § 48-101-903(c);
That all assets of the corporation, minus those needed for administrative purposes, shall be applied towards preserving and protecting the real property designated in the plat described in § 48-101-903(c);
That an itemized financial accounting of assets used for administrative purposes shall be made available to members upon request; and
That copies of the bylaws shall be provided to members upon becoming members and at any time that the bylaws are changed.

Acts 2014, ch. 963, § 1.

48-101-905. Eligibility for housing trust fund competitive grants and other applicable grants — Assistance of housing development agency in applying for grants.

Notwithstanding any law to the contrary, a corporation that receives a designation as a neighborhood preservation nonprofit corporation shall be eligible to apply for and receive housing trust fund competitive grants and any other applicable grants from the Tennessee housing development agency; provided, that the corporation meets all requirements for the grants.
Upon request from a neighborhood preservation nonprofit corporation, the Tennessee housing development agency shall provide assistance in making an application for the grants described in subsection (a) in the same manner in which the Tennessee housing development agency assists other qualifying entities, including, at a minimum, providing a list of all grants that the entity qualifies for and the steps necessary to apply for the listed grants.

Acts 2014, ch. 963, § 1.

48-101-906. Reports of suspicious activity to law enforcement in area designated in subject plat.

Notwithstanding any law to the contrary, an individual member of a neighborhood preservation nonprofit corporation may report suspected suspicious activity to the local law enforcement entity responsible for the area designated in the plat described in § 48-101-903(a). The local law enforcement entity is encouraged to investigate the reported activity and may provide a report upon request; provided, that it does not impede an ongoing investigation.

Acts 2014, ch. 963, § 1.

48-101-907. Compliance with federal law.

This part shall be interpreted so as to be fully consistent with applicable federal law.

Acts 2014, ch. 963, § 1.

Chapter 102
Fraternal and Patriotic Organizations

Part 1
Odd Fellows

48-102-101. General powers of grand lodge.

The officers of the grand lodge of the state of Tennessee, of the Independent Order of Odd Fellows, and their regular successors, are a body politic and corporate, by the name and style of “The Grand Lodge of the Independent Order of Odd Fellows of the State of Tennessee” and, by that name, are invested with power to acquire, possess, occupy, and enjoy real and personal estate, and to sell and convey, or otherwise dispose of the same under the bylaws, rules, and regulations of the lodge; provided, that such bylaws, rules and regulations shall not be contrary to the constitutions of the United States and of this state.
The corporation, in its name, shall be competent to contract and be contracted with; to sue and be sued, plead and be impleaded, in all courts; to have and use a common seal and to alter the same at its pleasure.
The right of any future general assembly to alter, repeal, or amend this part is expressly reserved.

Acts 1845-1846, ch. 69, §§ 1, 2; 1847-1848, ch. 60, § 1; Shan., § 2577a4; mod. Code 1932, § 4419; T.C.A. (orig. ed.), §§ 48-1501, 48-4-101.

Cross-References. Acts of incorporation left unrepealed, § 1-2-105.

Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Excise tax exemption of corporations formed to own meeting places, § 67-4-2008.

Fraternal benefit societies, title 56, ch. 25.

Textbooks. Tennessee Jurisprudence, 6 Tenn. Juris., Charities, § 2; 5 Tenn. Juris., Beneficial and Benevolent Associations, §§ 2, 9.

48-102-102. Power of grand lodge over property.

The grand lodge is empowered to acquire by purchase, deed, gift, devise, bequest, or otherwise, and to hold, sell, convey, mortgage, bond or otherwise dispose of or encumber any and all property, real and personal, that it may deem necessary for any legitimate purpose of its organization; provided, that such property is, in the opinion of the grand lodge, necessary or convenient in the execution of the objects and purposes of the grand lodge.

Acts 1925, ch. 136, § 1; Shan. Supp., § 2577a8; Code 1932, § 4423; T.C.A. (orig. ed.), §§ 48-1502, 48-4-102.

48-102-103. Subordinate lodges — Power to acquire and hold or convey property.

The various subordinate lodges of the grand lodge shall be, and each thereof is, empowered to acquire and hold by purchase, deed, gift, devise, bequest, or otherwise any and all property, real and personal, necessary or deemed expedient or proper by the subordinate lodges for the legitimate and proper execution of their objects and purposes, and each and all of the subordinate lodges are empowered to sell, convey, mortgage, bond, or otherwise convey or encumber for lodge purposes, any and all of such property.
The subordinate lodges may sell or convey their real property only by and with the permission of the grand lodge, or the grand master.

Acts 1925, ch. 136, § 2; Shan. Supp., § 2577a9; Code 1932, § 4424; Acts 1957, ch. 359, § 1; 1967, ch. 38, § 1; T.C.A. (orig. ed.), §§ 48-1503, 48-4-103.

48-102-104. Separate property of subordinate lodges.

Whenever the grand lodge shall establish or charter a subordinate lodge, the subordinate lodge is invested with the separate right to an amount of real and personal property, to the same extent and under the restrictions of § 48-102-101. The subordinate lodges have the power, and are specifically authorized, to mortgage or convey in trust their real estate for the purpose of securing the payment of notes or bonds for borrowed money or for other purposes, and it shall be sufficient to bind any lodge in such transaction when a mortgage or deed of trust shall be duly executed by the noble grand and secretary of the lodge.

Acts 1847-1848, ch. 60, § 2; 1907, ch. 595, § 1; Shan., § 2577a5; mod. Code 1932, § 4420; T.C.A. (orig. ed.), §§ 48-1504, 48-4-104.

NOTES TO DECISIONS

1. Subordinate Lodges — Status — Powers.

A subordinate lodge of “The Grand Lodge of the Independent Order of Odd Fellows of the state of Tennessee” is not a corporation, though it is a quasi-corporation clothed with power to hold property and administer trusts germane to the purposes of the order. Heiskell v. Chickasaw Lodge, 87 Tenn. 668, 11 S.W. 825, 1889 Tenn. LEXIS 17, 4 L.R.A. 699 (1889).

48-102-105. Control of property — Conveyances.

Any and all property, real or personal, owned or held by the grand lodge, and all subordinate lodges thereof, irrespective of the amount of property, shall be held, owned, controlled, enjoyed, and disposed of, or encumbered by those bodies, with all the rights and privileges provided for herein, and no question shall be made of the amount, kind, or character of such property, or the manner of its acquisition or its right to hold the same according to the title or interest vested in the body or bodies.
The subordinate lodges may sell or convey their real property only by and with the permission of the grand lodge or the grand master.

Acts 1925, ch. 136, § 5; Shan. Supp., § 2577a12; Code 1932, § 4427; Acts 1957, ch. 359, § 2; 1967, ch. 38, § 1; T.C.A. (orig. ed.), §§ 48-1505, 48-4-105.

48-102-106. Execution and record of evidences of indebtedness.

It shall be sufficient for any mortgages, notes, bonds, debentures, or other evidence of indebtedness, or any security executed for or on behalf of the lodges, grand or subordinate, to be executed by such officers as their bylaws may provide, or such officers as the lodges may direct by appropriate action, a record of which shall be made on the minutes or records of the lodge or lodges.

Acts 1925, ch. 136, § 4; Shan. Supp., § 2577a11; Code 1932, § 4426; T.C.A. (orig. ed.), §§ 48-1506, 48-4-106.

48-102-107. Construction and maintenance of buildings by lodges.

The grand lodge and each subordinate lodge are empowered to erect and maintain all necessary and suitable buildings, halls, lodge rooms, hospitals, homes for widows and orphans of deceased members, and all other buildings or plants necessary or deemed expedient in the execution of the objects and purposes of the organization, and to collect and apply all rents and income derived from any and all such property; provided, that the application be had in furtherance of the objects and purposes of the organization.

Acts 1925, ch. 136, § 3; Shan. Supp., § 2577a10; Code 1932, § 4425; T.C.A. (orig. ed.), §§ 48-1507, 48-4-107.

48-102-108. Liquidation of subordinate lodges.

Whenever the authority establishing the subordinate lodge is withdrawn, and the separate existence of the subordinate lodge is destroyed, the property of the lodge shall be placed in the hands of a trustee appointed by the grand lodge from the members of the subordinate lodge or from the members of any other subordinate lodge in Tennessee, to pay its debts and liabilities. The residue of the real estate, if there is any, shall be applied by the trustee, as may be prescribed by the bylaws or resolutions of the grand lodge.

Acts 1847-1848, ch. 60, § 3; Shan., § 2577a6; Code 1932, § 4421; Acts 1957, ch. 359, § 3; T.C.A. (orig. ed.), §§ 48-1508, 48-4-108.

Part 2
Freemasons

48-102-201. Privileges and benefits generally.

The order of freemasons shall be entitled to all the privileges and benefits of part 1 of this chapter to the same extent and upon the same conditions, except that the subordinate lodges of Free and Accepted Masonry, as chartered by the grand lodge of the state of Tennessee, are authorized to sell and convey their real property without the permission of the grand lodge or the grand master.

Acts 1847-1848, ch. 60, § 4; Shan., § 2577a7; Code 1932, § 4422; Acts 1967, ch. 38, § 1; T.C.A. (orig. ed.), §§ 48-1503, 48-1505, 48-1509, 48-4-201.

48-102-202. Ownership of real property.

The officers and members of a masonic lodge may purchase or take by deed such quantity of ground for the purpose of building a hall or temple, or for a burial place, as may be necessary. The deed shall vest the legal title to the same in such officers and members and their successors.

Code 1858, § 1516 (deriv. Acts 1817, ch. 154); Shan., § 2571; mod. Code 1932, § 4410; T.C.A. (orig. ed.), §§ 48-1510, 48-4-202.

Cross-References. Excise tax exemption of corporations formed to own meeting places, § 67-4-2008.

48-102-203. Coupon bonds for construction.

All masonic lodges which hold real estate to the value of ten thousand dollars ($10,000) or more have the power to issue coupon bonds from time to time to an amount not exceeding a total of forty thousand dollars ($40,000), bearing six percent (6%) interest per annum, payable semiannually, for the purpose of erecting a building or hall upon same.
The coupon bonds may be issued in sums of twenty-five dollars ($25.00), fifty dollars ($50.00), one hundred dollars ($100), five hundred dollars ($500), and one thousand dollars ($1,000), as may be desired.
The coupon bonds shall not have more than twenty (20) years in which to mature, and may be taken up by the lodge at any time after five (5) years from their issuance.
Any masonic lodge which shall issue coupon bonds under this section may execute a mortgage upon its real estate to secure the payment of the bonds and coupons.
The worshipful master and wardens or other proper officers of the lodge have the power to issue the bonds and coupons and execute the mortgage provided for in this section whenever they have been instructed by a meeting of their lodge to do so.

Acts 1883, ch. 240, §§ 1-5; 1885, ch. 63, § 1; Shan., §§ 2572, 2574-2577; Code 1932, §§ 4411-4415; T.C.A. (orig. ed.), §§ 48-1511 — 48-1515, 48-4-203.

Part 3
Knights of Pythias

48-102-301. Ownership of real property.

The officers and members of a lodge of the order of Knights of Pythias may purchase, own, hold, or take, by deed or otherwise, such quantity of ground or real estate for the purpose of building a hall, or edifice, or for a burial place, as may be deemed necessary by such officers and members, or to purchase, own, hold, or take, by deed or otherwise, a lot and building, or lots and buildings, for the purpose of converting the same into and using the same as a suitable hall. The deed, or other instrument, shall vest the legal and equitable title to the real estate in such officers and members and their successors, in the name of the lodge, and for its use and benefit.

Acts 1905, ch. 141, § 1; Shan., § 2577a1; mod. Code 1932, § 4416; T.C.A. (orig. ed.), §§ 48-1516, 48-4-301.

48-102-302. Debt incurred for purchase or improvement of realty.

All such lodges have the power to issue evidences of indebtedness, bearing legal interest, secured by a mortgage or deed of trust on the real estate, for the purpose of purchasing a suitable building or buildings for hall purposes or of erecting a building or hall upon their lots, or for the purpose of converting a building or buildings into a suitable hall, or for the purpose of improving or repairing the same, or furnishing the same, or for the purchasing and paying for grounds for burial purposes. All of the lodges which shall issue evidences of indebtedness under this part are empowered to execute a mortgage or deed of trust upon the real estate to secure and make certain the payment of the indebtedness thereby secured.
Such lodges are further empowered, through their proper officials, to execute a mortgage or deed of trust upon any real estate owned by them for the purpose of borrowing money to purchase ground for such burial place, or ground for erecting or remodeling, improving, or repairing a building suitable for hall purposes, as provided for in this part, or for repairing or improving the same whenever it may become necessary, or to secure the payment of any indebtedness already contracted for, as authorized under the terms of this part.

Acts 1905, ch. 141, § 2; Shan., § 2577a2; Code 1932, § 4417; T.C.A. (orig. ed.), §§ 48-1517, 48-4-302.

48-102-303. Execution of mortgages and evidences of indebtedness — Liability of members.

The chancellor commander of the lodge has the power to execute and issue the evidences of indebtedness, and to execute any mortgage, deed of trust, transfer, or other conveyance provided for in this part, whenever the chancellor has been instructed by a meeting of the chancellor's lodge to do so. All such evidences of indebtedness, mortgages, deeds of trust, or other conveyances provided for in this part shall be executed by such chancellor commander in the name of the lodge, and shall be attested by the keeper of records and seal of such lodge under its seal.
Neither the chancellor commander, nor the keeper of records and seal, nor any member of the lodge, shall be individually liable for any of the indebtedness incurred by authority of this part.

Acts 1905, ch. 141, § 3; Shan., § 2577a3; Code 1932, § 4418; T.C.A. (orig. ed.), §§ 48-1518, 48-4-303.

Part 4
Veterans' Organizations

48-102-401. Ownership of realty.

The officers and members of a post of the American Legion, Veterans of Foreign Wars, Disabled American Veterans, American Veterans of World War II, Veterans of World War I of the U.S.A., Inc., or any other veterans' organization operating in this state and chartered by the congress of the United States may purchase, own, hold, or take by deed, or otherwise, such quantity of ground or real estate for the purpose of building a hall, or for a burial place, or otherwise, as may be deemed necessary by such officers and members, or may purchase, own, hold, or take by deed or otherwise a lot and building or lots and buildings, for the purpose of converting into and using the same as a suitable hall, or otherwise. The deed or other instrument shall vest title to the real estate, in the name of the post and for its use and benefit and that of its members.

Acts 1925, ch. 152, § 1; Shan. Supp., § 2577a14; Code 1932, § 4428; Acts 1945, ch. 90, § 1; C. Supp. 1950, § 4428; Acts 1967, ch. 298, § 2; T.C.A. (orig. ed.), §§ 48-1519, 48-4-401.

48-102-402. Debts for purchase or improvement of realty.

Posts of the American Legion, Veterans of Foreign Wars, Disabled American Veterans, American Veterans of World War II, Veterans of World War I of the U.S.A., Inc., or any other veterans' organization operating in this state and chartered by the congress of the United States have the authority and power to issue evidence of indebtedness, bearing legal interest, secured by a mortgage or deed of trust on the real estate, for the purpose of purchasing a suitable building or buildings for hall purposes or of erecting a building or hall upon their lots or for the purpose of converting a building or buildings into a suitable hall, or for the purpose of improving or repairing the same, or furnishing the same, or for purchasing and paying for grounds for burial purposes, or otherwise. All the posts which shall issue evidence of indebtedness under this part are empowered to execute a mortgage or deed of trust upon the real estate to secure and make certain the payment of the indebtedness thereby secured.
Such posts are further empowered, through their proper officials, to execute a mortgage or deed of trust upon any property or real estate owned by them, for the purpose of borrowing money to purchase ground for such burial place, or ground for erecting or remodeling, improving, or repairing a building suitable for hall purposes, or for repairing, or improving the same, whenever it may become necessary, or to secure the payment of any indebtedness.

Acts 1925, ch. 152, § 2; Shan. Supp. § 2577a15; Code 1932, § 4429; Acts 1945, ch. 90, § 1; C. Supp. 1950, § 4429; Acts 1967, ch. 298, § 3; T.C.A. (orig. ed.), §§ 48-1520, 48-4-202.

48-102-403. Execution of mortgages and evidences of indebtedness — Liability of members.

The commander of the post has the authority and power to execute and issue the evidence of indebtedness and to execute any mortgage, deed of trust, transfer, or other such conveyance, whenever the commander has been instructed by a regular meeting or meetings called upon ten (10) days' written notice to all members of the post, for that purpose, so to do. All such evidence of indebtedness, mortgages, deeds of trust, or other conveyances shall be executed by such commander in the name of the post, and shall be attested by the adjutant of such post.
Neither the commander, nor the adjutant, nor any member of the post, shall be individually liable for any of the indebtedness incurred by authority of this part.

Acts 1925, ch. 152, § 3; Shan. Supp., § 2577a16; Code 1932, § 4430; T.C.A. (orig. ed.), §§ 48-1521, 48-4-403.

48-102-404. Sale of property.

All posts of the American Legion, Veterans of Foreign Wars, Disabled American Veterans, American Veterans of World War II, Veterans of World War I of the U.S.A., Inc., or any other veterans' organization operating in this state and chartered by the congress of the United States have the power, after having acquired any land or property by virtue of this part, to sell, and convey the same, or any part of the same, by proper deed, whenever in their opinion such sale is deemed advisable or necessary; provided, that the sale or sales be authorized at a regular meeting of such post, or at a special meeting of such post, upon ten (10) days' written notice to all members of the post, the notice stating the purpose of the special meeting.

Acts 1927, ch. 52, § 2; mod. Code 1932, § 4431; Acts 1945, ch. 90, § 1; mod. C. Supp. 1950, § 4431; Acts 1967, ch. 298, § 4; T.C.A. (orig. ed.), §§ 48-1522, 48-4-404.

48-102-405. Authority of commander to implement sale.

The commander of the post has the full power to execute in the name of the post and deliver all deeds of conveyance necessary to put into effect the sale or sales whenever the commander has been so instructed and directed by the post, and the deed of conveyance shall be attested by the adjutant of the post.

Acts 1927, ch. 52, § 3; mod. Code 1932, § 4432; T.C.A. (orig. ed.), §§ 48-1523, 48-4-405.

Chapter 103
Corporate Takeovers

Part 1
Tennessee Investor Protection Act

48-103-101. Short title.

This part shall be known and may be cited as the “Tennessee Investor Protection Act.”

Acts 1976, ch. 536, §§ 1, 2; T.C.A., §§ 48-2101, 48-5-101, 48-35-101.

Cross-References. Applicability of business corporation law, title 48, chs. 11-27, to corporations existing on January 1, 1988, title 48, ch. 27.

Application of nonprofit corporation law, title 48, chs. 51-67, to corporations existing on January 1, 1988, § 48-68-101.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 42,

Law Reviews.

State Regulation of the Market for Corporate Control: MITE, CTS, and Their Progeny (M. Wayne Marr, Robert W. Mouton), 20 Mem. St. U.L. Rev. 1 (1989).

NOTES TO DECISIONS

1. Constitutionality.

The Investor Protection Act violates the commerce clause of the United States Constitution to the extent that it applies to target corporations organized under the laws of states other than Tennessee. Tyson Foods, Inc. v. McReynolds, 865 F.2d 99, 1989 U.S. App. LEXIS 490 (6th Cir. Tenn. 1989).

48-103-102. Part definitions.

As used in this part, unless the context otherwise requires:

“Affiliate” of a person means any person controlling, controlled by or under common control with such person. For purposes of this section, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract, or otherwise;
“Associate” of a person means:
1. Any corporation or other organization of which such person is an officer or partner or is directly or indirectly the beneficial owner of ten percent (10%) or more of any class of equity securities;
2. Any person who is directly or indirectly the beneficial owner of ten percent (10%) or more of any class of equity securities of such person;
3. Any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as a trustee or in a similar fiduciary capacity; and
4. Any relative or spouse of such person or any relative of such spouse, any one (1) of whom has the same home as such person;
“Broker-dealer” means any person engaged, directly or indirectly, as agent, broker or principal, in the business of purchasing, offering, selling or otherwise dealing or trading in securities for the account of others or for such person's own account. “Broker-dealer” includes “broker-dealer” as defined in § 48-1-102;
“Commissioner” means the commissioner of commerce and insurance;
“Equity security” means any share of stock or similar securities, or any securities convertible into such securities, or carrying any warrant or right to subscribe to or purchase such securities, or any such warrant or right, or any other security which the commissioner shall consider necessary or appropriate, by such rules and regulations as the commissioner may prescribe in the public interest or for the protection of investors, to deem to be an equity security;
“Offeree” means the record holder and beneficial owner of equity securities which an offeror acquires or offers to acquire in connection with a takeover offer;
“Offeree company” means a corporation or other issuer of equity securities which is incorporated or organized under the laws of this state or has its principal office in this state, which has substantial assets located in this state, and which is or may be involved in a takeover offer relating to any class of its equity securities;
1. “Offeror” means a person who makes or in any way participates in making a takeover offer, and includes all affiliates and associates of that person and all persons acting jointly or in concert for the purpose of acquiring, holding or disposing of or exercising any voting rights attaching to the equity securities for which a takeover offer is made;
2. “Offeror” does not include any bank or broker-dealer loaning funds to an offeror in the ordinary course of its business, or any bank, broker-dealer, attorney, accountant, consultant, employee, or other person furnishing information or advice to or performing ministerial duties for an offeror and not otherwise participating in the takeover offer;
“Person” means any individual, partnership, limited partnership, syndicate, corporation, joint-stock company, unincorporated organization, trust or association; and
1. “Takeover offer” means the offer to acquire or the acquisition of any equity security of an offeree company, pursuant to a tender offer or request or invitation for tenders, if after the acquisition thereof the offeror would be directly or indirectly a beneficial owner of more than ten percent (10%) of any class of the outstanding equity securities of the offeree company;
2. “Takeover offer” does not include an offer to acquire or acquisition of any equity security of an offeree company pursuant to:
  1. Broker transactions effected by or through a broker-dealer in the ordinary course of its business when such transactions are not entered into for the purpose of, and not having the effect of, changing or influencing the control or management of the offeree company;
  2. An exchange offer for equity securities of another issuer if the offer is for the sole account of the offeror, is in good faith and not for the purpose of avoiding this section, and is exempt pursuant to § 4 of the Securities Act of 1933 (15 U.S.C. § 77d), as amended, and does not involve any public offering;
  3. An offer made in isolated transactions, for the sole account of the offeror, in good faith and not for the purpose of avoiding this section, to not more than fifteen (15) persons in this state during any period of twelve (12) consecutive months;
  4. An offer made on substantially equal terms to holders of record of any class of the equity securities of the offeree company, if the number of such holders does not exceed fifty (50) at the time of the offer; or
  5. An offer made on substantially equal terms to all shareholders and as to which the offeree company, acting through its board of directors, has recommended acceptance to such shareholders, if the terms thereof, including any inducements to officers or directors which are not available to all shareholders, have been disclosed to such shareholders.

Acts 1976, ch. 536, § 2; T.C.A., § 48-2102; Acts 1985, ch. 361, § 1; T.C.A., §§ 48-5-102, 48-35-102.

NOTES TO DECISIONS

1. Constitutionality.

48-103-103. Limitations on offerors.

No offeror shall make a takeover offer if the offeror beneficially owns, directly or indirectly, five percent (5%) or more of any class of the equity securities of the offeree company, any of which were purchased within one (1) year before the proposed takeover offer, unless the offeror, before making such purchase, has made a public announcement of the offeror's intention with respect to changing or influencing the management or control of the offeree company, has made a full, fair and effective disclosure of such intention to the persons from whom the offeror intends to acquire such securities, and has filed with the commissioner and with the offeree company a statement signifying such intentions and containing such additional information as the commissioner by rule prescribes.
No offeror may make a takeover offer involving an offeree company which is not made to the holders of record or beneficial owners of the equity securities of the offeree company who reside in this state, or which is not made to such persons on substantially the same terms as the offer is made to those holders or owners who reside outside this state.
An offeror shall provide that any equity securities of an offeree company deposited or tendered pursuant to a takeover offer may be withdrawn by or on behalf of any offeree at any time within seven (7) days from the date the offer has become effective under this part, or after sixty (60) days from the date the offer has become effective under this part, except as the commissioner may otherwise prescribe by rule or order for the protection of investors.
If an offeror makes a takeover offer for less than all the outstanding equity securities of any class, and if the number of securities deposited or tendered pursuant thereto within ten (10) days after the offer has become effective under this part and copies of the offer or notice of any increase in the consideration offered, are first published or sent or given to offerees is greater than the number the offeror has offered to accept and pay for, the securities shall be accepted pro rata, disregarding fractions, according to the number of securities deposited or tendered by or on behalf of each offeree.
If an offeror varies the terms of a takeover offer before its expiration date by increasing the consideration offered to offerees, the offeror shall pay the increased consideration for all equity securities accepted, whether such securities have been accepted by the offeror before or after the variation in the terms of the offer.
No offeror may acquire, remove or exercise control, directly or indirectly, over any assets of an offeree company located in this state in connection with a takeover offer unless the takeover offer is effective or exempt under this part, except as permitted by order of the commissioner.

Acts 1976, ch. 536, § 2; T.C.A., § 48-2103; Acts 1985, ch. 361, § 2; T.C.A., §§ 48-5-103, 48-35-103.

Law Reviews.

Securities Issuer Liability for Third Party Misstatements: Refining the Entanglement Standard, 53 Vand. L. Rev. 947 (2000).

48-103-104. Registration of takeover offers.

It is unlawful for any person to make a takeover offer involving an offeree company or to acquire any equity security of an offeree company pursuant to a takeover offer, unless such offer is effective under this part or is exempted by rule or order of the commissioner. Before a takeover offer can become effective under this part, the offeror shall file with the commissioner a registration statement containing the information prescribed in subsection (b) and, not later than the date of filing the registration statement, send a copy of the registration statement by certified mail to the offeree company at its principal office and publicly disclose the material terms of the proposed offer.
The registration statement shall be filed on forms prescribed by the commissioner and shall be accompanied by the consent to service of process specified in § 48-103-107, and the filing fee specified in § 48-103-109, and shall contain the following information and such additional information as the commissioner by rule or order prescribes:
1. The identity and background of all persons by whom or on whose behalf the acquisition of any equity security of the offeree company has been or is to be effected;
2. The course and amount of funds or other consideration used or to be used in acquiring any equity security, including a statement describing any securities which are being offered in exchange for the equity securities of the offeree company, and if any part of the acquisition price is or will be represented by borrowed funds or other consideration, a description of the transaction and the names of the parties thereto, except that where a source of funds is a loan made in the ordinary course of business by a bank, if the person filing such statement so requests, the name of the bank shall not be made available to the public;
3. If the purpose of the acquisition is to gain control of the offeree company, a statement of any plans or proposals which such person has, upon gaining control, to liquidate the offeree company, relocate any operations of the company, sell its assets, effect its merger or consolidation, or make any other changes in its business, corporate structure, management or personnel;
4. The number of shares or units of any equity security of the offeree company of which each such person and each associate of such person and each person included as an offeror is the beneficial owner or which each such person has a right to acquire, directly or indirectly, together with the name and address of each such person;
5. Material information as to any contracts, arrangements or understanding with any person with respect to any equity security of the offeree company, including transfers of any equity security, joint ventures, loan or option agreements, puts and calls, guarantees of loan, guarantees against loss, guarantees of profits, division of losses or profits, or the giving or withholding of proxies, naming the persons with whom such contracts, arrangements or understanding have been entered into;
6. Material information concerning the organization and operations of any offeror which is a corporation, including the year, form and jurisdiction of its organization, a description of the business done by the offeror and any material changes therein during the past three (3) years, a description of each class of the offeror's capital stock and its long-term debt, a description of the location and character of the principal properties of the offeror and its subsidiaries, a description of any pending legal or administrative proceedings which is material to the offer in which the offeror or any of its subsidiaries is a party, the names of all directors and executive officers of the offeror and their material business activities and affiliations during the past three (3) years, and financial statements of the offeror for its three (3) most recent annual accounting periods and most recent quarterly period;
7. Material information concerning the identity and background of any offeror who is not a corporation, including the offeror's material business activities and affiliations during the past three (3) years, such financial statements of the offeror as may be prescribed by rule or order of the commissioner, and a description of any material pending legal or administrative proceedings in which the offeror is a party; and
8. Three (3) copies of the proposed takeover offer, including all material terms thereof, in the form proposed to be published, sent or delivered to offerees.
The commissioner may require the offeror to file any other documents, exhibits and information that the commissioner deems material to the takeover offer, and the commissioner may permit the omission of any of the information specified in subsection (b) if the commissioner determines that such information is not required for the protection of offerees.

Acts 1976, ch. 536, § 2; T.C.A., § 48-2104; Acts 1985, ch. 361, §§ 3-7; T.C.A., §§ 48-5-104, 48-35-104.

Law Reviews.

Defensive Tactics in Tender Offers — Does Anything Go? (Daniel J. Morrissey), 53 Tenn. L. Rev. 103 (1985).

48-103-105. Filing of solicitation materials.

Copies of all advertisements, circulars, letters or other materials of the offeror or the offeree company, soliciting or requesting the acceptance or rejection of the takeover offer, shall be filed with the commissioner and sent to the offeree company or offeror, respectively, not later than the time copies of such solicitation materials are first published or used or sent to offerees.
Solicitation materials used in connection with a takeover offer shall not contain any false statement of a material fact or omit to state a material fact necessary to make any statement made therein not misleading. The commissioner may by rule or order prohibit the use of any solicitation material deemed by the commissioner to be false or misleading.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2105, 48-5-105, 48-35-105.

48-103-106. Fraudulent and deceptive practices.

It is unlawful for any offeror or offeree company, or any affiliate or associate of an offeror or offeree company, or any broker-dealer acting on behalf of any offeror or offeree company to engage in any fraudulent, deceptive or manipulative acts or practices in connection with a takeover offer. Fraudulent, deceptive and manipulative acts or practices include, but shall not be limited to, the following:

Publication, or use in connection with the offer, of any false statement of a material fact or omitting to state a material fact necessary to make any statement made by such entity which is not misleading, but not including the mailing by an offeree company to its shareholders of solicitation materials published by an offeror;
Sale by an officer, director, affiliate or associate of an offeree company in connection with a takeover offer of all or part of their equity securities to the offeror at a price higher than that to be paid to other offerees pursuant to the offer;
Refusal by an offeree company to permit, if required to do so by the applicable state corporation statute, an offeror who is a shareholder of record to examine its list of shareholders and to make extracts therefrom for the purpose of making a takeover offer in compliance with this part; and
Acquisition by or through a broker-dealer acting on behalf of an offeror of any equity security of the offeree company in connection with a takeover offer, unless such takeover offer is effective under this part or exempted by rule or order of the commissioner, or unless the broker-dealer did not know, and in the exercise of reasonable care could not have known, that the person for whom it acted was an offeror or that the acquisition was in connection with a takeover offer. The provisions and penalties of §§ 48-1-112 and 48-1-118 shall apply to broker-dealers who engage in any fraudulent, deceptive or manipulative acts or practices in connection with a takeover offer and who are registered as broker-dealers pursuant to chapter 1 of this title.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2106, 48-5-106, 48-35-106.

Law Reviews.

Defensive Tactics in Tender Offers — Does Anything Go? (Daniel J. Morrissey), 53 Tenn. L. Rev. 103 (1985).

48-103-107. Consent to service.

Upon any application for registration of a takeover offer, there shall be filed with the application the irrevocable written consent of the offeror that in suits, proceedings and actions growing out of this part, the service on the commissioner of any notice, process or pleading therein authorized by the laws of this state shall be as valid and binding as if due service had been made on the offeror.
The form of such consent shall be prescribed by the commissioner.
Service of any notice, process or pleadings in any suits, proceedings and actions growing out of the violation of this part against an offeror who has filed a consent to service with the commissioner shall, if made on the commissioner, be by duplicate copies, one (1) of which shall be filed in the office of the commissioner and the other immediately forwarded by the commissioner by registered mail to the principal office of the offeror against which the notice, process or pleadings are directed.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2107, 48-5-107, 48-35-107.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-103-108. Administration — Rules and orders — Hearings.

1. This part shall be administered by the commissioner, who may exercise all powers granted to the commissioner by chapter 1 of this title which are not inconsistent with this part.
2. The commissioner is authorized to promulgate such rules and regulations, consistent with this part, as are necessary to the administration thereof in carrying out the powers and duties vested in the commissioner by this part.
3. The commissioner may by rule or order exempt from any provisions of this part takeover offers that the commissioner determines are not made for the purpose or do not have the effect of changing or influencing the control of an offeree company or where compliance with this part is not necessary for the protection of the shareholders of the offeree company, and the commissioner may similarly exempt any persons from the filing of statements under this part.
4. The commissioner may by order direct any person to file any statement provided for in this part, if it appears that such person is delinquent in the filing of such statement.
All hearings before the commissioner shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5, and each party to such proceeding shall have all the procedural rights set out therein including, but not limited to, the right to proper notice, the right to confront witnesses and examine the evidence against the party, the right to cross-examine witnesses, the right to counsel, the right to present evidence in the party's own behalf and the right to subpoena witnesses, books, records, papers and other objects. Such hearing may, at the option of the agency and upon agreement by the secretary of state or the secretary of state's designee, be conducted by a hearing officer from the administrative procedures division of the secretary of state's office. Judicial review of the final agency decision in a contested case shall also be in accordance with the Uniform Administrative Procedures Act.
The commissioner has the authority to promulgate rules in order to effectuate the purposes and objectives set out in this part, and such rules shall be promulgated and published in accordance with the Uniform Administrative Procedures Act. As provided in that chapter, any interested person has the right to petition the agency for the adoption, amendment or repeal of a rule or to petition the agency involved for a ruling on the applicability of a rule to any person, property or state of facts.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2108, 48-5-108, 48-35-108.

48-103-109. Fees and expenses.

The commissioner shall charge a filing fee of one hundred dollars ($100) for a registration statement filed by an offeror and one hundred dollars ($100) for a request for hearing filed by an offeree company.
The expenses reasonably attributable to any hearing held under this part shall be charged ratably to the offeror and the offeree company, unless otherwise ordered by the commissioner.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2109, 48-5-109, 48-35-109.

48-103-110. Injunction.

Whenever it appears to the commissioner that any person, including an affiliate or associate of an offeror or offeree company, has engaged or is about to engage in any act or practice constituting a violation of this part or any rule or order hereunder, the commissioner may apply for equitable relief to the chancery court of Davidson County, or any other chancery court having jurisdiction. Upon a proper showing, the court may grant a permanent or temporary injunction or restraining order, or may order recision of any sales or purchases of securities determined to be unlawful under this part or any rule or order hereunder. The court shall not require the commissioner to post a bond.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2110, 48-5-110, 48-35-110.

48-103-111. Criminal penalties.

1. Any person, including an affiliate or associate of an offeror or offeree company, who knowingly violates any provision of this part, or any rule promulgated under this part, or any order issued by the commissioner under any provision of this part, commits a Class A misdemeanor.
2. Any person who knowingly engages in a fraudulent practice declared unlawful in § 48-103-106 commits a Class E felony.
The commissioner may transmit such evidence as may be available concerning violations of this part or of any rule or order hereunder to the district attorney general in the district in which the offense was committed who may, in the district attorney general's discretion, institute criminal proceedings to enforce the penalties prescribed in this part.
Nothing in this part limits the power of the state to punish any person for any conduct which constitutes a crime under any other statute.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2111, 48-5-111; Acts 1989, ch. 591, §§ 44, 111; T.C.A., § 48-35-111.

Code Commission Notes.

Portions of this section have been rewritten by the executive secretary to the Tennessee code commission to implement Acts 1989, ch. 591, § 111, effective November 1, 1989, which requested that the executive secretary amend this section by deleting the penalty provision and inserting language to indicate violation of the section is a Class A misdemeanor.

Cross-References. Penalty for Class A misdemeanor, § 40-35-111.

Penalty for Class E felony, § 40-35-111.

48-103-112. Civil liabilities.

Any offeror, who purchases a security in connection with a takeover offer not in compliance with this part or by means of any false statement of a material fact or omission to state a material fact necessary to make any statement made by the offeror not misleading, shall be liable to the person selling the security to the offeror, who may sue either at law or in equity to recover the security, plus any income received by the offeror thereon, upon tender of the consideration received, or for damages. Damages are the excess of either the value of the security on the date of purchase or its present value, whichever is greater, over the present value of the consideration received for the security. Tender requires only notice of willingness to pay the amount specified in exchange for the security. Any notice may be given by service as provided in § 48-103-107 or by certified mail to the last known address of the person liable.
Every person who directly or indirectly controls a person liable under subsection (a), every partner, principal executive officer or director of such person, every person occupying a similar status or performing similar functions, every employee of such person who materially aids in the act or transaction constituting the violation, and every broker-dealer or agent who materially aids in the act or transaction constituting the violation, is also liable jointly or severally with and to the same extent as such person, unless the person liable hereunder proves that the person liable did not know, and in the exercise of reasonable care could not have known, of the existence of facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable.
No action may be maintained under this section unless commenced before the expiration of two (2) years after the act or transaction constituting the violation.
The rights and remedies under this part are in addition to any other rights or remedies that may exist in law or equity.

Acts 1976, ch. 536, § 2; T.C.A., §§ 48-2112, 48-5-112, 48-35-112.

48-103-113. Applicability of part.

This part does not apply to “state banks” as defined in § 45-1-103, to “savings and loan associations,” as defined by § 45-3-104, or to “public utilities,” as defined by § 65-4-101.
If the offeree company is a domestic insurance company whose takeover is subject to title 56, chapter 10, part 2, this part shall not apply and title 56, chapter 10, part 2 shall control. For purposes of this section, “domestic insurance company” has the meaning as that set forth in § 56-10-201.
This part shall not apply to public utilities, public utility holding companies, national banking associations, bank holding companies or savings and loan associations subject to regulation by a federal agency.
This part shall not apply to any offer involving a vote by holders of equity securities of the offeree company, pursuant to its charter or articles of incorporation or the applicable corporation statute, on a merger, consolidation or sale of corporate assets in consideration of the issuance of securities of another corporation, or on a sale of its securities in exchange for cash or securities of another corporation.

Acts 1976, ch. 536, § 2; impl. am. Acts 1978, ch. 708, §§ 1.04, 5.25, 6.01; 1979, ch. 315, § 1; T.C.A., §§ 48-2114, 48-5-114, 48-35-113.

Part 2
Tennessee Business Combination Act

48-103-201. Short title — Part supplemental.

This part shall be known and may be cited as the “Tennessee Business Combination Act.”
The requirements of this part and parts 3-5 of this chapter shall be in addition to the requirements of applicable law, including chapters 11-27 of this title and to the applicable requirements contained in the charter or bylaws of a resident domestic corporation.

Acts 1988, ch. 500, § 1; T.C.A., § 48-35-201.

Cross-References. Merger and share exchange, title 48, ch. 21.

Tennessee Authorized Corporation Protection Act, title 48, ch. 103, part 4.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Tennessee Greenmail Act, title 48, ch. 103, part 5.

Law Reviews.

State Regulation of the Market for Corporate Control: MITE, CTS, and Their Progeny (M. Wayne Marr, Robert W. Mouton), 20 Mem. St. U.L. Rev. 1 (1989).

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 42.

NOTES TO DECISIONS

1. Constitutionality.

The Tennessee Business Combination Act violates the commerce clause of the United States Constitution to the extent that it applies to target corporations organized under the laws of states other than Tennessee. Tyson Foods, Inc. v. McReynolds, 865 F.2d 99, 1989 U.S. App. LEXIS 490 (6th Cir. Tenn. 1989).

48-103-202. Public policy.

The general assembly hereby finds and declares the following to be the public policy of this state:

“Resident domestic corporations,” as defined by this part, represent and affect, through their ongoing business operations, a variety of constituencies including Tennessee shareholders, employees, customers, suppliers, and local communities and their economies whose welfare is vital to this state's interests;
In order to promote such welfare, the regulation of the internal affairs of resident domestic corporations as reflected in the laws of the state should allow for the stable long-term growth of resident domestic corporations;
Business combinations involving Tennessee's resident domestic corporations can impair local employment conditions and disrupt local commercial activity. These business combinations often prevent shareholders from realizing the full value of their holdings through forced mergers in which long-term investors can be subjected to the compulsory surrender of their shares with only limited rights to dissent. The threat of these business combinations also deprives shareholders of value by encouraging the adoption of short-term business strategies which may not be in the long-term interest of the corporation or this state;
Present Tennessee laws facilitate business combinations which left unbalanced could harm the economy of this state by weakening corporate performance and causing unemployment, plant closings, reduced charitable donations, a declining population base, reduced income to fee-supported local government services, a reduced tax base, and reduced income to other businesses;
Tennessee has a substantial and legitimate interest in regulating the internal affairs of its resident domestic corporations which have significant business contacts with this state, including regulating business combinations involving its resident domestic corporations which, individually or in the aggregate, employ a large number of citizens of the state, pay significant taxes, and have a substantial economic base in Tennessee; and
The general assembly intends this part to balance the substantial and legitimate interests of Tennessee in regulating the internal affairs of its resident domestic corporations as they impact upon the various constituencies and to promote and encourage long-term corporate growth.

Acts 1988, ch. 500, § 1; T.C.A., § 48-35-202.

Law Reviews.

The Conundrum of Directors' Duties in Nearly Insolvent Corporations (Mike Roberts), 23 Mem. St. U.L. Rev. 273 (1993).

48-103-203. Part definitions.

As used in this part, unless the context otherwise requires:

“Affiliate,” when used to indicate a relationship with an interested shareholder, means a person that directly or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, or is acting in concert with, a specified person;
“Announcement date,” when used in reference to any business combination, means the date of the first public announcement of a final definitive proposal for such business combination;
“Associate,” when used to indicate a relationship with an interested shareholder, means:
1. Any domestic or foreign corporation, partnership, syndicate, joint venture or other unincorporated organization of which such person is an officer, director, manager or partner (either general or limited) or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of voting stock;
2. All members or investors in any partnership (either general or limited), syndicate or other unincorporated organization described in subdivision (3)(A);
3. Any trust or other estate in which such person has at least a ten percent (10%) beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; or
4. Any parent, child, sibling, in-law (mother, father, sons and daughters), of such person or any relative of such person who has the same residence as such person;
“Beneficial owner,” when used with respect to any class or series of shares or other securities, means a person that:
1. Individually, or with or through any of its affiliates or associates, beneficially owns such shares or other securities, directly or indirectly;
2. Individually, or with or through any of its affiliates or associates, has or shares with others:
  1. The right to acquire or dispose of, or direct the disposition of such shares or other securities (whether such right is exercisable immediately or only after the passage of time or the satisfaction of one (1) or more other conditions), pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; provided, that a person shall not be deemed the beneficial owner of any shares or other securities tendered pursuant to a tender or exchange offer made by such person or any of such person's affiliates or associates until such tendered shares or other securities are accepted for purchase or exchange; or
  2. The right to vote or direct the voting of such shares or other securities pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, that a person shall not be deemed the beneficial owner of any shares or other securities under this subdivision (4)(B)(ii) if the agreement, arrangement or understanding to vote such shares or other securities:

Arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made in accordance with the applicable rules and regulations under the Exchange Act; and
Is not then reportable on a Schedule 13D or 13G under the Exchange Act (or any comparable or successor report); or

Has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in subdivision (4)(B)) or disposing of such shares or other securities with any other person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such shares;

“Business combination,” when used in reference to any resident domestic corporation and any interested shareholder of such resident domestic corporation or any affiliate or associate of such interested shareholder, means:

Any merger or consolidation of such resident domestic corporation or any subsidiary of such resident domestic corporation with:

An interested shareholder or any affiliate or associate of such interested shareholder; or

Any other corporation (whether or not itself an interested shareholder of such resident domestic corporation) which is, or after such merger or consolidation would be, an affiliate or associate of such interested shareholder;

Any exchange of shares or securities convertible into shares of the resident domestic corporation with:

An interested shareholder or any affiliate or associate of such interested shareholder; or

Any other domestic or foreign corporation (whether or not itself an interested shareholder of the resident domestic corporation) which is, or after the exchange would be, an affiliate or associate of the interested shareholder;

Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one (1) transaction or a series of transactions) to, with or proposed by or on behalf of an interested shareholder, or any affiliate or associate of such interested shareholder, of assets of such resident domestic corporation or any subsidiary of such resident domestic corporation:

Having an aggregate market value equal to ten percent (10%) or more of the aggregate market value of all the assets, determined on a consolidated basis, of such resident domestic corporation;

Having an aggregate market value equal to ten percent (10%) or more of the aggregate market value of all the outstanding shares of such resident domestic corporation; or

Representing ten percent (10%) or more of the net income determined on a consolidated basis of such resident domestic corporation;

Any transaction which results in the issuance or transfer by such resident domestic corporation or any subsidiary of such resident domestic corporation (in one (1) transaction or a series of transactions) of any shares or securities convertible into shares of such resident domestic corporation or any subsidiary of such resident domestic corporation to such interested shareholder or any affiliate or associate of such interested shareholder except pursuant to the exercise of warrants or rights to purchase shares or securities convertible into shares, or a dividend or distribution paid or made pro rata to all shareholders of such resident domestic corporation, or in connection with the exercise or conversion of securities exercisable for or convertible into shares of such resident domestic corporation (or any subsidiary of such resident domestic corporation) which securities were issued and outstanding prior to the interested shareholder's share acquisition date;

The adoption of any plan or proposal for the liquidation or dissolution of such resident domestic corporation, or any reincorporation of the resident domestic corporation in another state or jurisdiction, proposed by or on behalf of, or pursuant to any agreement, arrangement or understanding (whether or not in writing) with, an interested shareholder or any affiliate or associate of such interested shareholder;

Any transaction (whether or not with or into or otherwise involving such interested shareholder), proposed by or on behalf of, or pursuant to any agreement, arrangement or understanding (whether or not in writing) with, an interested shareholder or any affiliate or associate of such interested shareholder, which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of shares or securities convertible into shares entitled to vote or securities that are exchangeable for, convertible into, or carry a right to acquire shares entitled to vote, of such resident domestic corporation or any subsidiary of such resident domestic corporation which are, directly or indirectly, owned or controlled by such interested shareholder or any affiliate or associate of such interested shareholder, except as a result of immaterial changes due to fractional share adjustments; or

Any loans, advances, guarantees, pledges, financial assistance, security arrangements, restrictive covenants or any tax credits or other tax advantages provided by, through or to such resident domestic corporation or any subsidiary of the resident domestic corporation as a result of which an interested shareholder or any affiliate or associate of such interested shareholder receives a benefit, directly or indirectly, except proportionately as a shareholder of such resident domestic corporation;

“Consummation date,” with respect to any business combination, means the date of consummation of such business combination;

“Continuing shares” means shares held continuously of record in the name of the beneficial owner or the beneficial owner's trustee, guardian, administrator, executor, conservator or similar fiduciary on behalf of such beneficial owner, on the resident domestic corporation's stock transfer records or reported to the securities and exchange commission on a Schedule 13D or 13G or Form 3 or 4 filing pursuant to the Exchange Act for one (1) year or more prior to the date of the shareholders' meeting at which the charter or bylaw amendment is considered;

“Control,” including the terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting stock, by contract or otherwise. A person's beneficial ownership of ten percent (10%) or more of the voting power of a corporation's outstanding voting stock shall create a presumption that such person has control of such corporation. Notwithstanding the foregoing, a person shall not be deemed to have control of a corporation if such person holds voting power, in good faith and not for the purpose of circumventing this part, as an agent, bank, broker, nominee, custodian or trustee or one (1) or more beneficial owners who do not individually or as a group have control of such corporation;

“Exchange” means any share exchange whether pursuant to a plan of exchange under §§ 48-21-102, 48-21-104, and 48-21-105 or any successor or related statute, rule or law of this state or the comparable statute, rule or law of any other state or jurisdiction;

“Exchange Act” means the Act of Congress known as the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as the same has been or hereafter may be amended from time to time;

“Interested shareholder,” when used in reference to any resident domestic corporation, means any person (other than such resident domestic corporation or any subsidiary of such resident domestic corporation) that:

(i) Is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of any class or series of the then outstanding voting stock of such resident domestic corporation; or

Is an affiliate or associate of such resident domestic corporation and at any time within the five-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of any class or series of the then outstanding stock of such resident domestic corporation;

For the purpose of determining whether a person is an interested shareholder, the number of shares of voting stock of such resident domestic corporation deemed to be outstanding shall include shares deemed to be beneficially owned by such person through application of subdivision (4), but shall not include any other unissued shares of voting stock of such resident domestic corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise;

“Market value,” when used in reference to property of any resident domestic corporation, means:

In the case of shares, the highest closing sale price during the thirty-day period immediately preceding the date in question of a share of such shares on the composite tape for New York Stock Exchange-listed stocks, or, if such shares are not quoted on such composite tape or if such shares are not listed on such exchange, on the principal United States securities exchange registered under the Exchange Act on which such shares are listed or, if such shares are not listed on any such exchange, the highest closing sale price (or bid quotation if no such sale price exists) with respect to such shares during the thirty-day period preceding the date in question on the National Association of Securities Dealers, Inc., Automated Quotations System or any successor system then in use, or if no such price or quotation is available, the fair market value on the date in question of a share of such resident domestic corporation's stock as determined by the board of directors of such resident domestic corporation in good faith; or

In the case of property other than cash or shares, the fair market value of such property on the date in question as determined by the board of directors of such resident domestic corporation in good faith;

“Merger” means any merger whether pursuant to a plan of merger under §§ 48-21-102, 48-21-104, 48-21-105 and 48-21-109 or any successor or related statute, rule or law of this state or the comparable statute, rule or law of any other state or jurisdiction respecting mergers or consolidations;

“Person” means any individual, domestic or foreign corporation, partnership (general or limited), syndicate, joint venture, trust estate, unincorporated association or other entity;

“Resident domestic corporation” means an issuer of voting stock which, as of the share acquisition date in question, is organized under the laws of Tennessee and meets two (2) or more of the following requirements:

(i) The corporation has more than either ten thousand (10,000) or ten percent (10%) of its shareholders resident in Tennessee or more than ten percent (10%) of its outstanding shares held by resident Tennessee shareholders;

For purposes of this subdivision (15), the record date for determining the percentage, number and residency of the outstanding shares and shareholders shall be the last record date before the event requiring that the determination be made. Residence of each shareholder shall be presumed to be the address appearing in the records of the corporation. Shares held of record by brokers or nominees shall be disregarded if the address of the beneficial owner is known. Shares allocated to the account of an employee or former employee or beneficiaries of employees or former employees of a corporation and held in a plan that is qualified under § 401(a) of the federal Internal Revenue Code of 1986 (26 U.S.C. § 401(a)), as amended, and is a defined contribution plan within the meaning of § 414(i) of such Code (26 U.S.C. § 414(i)), shall be deemed, for purposes of this subdivision (15), to be held of record by the employee to whose account such shares are allocated. Any shares which are not allocated under any such plan and which are held by trustees, custodians, administrators or other fiduciaries under the terms of such plan shall be deemed to be held of record by the trustee, custodian, administrator or other fiduciary with residency to be determined by home address in the case of an individual, and principal place of business in the case of a corporation;

The corporation has its principal office or place of business located in this state;

The corporation has the principal office or place of business of a significant subsidiary, representing not less than twenty-five percent (25%) of the issuer's consolidated net sales, located in this state;

The corporation employs more than two hundred fifty (250) individuals in this state or has a combined annual payroll paid to residents of this state which is in excess of five million dollars ($5,000,000);

The corporation produces goods and/or services in this state which result in annual gross receipts in excess of ten million dollars ($10,000,000); or

The corporation has physical assets and/or deposits, including those of any subsidiary, located within this state which exceed ten million dollars ($10,000,000) in value;

“Share” or “shares” means:

Any stock or other equity interest in any class or series of stock designated in the charter of the resident domestic corporation or its subsidiaries, any certificate of interest, any participation in any profit sharing agreement, any voting trust certificate, or any certificate of deposit for stock in any class or series; and

Any security convertible, with or without consideration, into stock or other equity interest in any class or series, or any warrant, call or other option or privilege of buying stock without being bound to do so, or any other security carrying any right to acquire, subscribe to or purchase stock in any class or series;

“Share acquisition date,” with respect to any person and any resident domestic corporation, means the date that such person first becomes an interested shareholder of such resident domestic corporation;

“Subsidiary” or “subsidiaries,” with respect to any resident domestic corporation, means any other corporation which is wholly owned by the resident domestic corporation or which is organized under the laws of this state in which a majority of the shares entitled to vote are owned or controlled, directly or indirectly, by such resident or domestic corporation; and

“Voting stock” means all shares of the resident domestic corporation entitled to vote generally in the election of directors.

Acts 1988, ch. 500, § 2; T.C.A., § 48-35-203; Acts 2012, ch. 1051, § 61.

Cross-References. Applicability to authorized corporations, § 48-103-404.

48-103-204. Corporation not liable for resisting merger, exchange, etc.

No resident domestic corporation which has a class of voting stock registered or traded on a national securities exchange or registered with the securities and exchange commission pursuant to § 12(g) of the Exchange Act (15 U.S.C. § 78l (g)), nor any of its officers and directors shall be held liable at law or in equity for either having failed to approve the acquisition of shares by an interested shareholder on or before such interested shareholder's share acquisition date, or for seeking to enforce or implement this part and part 3 of this chapter, or for failing to adopt or recommend any charter or bylaw amendment or provision respecting this part and parts 3-5 of this chapter, or for opposing any proposed merger, exchange, tender offer or significant disposition of the assets of the resident domestic corporation or any subsidiary of such resident domestic corporation because of a good faith belief that such merger, exchange, tender offer or significant disposition of assets would adversely affect the resident domestic corporation's employees, customers, suppliers, the communities in which such resident domestic corporation or its subsidiaries operate or are located or any other relevant factor if such factors, including those factors specifically enumerated in this section, are permitted to be considered by the board of directors under the charter for such resident domestic corporation in connection with a merger, exchange, tender offer or significant disposition of assets.

Acts 1988, ch. 500, § 3; T.C.A., § 48-35-204.

Cross-References. Applicability to authorized corporations, § 48-103-404.

Law Reviews.

The Rights of Other Corporate Constituencies, 22 Mem. St. U.L. Rev. 491 (1992).

48-103-205. Business combination prohibited for five-year period — Exceptions.

Notwithstanding any other applicable provisions which may be contained in the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, or other Tennessee statutes to the contrary, no resident domestic corporation shall engage in any business combination, or vote, consent, or otherwise act to authorize a subsidiary of the resident domestic corporation to engage in any business combination, with, with respect to, proposed by or on behalf of, or pursuant to any agreement, arrangement or understanding (whether or not in writing) with any interested shareholder of such resident domestic corporation or any affiliate or associate of such interested shareholder for a period of five (5) years following such interested shareholder's share acquisition date unless:

Such business combination or the transaction which resulted in the shareholder becoming an interested shareholder is approved by the board of directors of such resident domestic corporation prior to such interested shareholder's share acquisition date, and the proposed business combination satisfies any additional applicable requirements imposed by law and by the charter or bylaws of such resident domestic corporation; or
The business combination is not subject to regulation under this part by virtue of § 48-103-207.

Acts 1988, ch. 500, § 4; T.C.A., § 48-35-205.

Cross-References. Applicability to authorized corporations, § 48-103-404.

NOTES TO DECISIONS

1. Constitutionality.

48-103-206. Requirements for business combination.

If a business combination is subject to regulation under this part and the requisite approval for the business combination or acquisition of shares has not been obtained from the resident domestic corporation board of directors under § 48-103-205 prior to such interested shareholder's share acquisition date, a resident domestic corporation shall only engage in a business combination, or vote, consent or otherwise act to authorize a subsidiary of the resident domestic corporation to engage in any business combination, with, with respect to, proposed by or on behalf of, or pursuant to any agreement, arrangement or understanding (whether or not in writing) with, any interested shareholder of the resident domestic corporation or any affiliate or associate of such interested shareholder after the expiration of a period of five (5) years commencing as of such interested shareholder's share acquisition date, if such business combination satisfies all applicable requirements contained in the resident domestic corporation's charter or bylaws, the applicable provisions of the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, or other Tennessee statutes and is additionally either:

A business combination which has been approved by the affirmative vote of the holders of two thirds (2/3) of the voting stock not beneficially owned by such interested shareholder and the affiliates and associates of such interested shareholder at a meeting called for such purpose no earlier than five (5) years after such interested shareholder's share acquisition date; or
A business combination, with respect to which the consummation date is no earlier than five (5) years after the interested shareholder's share acquisition date; provided, that such business combination meets all of the following conditions:
1. The aggregate amount of the cash and the market value as of the consummation date of consideration other than cash to be received per share by holders of each outstanding class or series of shares of such resident domestic corporation in such business combination is at least equal to the higher of the following:
  1. The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by such interested shareholder for any shares of the same class or series acquired by it:

Within the five-year period immediately prior to the announcement date with respect to such business combination; or
Within the five-year period immediately prior to the transaction in which such interested shareholder became an interested shareholder; whichever is higher; plus, in either case, interest compounded annually from the earliest date on which such highest per share acquisition price was paid through the consummation date at the rate for one-year United States treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid and the market value of any dividends paid other than in cash per share since such earliest date, up to the amount of such interest;

The highest preferential amount per share to which the holders of shares of such class or series of shares are entitled in the event of any liquidation, dissolution or winding up of such resident domestic corporation, plus the aggregate amount of any dividends declared or due as to which such holders are entitled prior to payment of dividends on some other class or series of shares (unless the aggregate amount of such dividends is included in such preferential amount); or

The market value per share of each class or series of shares on the announcement date with respect to such business combination or on such interested shareholder's share acquisition date, whichever is higher; plus interest compounded annually from such date through the consummation date at the rate for one-year United States treasury obligations from time to time in effect; less the aggregate amount of any cash dividends paid and the market value of any dividends paid other than in cash per share on each class or series of shares since such date, up to the amount of such interest;

The consideration to be received by holders of a particular class or series of outstanding shares of such resident domestic corporation in such business combination is in cash or in the same form as the interested shareholder used to acquire the largest number of shares of such class or series of shares previously acquired by the interested shareholder and such consideration shall be distributed as soon as practical;

The holders of all outstanding shares of each class or series of shares of such resident domestic corporation not beneficially owned by such interested shareholder immediately prior to the consummation of such business combination (except those who may perfect their rights of dissent) are entitled to receive in such business combination cash or other consideration for such shares in compliance with subdivisions (2)(A) and (B); and

After such interested shareholder's share acquisition date and prior to the consummation date with respect to such business combination, such interested shareholder has not become the beneficial owner of any additional shares of such resident domestic corporation except:

As part of the transaction which resulted in such interested shareholder becoming an interested shareholder;

By virtue of proportionate share splits, share dividends or other distributions of shares in respect of shares not constituting a business combination under § 48-103-203(5)(F); or

Through purchase by such interested shareholder at any price which, if such price had been paid in an otherwise permissible business combination, would have satisfied the requirements of subdivisions (2)(A)-(C).

Acts 1988, ch. 500, § 5; T.C.A., § 48-35-206.

Cross-References. Applicability to authorized corporations, § 48-103-404.

48-103-207. Exemptions.

Business combinations which would otherwise be subject to regulation under § 48-103-205 or § 48-103-206 shall be exempt from regulation thereunder if one (1) or more of the following subdivisions are applicable:

Unless the charter of the resident domestic corporation provides otherwise, §§ 48-103-205 and 48-103-206 shall not apply to any business combination of a resident domestic corporation with, or proposed by or on behalf of, an interested shareholder or any associate or affiliate of such interested shareholder:
1. If the resident domestic corporation did not have, on such interested shareholder's share acquisition date, a class of voting stock registered or traded on a national securities exchange or registered with the securities and exchange commission pursuant to § 12(g) of the Exchange Act (15 U.S.C. § 78l (g)); or
2. Regardless of such registration, if the resident domestic corporation was, on such interested shareholder's share acquisition date, a holding company whose principal subsidiary was a domestic life insurance company;
Unless the charter of the resident domestic corporation provides otherwise, §§ 48-103-205 and 48-103-206 shall not apply to any business combination of a resident domestic corporation with, or proposed by or on behalf of, an interested shareholder who was an interested shareholder prior to March 11, 1988, unless subsequent thereto such interested shareholder increased such interested shareholder's proportion of the voting power of the resident domestic corporation's outstanding voting stock to a proportion in excess of the proportion of voting power such interested shareholder held prior to March 11, 1988, without prior board approval;
Sections 48-103-205 and 48-103-206 shall not apply to any business combination of a resident domestic corporation, the original charter or original bylaws of which contain a provision, or whose board of directors or shareholders adopt an amendment to the resident domestic corporation's bylaws within ninety (90) days of March 11, 1988, or, if no class or series of its voting stock is registered or traded on a national securities exchange or registered with the securities and exchange commission pursuant to § 12(g) of the Exchange Act within ninety (90) days of March 11, 1988, prior to the issuance of any voting stock registered or traded on a national securities exchange or registered with the securities and exchange commission pursuant to § 12(g) of the Exchange Act, expressly electing not to be governed by §§ 48-103-205 and 48-103-206;
Sections 48-103-205 and 48-103-206 shall not apply to any business combination of a resident domestic corporation with, or proposed by or on behalf of, an interested shareholder of such corporation who became an interested shareholder inadvertently, if such interested shareholder:
1. As soon as practicable divests itself of a sufficient amount of the voting stock of such resident domestic corporation so that it no longer is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the voting power of the outstanding voting stock of such corporation; and
2. Would not at any time within the five-year period preceding the announcement date with respect to such business combination have been an interested shareholder but for such inadvertent acquisition;
Sections 48-103-205 and 48-103-206 shall not apply to a resident domestic corporation otherwise subject to this part if an amendment to the charter or bylaws of the resident domestic corporation is approved by a majority of the continuing shares, which amendment expressly provides that such resident domestic corporation shall not be subject to §§ 48-103-205 and 48-103-206, and such amendment further expressly provides that it is not to be effective until two (2) years after the vote of the continuing shares.

Acts 1988, ch. 500, § 6; T.C.A., § 48-35-207.

Cross-References. Applicability to authorized corporations, § 48-103-404.

48-103-208. Actions for damages, injunctions, or other relief.

Actions for damages or other relief, including an injunction, against any proposed business combination which is or would be in violation of this part, may be brought by one (1) or more of the following parties:
1. The resident domestic corporation or any of its subsidiaries which are a party to such business combination;
2. Any one (1) or more of the shareholders of the voting stock of such resident domestic corporation or any of its subsidiaries which are a party to such business combination who, individually or in the aggregate with other shareholders joining in such action, hold five percent (5%) or more of any class or series of the issued and outstanding voting stock of such resident domestic corporation (or any of its subsidiaries if a party to such business combination) which are not beneficially owned by the interested shareholder and the affiliates and associates of such interested shareholder as of the time the action is instituted; or
3. By the attorney general and reporter.
No action alleging a violation of this part may be instituted more than one (1) year after the consummation date for the business combination which is allegedly in violation of this part.
No bond or other security shall be required as a condition for the issuance of any restraining order or other injunctive relief ordered by any court of competent jurisdiction in connection with any action brought to enforce this part.
Actions may be brought in any court of competent jurisdiction for violations of this part in the same manner as any other civil action.

Acts 1988, ch. 500, § 7; T.C.A., § 48-35-208.

Cross-References. Applicability to authorized corporations, § 48-103-404.

48-103-209. Severability — Construction with other laws.

If any clause, sentence, subparagraph, paragraph, subsection, section, article or other portion of this part or the application thereof to any person or circumstances shall be held invalid, such holding shall not affect, impair or invalidate the remainder of this part or the application of such portion held invalid to any other person or circumstances, but shall be confined in its operation to the clause, sentence, subparagraph, paragraph, subsection, section, article or other portion thereof directly involved in such holding or to the person or circumstances therein involved.
If any provision of this part is inconsistent with, in conflict with, or contrary to any other provision of Tennessee law, such provision of this part shall prevail over such other provision and such other provision shall be deemed to be amended, superseded or repealed to the extent of such inconsistency or conflict.

Acts 1988, ch. 500, § 8; T.C.A., § 48-35-209.

Cross-References. Applicability to authorized corporations, § 48-103-404.

Part 3
Tennessee Control Share Acquisition Act

48-103-301. Short title.

This part shall be known and may be cited as the “Tennessee Control Share Acquisition Act.”

Acts 1988, ch. 500, § 9; T.C.A., § 48-35-301.

Cross-References. Merger and share exchange, title 48, ch. 21.

Securities law, title 48, ch. 1.

Tennessee Authorized Corporation Protection Act, title 48, ch. 103, part 4.

Tennessee Business Combination Act, title 48, ch. 103, part 2.

Tennessee Greenmail Act, title 48, ch. 103, part 5.

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 42.

NOTES TO DECISIONS

1. Constitutionality.

The Tennessee Control Share Acquisition Act violates the commerce clause of the United States Constitution to the extent that it applies to target corporations organized under the laws of states other than Tennessee. Tyson Foods, Inc. v. McReynolds, 865 F.2d 99, 1989 U.S. App. LEXIS 490 (6th Cir. Tenn. 1989).

48-103-302. Part definitions.

As used in this part, unless the context otherwise requires:

“Associate,” when used to indicate a relationship with any person means:
1. A person that directly or indirectly controls, or is controlled by, or is under common control with, the person specified or who is or intends to act jointly or in concert with such specified person;
2. Any corporation or organization of which such person is an officer, director or partner or which corporation or organization is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities of such person;
3. Any trust or other estate in which such person has a beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and
4. Any parent, child, sibling, in-law (mother, father, sons and daughters), of such person, or any relative of such person who has the same residence as such person;
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of a person whether through the ownership of voting securities, by contract or otherwise;
1. “Control share acquisition” means the acquisition, directly or indirectly, by any person of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares. All shares acquired within ninety (90) days and all shares acquired pursuant to a plan to make a control share acquisition shall be deemed to have been acquired in the same acquisition for purposes of this subdivision (3);
2. “Control share acquisition” does not include:
  1. Shares acquired for the benefit of others by a person acting in the ordinary course of business, in good faith and not for the purpose of circumventing this part, to the extent that such person may not exercise or direct the exercise of the voting power of such shares except upon the instruction of others;
  2. Shares or shares issuable upon conversion, exchange or exercise of securities convertible into or exchangeable or exercisable for shares acquired:

Before the date on which the issuing corporation becomes subject to this part;
Pursuant to a contract existing before the date on which the issuing corporation becomes subject to this part;
Pursuant to the laws of descent and distribution;
Pursuant to the satisfaction of a pledge or other security interest created in good faith and not for the purpose of circumventing this section;
Pursuant to a merger or share exchange effected in compliance with chapter 21 of this title if the issuing public corporation is a party to the agreement of merger or consolidation;
provided, that “control shares” includes such shares only to the extent to which their acquisition causes the acquiring person to exceed any threshold of voting power set forth above for which approval has not been obtained previously pursuant to § 48-103-307;

Shares with respect to which voting rights are held pursuant to a revocable proxy conferring the right to vote on any matter, including a vote of shareholders under § 48-103-307, or pursuant to written consent; or

Any acquisition described in subdivision (3)(C);

Unless the acquisition, when added to the shares previously held by the acquiring person would entitle the acquiring person to exercise or direct the exercise of voting power in a range in excess of a range of voting power previously authorized pursuant to § 48-103-307 or subdivision (3)(B)(ii) the acquisition of shares, or of securities convertible into shares, does not constitute a control share acquisition if the acquisition is made:

By or from a person whose voting rights previously were authorized by the shareholders of the corporation in compliance with this part;

By or from a person whose acquisition of shares of the corporation would have constituted a control share acquisition but for the application of any of the exceptions set forth in subdivision (3)(B)(ii); or

By a person who acquires any of the shares that were previously transferred pursuant to subdivision (3)(B)(ii);

“Control shares” means shares which, but for this part, would have voting power with respect to shares of a corporation that, when added to all other shares of the corporation owned by a person or with respect to which that person may exercise or direct the exercise of voting power, except by virtue of a revocable proxy or written consent, would entitle that person, immediately upon acquisition of the shares, to exercise or direct the exercise of voting power of the corporation in the election of directors within any of the following ranges of voting power:

One fifth (1/5) or more but less than one third (1/3) of all voting power;

One third (1/3) or more but less than a majority of all voting power; or

A majority or more of all voting power;

“Corporation” means a corporation organized under the laws of Tennessee which has become subject to this part pursuant to § 48-103-310 and which has:

One hundred (100) or more shareholders;

Its principal place of business, its principal office, or substantial assets within Tennessee; and

Either:

More than ten percent (10%) of its shareholders resident in Tennessee;

More than ten percent (10%) of its shares owned by shareholders resident in Tennessee; or

Ten thousand (10,000) or more shareholders resident in Tennessee;

“Interested shares” means the shares of a corporation which are owned, or with respect to which an irrevocable proxy is held, by:

An acquiring person;

Any officer of the corporation; or

Any employee of the corporation who is also a director of the corporation; and

“Person” means any individual, corporation, partnership, unincorporated association or other entity and any “associate” (as defined in subdivision (1)) of such individual or entity.

Acts 1988, ch. 500, § 17; T.C.A., § 48-35-302.

48-103-303. Voting rights generally.

Control shares of a corporation that are acquired in a control share acquisition shall have only such voting rights as shall be conferred pursuant to § 48-103-307.

Acts 1988, ch. 500, § 10; T.C.A., § 48-35-303.

48-103-304. Control share acquisition statement.

Any person who has made a control share acquisition or who holds of record ten percent (10%) or more of the outstanding shares of the corporation and who announces a good faith intention to make a control share acquisition may deliver to the corporation personally or by registered mail at its principal place of business and at its registered office in this state, a control share acquisition statement which shall contain the following:

The identity of the acquiring person and any associate of the acquiring person;
A statement that it is being made and delivered pursuant to the Tennessee Control Share Acquisition Act;
If the acquiring person is not a resident of this state, an agreement that the acquiring person may be served with process in this state in any proceeding arising out of or relating to the control share acquisition and irrevocably appointing the secretary of state as its agent to accept service of process in any such proceeding, specifying the address to which a copy of such process shall be mailed by the secretary of state;
The number and class or series of shares of the corporation owned, directly or indirectly, by the acquiring person and each associate of the acquiring person prior to the control share acquisition;
The number and class or series of shares acquired or proposed to be acquired pursuant to the control share acquisition and the range of voting power within which the control share acquisition is or, if consummated, would be, as such ranges are defined in § 48-103-302(4); and
A description of the terms and conditions of the proposed or completed control share acquisition including, but not limited to, the prices paid by the acquiring person in a control share acquisition, the dates upon which the shares were acquired, and if the control share acquisition has not taken place, a statement by the acquiring person with respect to the acquiring person's financial capacity to consummate the proposed control share acquisition together with a concise description of the material facts upon which the statement is based.

Acts 1988, ch. 500, § 11; T.C.A., § 48-35-304.

Cross-References. Applicability to authorized corporations, § 48-103-404.

Certified mail in lieu of registered mail, § 1-3-111.

NOTES TO DECISIONS

1. Constitutionality.

48-103-305. Meeting to consider control share voting rights.

1. If the acquiring person so demands contemporaneously with the delivery of a control share acquisition statement, the board of directors of the corporation, within twenty (20) days of the receipt of the demand, shall call a special meeting of shareholders for the purpose of considering the voting rights to be accorded the control shares acquired or to be acquired in the control share acquisition. The demand will not be effective unless accompanied by an undertaking to pay the corporation's reasonable expenses in connection with noticing and holding the special meeting, which expenses shall not include any expenses of the corporation in opposing a resolution to accord voting rights to the acquiring person.
2. Promptly after the board has called the special meeting, the corporation shall give written notice of the special meeting to shareholders. Such notice shall be given not less than twenty (20) days before the date of the special meeting.
3. Unless the acquiring person and the corporation shall agree in writing to a later date, the special meeting shall be held not more than fifty (50) days after the receipt by the corporation of the demand. If the acquiring person so requests in the demand, the special meeting will be held no sooner than thirty (30) days after receipt by the corporation of the demand.
If no demand respecting a special meeting of the corporation's shareholders is made in accordance with subsection (a), consideration of the voting rights to be accorded the shares acquired or to be acquired in the control share acquisition shall be presented at the next annual or special meeting of the corporation's shareholders as to which notice has not been given prior to the receipt by the corporation of the control share acquisition statement.

Acts 1988, ch. 500, § 12; T.C.A., § 48-35-305.

48-103-306. Notice of meeting.

The notice to the corporation's shareholders of any annual or special meeting at which the voting rights to be accorded shares acquired or to be acquired in a control share acquisition shall be directed to all shareholders of record of the corporation as of the record date set for such meeting, whether or not such shareholders shall be entitled to vote at such meeting, and shall include or be accompanied by a copy of the acquiring person's control share acquisition statement received by the corporation pursuant to this part.

Acts 1988, ch. 500, § 13; T.C.A., § 48-35-306.

48-103-307. Shareholder approval of voting rights.

Control shares acquired in a control share acquisition shall have the same voting rights as all other shares of the same class or series only if approved by resolution of the corporation's shareholders at an annual or special meeting convened pursuant to § 48-103-306. Such resolution must be approved at such meeting by the holders of a majority of all of the shares entitled to vote generally with respect to the election of directors except interested shares, which shall not be entitled to vote with respect to such resolution. If no such resolution is approved, such shares shall regain their voting rights upon transfer to another person unless such transfer constitutes a control share acquisition by the aquistor, in which case the voting rights of such shares shall be subject to the provisions hereof. Sections 48-17-104 and 48-17-208 shall not apply to the shareholder approval contemplated by this part.

Acts 1988, ch. 500, § 14; T.C.A., § 48-35-307.

48-103-308. Redemption of control shares.

Notwithstanding §§ 48-16-101 and 48-16-102, but subject to §§ 48-16-302 and 48-16-401, charter or bylaw provisions effective prior to the occurrence of a control share acquisition may authorize the redemption, at the option of the corporation, of all but not less than all control shares acquired in a control share acquisition, at any time during the period ending sixty (60) days after the last acquisition of control shares by an acquiring person, from the acquiring person for the fair value of such shares if:
1. No control acquisition statement has been filed; or
2. A control acquisition statement has been filed and the shares are not accorded voting rights by the shareholders pursuant to § 48-103-307.
For purposes of this section, fair value shall be determined as of the effective date of the vote of the shareholders denying voting rights to the acquiring person if a control acquisition statement is filed or, if no control acquisition statement is filed, as of the date of the last acquisition of control shares by the acquiring person in a control share acquisition. Such value shall be determined without regard to the effect of the denial of voting rights hereunder.

Acts 1988, ch. 500, § 15; T.C.A., § 48-35-308.

48-103-309. Appraisal of shares of dissenting shareholders.

1. A charter or bylaw provision effective prior to the occurrence of a control share acquisition may provide that, in the event control shares acquired in a control share acquisition are accorded voting rights and the acquiring person has acquired control shares that confer upon such person a majority or more of all voting power entitled to vote generally with respect to the election of directors, all shareholders of record of the corporation, other than the acquiring person, who have not voted in favor of granting such voting rights to the acquiring person shall be entitled to an appraisal of the fair value of their shares in accordance with chapter 23 of this title.
2. For purposes of this section, fair value shall be determined as of the date of the approval of voting rights by the shareholders and in accordance with chapter 23 of this title which shall apply as nearly as practicable except that:
  1. Dissenting shareholders shall be provided with copies of all valuations, projections and estimates of the value of the corporation in the possession, custody, or control of the acquiring person or such acquiring person's associates or advisors; and
  2. Fair value includes consideration of the valuations, future events or transactions bearing upon the corporation's value to the acquiring shareholder as described in any valuations, projections or estimates made by or on behalf of the acquiring person or the acquiring person's associates.
The corporation, not less than twenty (20) days prior to the meeting convened pursuant to § 48-103-306, shall notify each of its shareholders that appraisal rights may be available for any or all shares of the corporation, and shall include in such notice a copy of this section and an accurate summary of chapter 13 of this title.
Each shareholder electing to demand the appraisal of the shareholder's shares shall deliver to the corporation, before the taking of the vote described in § 48-103-307, a written demand for appraisal of the shareholder's shares. A proxy or vote against the voting rights of an acquiring person shall not constitute such a demand. A shareholder electing to take such action must do so by a separate written demand as herein provided.
Within ten (10) days after any vote in favor of a resolution granting voting rights to an acquiring person, the corporation shall notify each shareholder who has complied with this subsection (d) that the resolution has been adopted.
The corporation shall deliver to the acquiring person, within five (5) days of the taking of the vote under § 48-103-307, a statement setting forth the aggregate number of shares not voted in favor of the resolution and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares.

Acts 1988, ch. 500, § 16; T.C.A., § 48-35-309.

48-103-310. Applicability.

This part shall be applicable to any corporation as defined in § 48-103-302 whose charter or bylaws contain an express declaration that control share acquisitions respecting the shares of the corporation are governed by and subject to this part.
Sections 48-103-308 and 48-103-309, or either of them, shall apply to such corporation only if the charter or bylaw declaration under subsection (a) explicitly so provides.

Acts 1988, ch. 500, § 18; T.C.A., § 48-35-310.

Law Reviews.

It's My Stock and I'll Vote If I Want To: Conflicted Voting by Shareholders in (Hostile) M & A Deals, 47 U. Mem. L. Rev. 181 (2016).

48-103-311. Actions for violations of part.

Actions may be brought in any court of competent jurisdiction for violations of this part, in the same manner as any other civil action, by the corporation, the interested shareholder, by the other shareholders of issued and outstanding voting stock of the corporation, or by the attorney general and reporter.

Acts 1988, ch. 500, § 19; T.C.A., § 48-35-311.

Cross-References. Applicability to authorized corporations, § 48-103-404.

48-103-312. Severability — Construction with other laws.

If any clause, sentence, subparagraph, paragraph, subsection, section, article or other portion of this part, or the application thereof to any person or circumstances, shall be held invalid, such holding shall not affect, impair or invalidate the remainder of this part or the application of such portion held invalid to any other person or circumstances, but shall be confined in its operation to the clause, sentence, subparagraph, paragraph, subsection, section, article or other portion thereof directly involved in such holding or to the person or circumstances therein involved.
If any provision of this part is inconsistent with, in conflict with, or contrary to any other provision of Tennessee law, such provision of this part shall prevail over such other provision, and such other provision shall be deemed to be amended, superseded or repealed to the extent of such inconsistency or conflict.

Acts 1988, ch. 500, § 20; T.C.A., § 48-35-312.

Part 4
Tennessee Authorized Corporation Protection Act

48-103-401. Short title.

This part shall be known and may be cited as the “Tennessee Authorized Corporation Protection Act.”

Acts 1988, ch. 500, § 21; T.C.A., § 48-35-401.

Cross-References. Business corporations, dissenting shareholders, title 48, ch. 23.

Tennessee Business Combination Act, title 48, ch. 103, part 2.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

Tennessee Greenmail Act, title 48, ch. 103, part 5.

Law Reviews.

State Regulation of the Market for Corporate Control: MITE, CTS, and Their Progeny (M. Wayne Marr, Robert W. Mouton), 20 Mem. St. U.L. Rev. 1 (1989).

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, § 42.

NOTES TO DECISIONS

1. Constitutionality.

The Tennessee Authorized Corporation Protection Act violates the commerce clause of the United States Constitution to the extent that it applies to target corporations organized under the laws of states other than Tennessee. Tyson Foods, Inc. v. McReynolds, 865 F.2d 99, 1989 U.S. App. LEXIS 490 (6th Cir. Tenn. 1989).

48-103-402. Public policy.

The general assembly hereby finds and declares the following to be the public policy of this state:

“Authorized corporations,” as defined in § 48-103-403, have a substantial presence in Tennessee and, through their ongoing business operations in Tennessee, represent and affect a variety of constituencies, including shareholders, employees, customers, suppliers and local communities and their economies, whose welfare is vital to this state's interest;
Takeovers of such authorized corporations can harm the economy of this state by weakening corporate performance and causing unemployment, plant closings, reduced charitable donations, declining population base, reduced income to fee-supported local government services, reduced tax base and reduced income to other businesses;
The state has a substantial and legitimate interest in providing to these authorized corporations the benefits of the Tennessee Business Combination Act, compiled in part 2 of this chapter, and the Tennessee Control Share Acquisition Act, compiled in part 3 of this chapter, which promote and encourage long-term growth and stability of such authorized corporations.

Acts 1988, ch. 500, § 22; T.C.A., § 48-35-402.

48-103-403. “Authorized corporation” defined.

“Authorized corporation” means a foreign corporation which is required to obtain a certificate of authority from the Tennessee secretary of state and which meets two (2) or more of the following tests:

The corporation has its principal place of business located in this state;
The corporation has the principal office or offices or place or places of business of significant subsidiaries, representing in the aggregate not less than twenty (20%) of such corporation's consolidated net sales, located in this state;
A majority of such corporation's fixed assets, including those of any subsidiary, located in the United States, as valued by reference to the balance sheet at the end of its most recent fiscal year, are located in this state;
More than ten percent (10%) of the beneficial owners of the voting stock or more than ten percent (10%) of such corporation's shares of voting stock are beneficially owned by residents of this state;
The corporation, including any significant subsidiary, employs more than two hundred fifty (250) individuals in this state or has a combined annual payroll paid to residents of this state which is in excess of five million dollars ($5,000,000);
The corporation, including any significant subsidiary, produces goods and/or services in this state which result in annual gross receipts in excess of ten million dollars ($10,000,000);
The corporation, including any significant subsidiary, has physical assets and/or deposits, including those of any subsidiary, located within this state which exceed ten million dollars ($10,000,000) in value.

Acts 1988, ch. 500, § 23; T.C.A., § 48-35-403.

48-103-404. Applicability of certain provisions concerning business combinations and control share acquisitions.

Sections 48-103-203 — 48-103-209 shall apply to an authorized corporation to the same extent as such provisions apply to a “resident domestic corporation,” as defined therein; provided, that the board of directors or shareholders of such foreign corporation have adopted a bylaw or charter provision specifying that the authorized corporation shall be subject to this subsection (a).
Sections 48-103-304 and 48-103-311 shall apply to an authorized corporation to the same extent as such provisions apply to a “corporation,” as defined therein; provided, that the board of directors or shareholders of such authorized corporation have adopted a bylaw or charter provision specifying that such authorized corporation shall be subject to this subsection (b).

Acts 1988, ch. 500, § 24; T.C.A., § 48-35-404.

48-103-405. Construction with laws of other jurisdictions.

If any jurisdiction under the laws of which an authorized corporation is organized adopts any laws containing provisions that are expressly inconsistent with this part as applicable to such authorized corporation, this part shall be inapplicable to such authorized corporation to the extent necessary to resolve such inconsistency.

Acts 1988, ch. 500, § 25; T.C.A., § 48-35-405.

48-103-406. Severability.

If any provision or clause of this part or application thereof to any corporation, person or circumstances is held invalid, such invalidity shall not affect other provisions or applications of this part which can be given effect without the invalid provision or application, and to this end this part is declared to be severable.

Acts 1988, ch. 500, § 26; T.C.A., § 48-35-406.

Part 5
Greenmail Act

48-103-501. Short title — Applicability.

This part shall be known and may be cited as the “Tennessee Greenmail Act.”
The requirements of this part shall be applicable to any corporation chartered under the laws of Tennessee which has a class of voting stock registered or traded on a national securities exchange or registered with the securities and exchange commission pursuant to § 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 781l (g)),as amended.

Acts 1988, ch. 500, § 27; T.C.A., § 48-35-501.

Cross-References. Securities law, title 48, ch. 1.

Tennessee Authorized Corporation Protection Act, title 48, ch. 103, part 4.

Tennessee Business Combination Act, title 48, ch. 103, part 2.

Tennessee Control Share Acquisition Act, title 48, ch. 103, part 3.

48-103-502. Part definitions.

As used in this part, unless the context otherwise requires:

“Associate,” when used to indicate a relationship with any person, means:
1. A person that, directly or indirectly, controls, or is controlled by, or is under common control with, the person specified or who is or intends to act jointly or in concert with such specified person;
2. Any corporation or organization of which such person is an officer, director or partner or which corporation or organization is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities of such person;
3. Any trust or other estate in which such person has a beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and
4. Any parent, child, sibling, in-law (mother, father, sons and daughters), of such person, or any relative of such person who has the same residence as such person;
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of a person whether through the ownership of voting securities, by contract or otherwise;
“Person” means any individual, corporation, partnership, unincorporated association or other entity and any “associate” (as defined in subdivision (1)) of such individual or entity; and
“Subsidiary” means any corporation in which a majority of the shares entitled to vote are owned or controlled, directly or indirectly, by a corporation subject to this part.

Acts 1988, ch. 500, § 30; T.C.A., § 48-35-502.

48-103-503. Corporation's purchase of own shares at price above market value.

It is unlawful for any corporation subject to this part, including any subsidiary of such corporation, to purchase, directly or indirectly, any of its shares at a price above the market value of such shares from any person who holds more than three percent (3%) of the class of the securities to be purchased if such person has held such shares for less than two (2) years, unless such purchase has been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by such corporation or the corporation makes an offer, of at least equal value per share, to all holders of shares of such class.
For the purposes of this section, the market value of such shares shall be the average of the highest and lowest closing market price for such shares during the thirty (30) trading days preceding the purchase and sale of the shares subject to this section; provided, that if the seller of such shares has commenced a tender offer or has announced an intention to seek control of the corporation, such market price shall be based upon the average of the highest and lowest closing price for such shares during the thirty (30) trading days preceding the commencement of such tender offer or the making of such announcement.

Acts 1988, ch. 500, § 28; T.C.A., § 48-35-503.

48-103-504. Action against seller — Attorney's fees.

Any person who sells securities to a corporation or any subsidiary of such corporation in violation of this part shall be liable to the corporation for damages equal to two (2) times the amount by which the aggregate sum paid for the purchase of such shares exceeds the maximum amount otherwise permitted to be paid for such shares under this part; provided, that a civil action is instituted for the recovery thereof in a court of competent jurisdiction within two (2) years of such sale.
Reasonable attorneys' fees may be granted, at the discretion of the court, to the prevailing party in any civil action instituted under this section if the court finds that the action was either instituted without good faith or that the sale of securities was undertaken with intentional or reckless indifference to the requirements of this part.

Acts 1988, ch. 500, § 29; T.C.A., § 48-35-504.

48-103-505. Severability — Construction with other laws.

If any clause, sentence, subparagraph, paragraph, subsection, section, article or other portion of this part or the application thereof to any person or circumstances shall be held invalid, such holding shall not affect, impair or invalidate the remainder of this part or parts 2-4 of this chapter or the application of such portion held invalid to any other person or circumstances, but shall be confined in its operation to the clause, sentence, subparagraph, paragraph, subsection, section, article or other portion thereof directly involved in such holding or to the person or circumstances therein involved.
If any provision of this part is inconsistent with, in conflict with, or contrary to any other provision of Tennessee law, such provision of this part shall prevail over such other provision and such other provision shall be deemed to be amended, superseded or repealed to the extent of such inconsistency or conflict.

Acts 1988, ch. 500, § 31; T.C.A., § 48-35-505.

Chapters 104-200
[Reserved]

Limited Liability Companies

Chapter 201
General Provisions

48-201-101. Short title.

Chapters 201-248 of this title shall be known and may be cited as the “Tennessee Limited Liability Company Act.”

Acts 1994, ch. 868, § 1.

Law Reviews.

At Last … The Closely-Held Business Entity of Choice is Available in Tennessee, (J. Leigh Griffith), 30 Tenn. B.J. 12 (1994).

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

Gray Power in the Gray Area Between Employer and Employee: The Applicability of the ADEA to Members of Limited Liability Companies, 51 Vand. L. Rev. 429 (1998).

Key Tax Aspects of the Tennessee Limited Liability Company Act, (Andrhe Sophia Blumstein), 30 Tenn. B.J. 14 (1994).

“Limited Liability Companies” Bill Passes, 30 Tenn. B.J. 7 (1994).

Punitive Damages and Business Organizations: A Pathetic Fallacy, 67 Tenn. L. Rev. 971 (2000).

The Proposed Tennessee Limited Liability Company Act, 24 Mem. St. U.L. Rev. 491 (1994).

Textbooks. Tennessee Jurisprudence, 7 Tenn. Juris., Corporations, §§ 2, 3.

Attorney General Opinions. Applicability of corporate campaign contribution prohibitions to limited liability companies, OAG 98-053, 1998 Tenn. AG LEXIS 53, (3/2/98).

NOTES TO DECISIONS

1. Arbitration Improper.

Arbitration clauses in the contracts were not applicable to the developer's fraud claims against the property owner and companies he controlled where a comprehensive resolution of the dispute could not be obtained through an arbitration proceeding; an arbitrator dealing with the complex facts of the case would have no guidance on the proper interpretation of the Limited Liability Company Act, T.C.A. § 48-201-101. River Links at Deer Creek, LLC v. Melz, 108 S.W.3d 855, 2002 Tenn. App. LEXIS 932 (Tenn. Ct. App. 2002).

2. Applicability.

Court of appeals applied the original Tennessee Limited Liability Company Act because a limited liability company was formed in 2000, and there was nothing in the record to indicate that it expressly elected to be governed by the Tennessee Revised Limited Liability Company Act; the parties relied on provisions of the original Act in their briefs on appeal. Lascassas Land Co., LLC v. Allen, — S.W.3d —, 2018 Tenn. App. LEXIS 189 (Tenn. Ct. App. Apr. 10, 2018).

48-201-102. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of chapters 201-248 of this title at any time and all domestic and foreign LLCs subject to chapters 201-248 of this title shall be governed by the amendment or repeal.

Acts 1994, ch. 868, § 1.

48-201-103. Applicability.

Chapters 201-248 of this title apply to every LLC for profit now existing or hereafter formed, and to the outstanding and future interests in such LLCs; provided, that if there are other specific statutory provisions which govern the formation of, impose restrictions or requirements on, confer special powers, privileges or authorities on, or fix special procedures or methods for, special categories of LLCs, then to the extent such provisions are inconsistent with or different from chapters 201-248 of this title, such provisions shall prevail.

Acts 1994, ch. 868, § 1.

Attorney General Opinions. Applicability of corporate campaign contribution prohibitions to limited liability companies, OAG 98-053, 1998 Tenn. AG LEXIS 53 (3/2/98).

Chapter 202
Definitions and Notice

48-202-101. Limited liability company definitions.

As used in chapters 201-248 of this title, unless the context otherwise requires:

“Affiliate” of a specific person means a person that directly, or indirectly through one (1) or more intermediaries, controls, or is controlled by, or is under common control with, the person specified;
“Articles” or “articles of organization” means in the case of an LLC organized under chapters 201-248 of this title, articles of organization, articles of amendment, articles of correction, certificates of merger, and all similar documents required to be filed with any of the foregoing as part of the formation and continuation of an LLC. In the case of a foreign limited liability company, “articles” or “articles of incorporation” includes all documents serving a similar function required to be filed with the secretary of state or other state office of the LLC's jurisdiction of organization;
“Articles of conversion” means the form of articles provided for in chapter 204 of this title creating a new LLC and evidencing the conversion of an existing partnership or corporation to the new LLC which shall have all of the assets and liabilities of the former partnership;
“Board” or “board of governors” means the board of governors of an LLC electing to be board-managed or, in the case of a foreign limited liability company, its equivalent;
“Board-managed” means an LLC organized pursuant to this title that elected pursuant to § 48-205-101(5), to be governed by a board of governors;
“Business” includes every trade, occupation, profession, investment activity and other lawful purpose for gain or the preservation of assets whether or not carried on for profits;
“Class,” when used with reference to membership interests, means a category of membership interests that differs in one (1) or more rights or preferences from another category of membership interests of the LLC;
“Confirmation of good standing” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that at the time such confirmation is issued an LLC or a foreign LLC is current on all taxes and penalties to the satisfaction of the commissioner;
“Contribution agreement” means a binding agreement between a person and an LLC under which:
1. The person has an obligation to make a contribution to the LLC in the future; and
2. The LLC agrees that, if the person makes the specified contribution at the time and in the manner specified for the contribution in the future, the LLC will accept the contribution, and reflect the contribution in the required records;
“Contribution allowance agreement” means an agreement between a person and an LLC, under which:
1. The person has the right, but not the obligation, to make a contribution to the LLC in the future; and
2. The LLC agrees that, if the person makes the specified contribution at the time and in the manner specified for the contribution in the future, the LLC will accept the contribution, and reflect the contribution in the required records;
“Corporation” or “domestic corporation” means a corporation for profit, which is not a foreign corporation, incorporated under or subject to the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, as amended;
“Court” includes every court and judge having jurisdiction in the case;
“Dissolution” means that the LLC has incurred an event under § 48-245-101;
“Dissolution avoidance consent” means the consent to continue the existence and business of the LLC without dissolution, which consent is given as provided in § 48-245-101(b) by the members whose membership has not terminated or as otherwise allowed by this chapter and which consent is given after the occurrence of any event that otherwise dissolves the LLC;
“Distribution” means a direct or indirect transfer of money or other property (except its own membership interests) with or without consideration, or an incurrence or issuance of indebtedness, (whether directly or indirectly, including through a guaranty) by an LLC to or for the benefit of any of its members in respect of membership interests. A distribution may be in the form of an interim distribution or a liquidation distribution; a purchase, redemption, or other acquisition of its membership interests; a distribution of indebtedness (which includes the incurrence of indebtedness, whether directly or indirectly, including through a guaranty, for the benefit of the members) or otherwise;
“Entity” includes the following, whether foreign or domestic: LLCs; corporations; not-for-profit corporations; profit and not-for-profit unincorporated associations; business trusts; estates; general partnerships, limited partnerships, registered or unregistered limited liability partnerships or similar organizations; trusts; joint ventures; and two (2) or more persons having a joint or common economic interest; and also includes local, municipal, state, United States, and foreign governments;
“Financial rights” means a member's rights to:
1. Share in profits and losses as provided in § 48-220-101;
2. Share in distributions as provided in § 48-236-101;
3. Receive interim distributions as provided in § 48-236-102; and
4. Receive liquidation distributions as provided in § 48-245-1101;
“Foreign corporation” means a corporation for profit incorporated under a law other than the laws of this state;
“Foreign LLC” means an entity that is:
1. Not incorporated;
2. Organized under laws of a jurisdiction other than the laws of this jurisdiction, or under the laws of any foreign country;
3. Organized under a statute which affords to each of its members limited liability with respect to some or all of the obligations and liabilities of the entity; and
4. Is not required to be registered or organized under any statute of this state other than chapters 201-248 of this title;
“Governance rights” means a right to vote on one (1) or more matters and all a member's rights as a member in the LLC other than financial rights and the right to assign financial rights;
“Governing body” means the board of governors in the case of a board-managed LLC, the members in the case of a member-managed LLC, and the board of directors in the case of a corporation;
“Governor” means a natural person or entity serving on the board of governors of a board-managed LLC;
“Limited liability company” or “LLC” means a limited liability company, organized under chapters 201-248 of this title;
“Majority vote” means with respect to a vote of the members, if voting on a per capita basis, a majority in number of the members entitled to vote on a specific matter, or if the voting is determined otherwise, a majority of the voting interest (which may be expressed as a percentage) entitled to vote on a specific matter, and with respect to a vote of the governors, a majority in number of the governors entitled to vote on a specific matter;
“Manager” means a person elected, appointed, or otherwise designated as a manager by the governing body, and any other person considered elected as a manager pursuant to § 48-241-106;
“Member” means a person reflected in the required records of an LLC as the owner of some governance rights of a membership interest of the LLC. With respect to a foreign LLC, “member” means an individual or entity recognized under the laws of the jurisdiction of organization of the foreign LLC as an owner of a governance interest (or its equivalence) in the foreign LLC;
“Member-managed” means an LLC organized pursuant to this title that has elected pursuant to § 48-205-101(5) to be governed by its members, without a board of governors;
“Membership interest” means a member's interest in an LLC consisting of a member's financial rights, a member's right to assign financial rights as provided in § 48-218-101, a member's governance rights, and a member's right to assign governance rights as provided in § 48-218-102. If a member has assigned some or all of its financial rights, then, with respect to that member, “membership interest” means the member's governance rights, the member's right to assign governance rights, any remaining financial rights of the member, and the member's right to assign any remaining financial rights;
“Notice” under this title has the meaning given it in § 48-202-102;
“Operating agreement” means a written agreement described in § 48-206-101 among the members concerning the LLC;
“Owners” means members in the case of an LLC, shareholders in the case of a corporation, partners in the case of general or limited partnerships and the equivalent with respect to other entities;
“Ownership interests” means membership interests in the case of an LLC, shares in the case of a corporation, partnership interests in the case of general or limited partnerships and the equivalent with respect to other entities;
“Person” includes individual and entity;
“Principal executive office” means an office, in or out of this state, where the principal office of the chief manager of the LLC or foreign LLC is located. If the LLC has no chief manager, “principal executive office” means the registered office of the LLC;
“Proceeding” includes civil suit and criminal, administrative, and investigatory action;
“Professional limited liability company” or “professional LLC” or “PLLC” has the meaning given in § 48-248-102(6);
“Registered office” means the place in this state designated in the articles as the registered office of the LLC;
“Representative” means a governor, manager, employee or other agent of a foreign LLC;
“Required records” are those records required to be maintained under § 48-228-101;
“Secretary of state” means the person who holds the office of secretary of state of Tennessee. A filing with the secretary of state occurs by a proper filing with the office of the secretary of state. An action required by the secretary of state may be performed by employees or agents of the office of the secretary of state;
“Series” means a category of membership interests, within a class of membership interests, that have some of the same rights and preferences as other membership interests within the same class, but that differ in one (1) or more rights and preferences from another category of membership interests within that class;
“Surviving entity” or “resulting entity” means the entity resulting from a merger;
“Tax clearance for termination or withdrawal” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that an LLC or a foreign LLC has filed all applicable reports, including, but not limited to, a final report, and has paid all fees, penalties and taxes as required by the revenue laws of this state;
“Termination” means the end of an LLC's existence as a legal entity and occurs when the articles of termination are filed with the secretary of state under § 48-245-701 or is considered filed with the secretary of state under § 48-244-103 or § 48-244-104(b); and
“Written action” means a written document signed by those persons required to take the action described.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 1, 3, 4; 1999, ch. 455, §§ 1-3; 2000, ch. 623, § 3; 2010, ch. 741, § 25.

Cross-References. “Assumed name,” § 48-207-101.

Attorney General Opinions. Applicability of corporate campaign contribution prohibitions to limited liability companies, OAG 98-053, 1998 Tenn. AG LEXIS 53 (3/2/98).

Transferability of certificate of need granted to a limited liability company, OAG 98-063, 1998 Tenn. AG LEXIS 63 (3/17/98).

48-202-102. Notice.

General. Notice under chapters 201-248 of this title shall be in writing except that oral notice is effective if it is reasonable under the circumstances and not prohibited by the articles or operating agreement.
Methods of Notice. Notice may be communicated in person; by telephone, telegraph, teletype, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television, or other form of public broadcast communication.
Effectiveness of Notice to Members by Mail. Written notice by a domestic LLC to its members, if in a comprehensible form, is effective when mailed, if mailed postpaid and correctly addressed to the member's address shown in the LLC's current record of members.
Notice to LLC. Written notice to a domestic or foreign LLC (authorized to transact business in this state) may be addressed to its registered agent at its registered office or to the LLC or its secretary at its principal office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the principal office) shown in its most recent annual report or, in the case of a foreign LLC that has not yet delivered an annual report, in its application for a certificate of authority.
General Effectiveness of Notice. Except as provided in subsection (c), written notice, if in a comprehensible form, is effective at the earliest of the following:
1. When received;
2. Five (5) days after its deposit in the United States mail, if mailed correctly addressed and with first class postage affixed thereon;
3. On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or
4. Twenty (20) days after its deposit in the United States mail, as evidenced by the postmark if mailed correctly addressed, and with other than first class, registered or certified postage affixed.
Oral notice is effective when communicated if communicated in a comprehensible manner.
If chapters 201-248 of this title prescribe notice requirements for particular circumstances, those requirements govern. If the articles or operating agreement prescribe notice requirements, not inconsistent with this section or other provisions of chapters 201-248 of this title, those requirements govern.

Acts 1994, ch. 868, § 1; 2014, ch. 783, § 9.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Chapter 203
Formation

48-203-101. Purposes.

Any Lawful Purpose. Every LLC organized under chapters 201-248 of this title has the purpose of engaging in any lawful business unless a more limited purpose is set forth in its articles.
Regulation by Another Statute. An LLC engaging in a business that is subject to regulation under another statute of this state may organize under chapters 201-248 of this title only if permitted by, and subject to all limitations of, the other statute.

Acts 1994, ch. 868, § 1.

48-203-102. Organizers and formation.

One (1) or more individuals may, acting as organizers, form an LLC, by filing with the secretary of state articles for the LLC which contain the information required by § 48-205-101 and admitting the initial members. Unless a delayed effective date is specified in the articles, the LLC is formed and its existence begins when the articles are filed with the secretary of state. Subject to subsection (c), if a delayed effective date is specified in the manner permitted by § 48-205-101(8), the LLC is formed and its existence begins at a future specific date or on the occurrence of a future specific event, neither one of which shall be or occur more than ninety (90) days from the initial filing of the articles.
Immediate Effective Date. If the date of formation is the date of filing of the articles, the secretary of state's acceptance for filing of the articles is conclusive proof that the organizers satisfied all conditions precedent to formation except in a proceeding by the state to cancel or revoke the formation or existence of the LLC or to dissolve the LLC involuntarily.
Deferred Effective Date. If the date of formation of the LLC is later than the date of filing of the initial articles with the secretary of state, the organizers or any member may, within thirty (30) days after the date of actual formation, file a certificate of formation which states that the LLC was formed and the date of formation. If a certificate of formation is not filed within one hundred twenty (120) days from the date of initial filing of the articles, the presumed effective date of the formation shall be on the ninetieth day following the date of filing of the articles. The presumption, however, can be rebutted.
If the date of formation of the LLC is later than the date of filing of the initial articles with the secretary of state, the secretary of state's acceptance for filing of the certificate of formation is conclusive proof that the organizers satisfied all conditions precedent to formation except in a proceeding by the state to cancel or revoke the formation or existence of the LLC or to dissolve the LLC involuntarily.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 5; 1999, ch. 346, § 1.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

NOTES TO DECISIONS

1. Effective Date of Formation.

To the extent that an order authorizing retention of counsel to a Chapter 11 trustee referred to a Tennessee limited liability company (LLC) that only came into existence within the meaning of T.C.A. § 48-203-102 on a date subsequent thereto, compensation that was payable on account of services rendered prior to the effective date of the LLC's existence under state law was properly paid to the individual lawyer, not the LLC, and an objecting party's request per Fed. R. Civ. P. 60 for reconsideration of the prior order was properly granted to that limited extent. In re McKenzie, 449 B.R. 306, 2011 Bankr. LEXIS 877 (Bankr. E.D. Tenn. Mar. 7, 2011).

Chapter 204
Conversion of Partnership to an LLC

48-204-101. Conversion of a general partnership or limited partnership to an LLC.

Conversion. A general or limited partnership organized in this state may be converted to an LLC pursuant to this section.
Terms and Conditions. The terms and conditions of a conversion of a general or limited partnership to an LLC must, in the case of a general partnership, be approved by all the partners or by a number or percentage specified for conversion in the partnership agreement or, in the case of a limited partnership, by all of the partners, notwithstanding any provision to the contrary in the limited partnership agreement, unless such limited partnership was formed after December 31, 1993, and the original agreement of limited partnership provided for a conversion or a procedure of conversion of the limited partnership to an LLC without the consent of all partners, in which case the approval or procedure under the original limited partnership agreement shall be sufficient.
Filing. After the conversion is approved under subsection (b), the general or limited partnership shall file articles of conversion with the office of the secretary of state which satisfy the requirements of § 48-205-101 and also shall include:
1. A statement that the general or limited partnership was converted to a limited liability company from a general or limited partnership, as the case may be;
2. The name and principal business address of the former general or limited partnership;
3. In the case of a general partnership, the name of each of the partners, and in the case of a limited partnership, the name of each of the limited partnership's general partners;
4. In the case of a general or limited partnership, a statement that the terms and conditions of the conversion have been approved by the unanimous vote of the partners or by the number or percentage specified for conversion in the partnership agreement;
5. In the case of a limited partnership formed under Tennessee law prior to January 1, 1989, that has not elected to be governed by title 61, chapter 2, as amended, a statement indicating in which county register of deeds office the certificate of limited partnership and all amendments thereto were filed, including the date of the filings and the books and pages or other file reference numbers; and
6. The number of members of the LLC at the date of conversion.
Effective Date. In the case of a general partnership, the conversion takes effect when the articles of conversion are filed with the secretary of state or at any later date on or before ninety (90) days from filing of the articles of conversion if specified in such articles. The same presumptions that apply to the filing of the articles under chapter 203 of this title apply to the filing of the articles of conversion. In the case of a limited partnership, the filing of the articles of conversion with the office of the secretary of state, in compliance with this section, shall constitute and, for purposes of title 61, chapter 2, be deemed to be a certificate of cancellation of the limited partnership. In the case of a limited partnership formed under Tennessee law prior to January 1, 1989, that has not elected to be governed by title 61, chapter 2, as amended, a copy of the articles of conversion shall be filed in the register of deeds office in the county in which the certificate of limited partnership of the limited partnership was filed; provided, that the failure to make such filing shall not prevent the conversion from becoming effective as provided in this subsection (d). The register of deeds may charge five dollars ($5.00) plus fifty cents (50¢) per page in excess of five (5) pages for such filing.
Continuing Liability for Pre-LLC Liabilities. In the case of a general partnership, a partner, or in the case of a limited partnership, a general partner who becomes a member of an LLC as a result of the conversion, remains liable as a general partner for all obligations and liabilities incurred by the general partnership or limited partnership before the conversion takes effect. The former general partner's liability for all other obligations and liabilities of the LLC incurred after the conversion takes effect is that of a member as provided in chapters 201-248 of this title.
Amendment of Articles of Conversion. Articles of conversion shall be amended in the same manner as articles of organization.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 6; 1999, ch. 455, § 4.

Law Reviews.

Key Tax Aspects of the Tennessee Limited Liability Company Act, (Andrhe Sophia Blumstein), 30 Tenn. B.J. 14 (1994).

48-204-102. Effect of conversion.

A general or limited partnership that has been converted pursuant to § 48-204-101 shall be deemed for all purposes the same entity that existed before the conversion.
When a conversion takes effect:
1. All property owned by the converting general or limited partnership remains vested in the converted entity;
2. All obligations of the converting general or limited partnership continue as obligations of the converted entity; and
3. An action or proceeding pending against the converting general or limited partnership may be continued as if the conversion had not occurred.
The converting general or limited partnership shall not be required to wind up its affairs or pay its liabilities and distribute its assets, and such conversion shall not be deemed to constitute a dissolution of such general or limited partnership.
The partnership interests of the partners in the converting partnership, including interests in capital accounts, profits, losses and distributions, unless otherwise agreed to by the unanimous consent of all partners or such other number or percentage as provided in the partnership agreement, shall become the membership interests of the members in the converted entity, unless the articles of conversion or the operating agreement otherwise provide.

Acts 1994, ch. 868, § 1; 1999, ch. 455, § 5.

48-204-103. Conversion to a professional LLC.

A partnership which converts into a domestic LLC under this chapter may, if the membership and other requirements of chapter 248 of this title are met, be a PLLC.

Acts 1994, ch. 868, § 1.

Chapter 205
Articles of Organization

48-205-101. Articles of organization.

The articles must set forth:

A name for the LLC that satisfies the requirements of § 48-207-101;
The street address and zip code of the initial registered office of the LLC, the county in which the office is located and the name of its initial registered agent at that office;
The name and address of each organizer;
If, pursuant to § 48-217-101(f), one (1) or more members are personally liable for all of the debts, obligations and liabilities of the LLC, the articles must set forth the information required in § 48-217-101(f);
A statement as to whether the LLC will be board-managed or whether the LLC will be member-managed;
The number of members at the date of the filing of the articles;
If the LLC is board-managed, and dissolution events may be triggered by an action approved by the governors or a subset of the governors and/or that transfers of governance rights may be permitted only by consent of the governors or a subset of the governors, either of such provisions must be set forth in the articles or the articles must contain a statement that the operating agreement may so provide;
If the existence of the LLC is to begin upon a future date or the happening of a specific event, the articles must state the future date or describe the happening of the specific event. In no event can the future date or the actual occurrence of the specific event be more than ninety (90) days from the proper filing of the articles in compliance with § 48-203-102;
The street address and zip code of the principal executive office of the LLC and the county in which the office is located;
If the LLC has the power to expel a member, a statement that such power exists;
If the duration of the LLC is to be limited to a specific period of time or term of years, such limitation and the future date on which dissolution is to occur or the term of years shall be stated in the articles;
The articles may contain provisions not inconsistent with law relating to the management of the business or the regulation of the affairs of the LLC;
It is not necessary to set forth in the articles any of the LLC powers granted by chapters 201-248 of this title;
If the members or parties (other than the LLC) to a contribution agreement or a contribution allowance agreement have preemptive rights, a statement that such rights exist;
The articles may contain a grant of authority to one (1) or more members, managers or governors to execute instruments for the transfer of real property, and any restrictions and conditions with respect to such authority. In the event the articles name one (1) or more persons who are granted authority to execute instruments for the transfer of real property with any restrictions and conditions with respect to such authority so listed, such grant shall be conclusive in favor of a person who gives value without knowledge to the contrary. However, such designation, unless it expressly states that it is exclusive, shall not override § 48-238-103 or § 48-238-104; and
If the LLC, while being formed under Tennessee law, is not to engage in business in Tennessee, a statement that the LLC is prohibited from engaging in business in Tennessee.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 7-12; 1999, ch. 346, § 3; 1999, ch. 455, § 6.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 No. Tenn. B.J. 27 (1999).

Chapter 206
Operating Agreement

48-206-101. Operating agreement.

Generally. Each board-managed LLC shall have an operating agreement. A member-managed LLC may, but need not, have an operating agreement. If an LLC has an operating agreement, the operating agreement must be in writing. Except for those matters required to be provided for in the articles under chapters 201-248 of this title, an operating agreement may contain any rules, regulations, or provisions regarding the management of the business of the LLC, the regulation of the affairs of the LLC, the governance of the LLC, the conduct of its business, and the rights and privileges of members (financial rights, governance rights and membership rights of members), to the extent that such provisions are not inconsistent with the laws of this state or the articles. The operating agreement shall contain a statement of all membership interests in the LLC, which shall include, but not be limited to, the following:
1. The identity of all of the members and their membership interests and the identity of all persons or entities bound by a contribution agreement or the owner of a contribution allowance agreement and the membership interest that will be acquired upon the satisfaction of the terms of such agreement;
2. The amount of cash and a description and statement of the agreed value of any other property or services contributed for each membership interest;
3. The amount and value of any contributions which any member or potential member has agreed pursuant to a contribution agreement to contribute and the time or times at which or events on the happening of which any additional contributions agreed to be made by any member are to be made;
4. The amount and value of any contributions which any member or potential member has the right pursuant to a contribution allowance agreement to contribute and the time or times at which or events on the happening of which such contribution must be made or the right lapses;
5. Any right of a member to receive, or of the LLC to make, distributions to a member;
6. The time or times at which or events on the happening of which the LLC shall be dissolved, to the extent that any such matters are not set forth in the articles and are not identical to the statutory events of § 48-245-101;
7. Any other provisions that are required by the terms of chapters 201-248 of this title to be included in an operating agreement and any provisions which the members wish to state in the operating agreement.
Writing Constituting Operating Agreement. The operating agreement may consist of one (1) or more written agreements or counterparts that are, by express statements, intended to constitute and be a part of the operating agreement.
Binding Effect. Unless otherwise provided in the articles or in an operating agreement adopted or agreed to by all members and holders of binding contribution agreements, an operating agreement that has been adopted or agreed to by the required vote of the members and person or entity bound by a contribution agreement shall be binding on the LLC and its members, and any person or entity becoming a member or entering into a contribution agreement or a contribution allowance agreement and such person shall be deemed to have adopted and agreed to it.

Acts 1994, ch. 868, § 1.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-206-102. Adoption and amendment of operating agreement.

Adoption of Operating Agreement. Except as otherwise provided in the articles, an operating agreement must initially be agreed to by all members or the organizer or organizers. Any person becoming a member after an operating agreement has been adopted by the organizers or the members will be deemed to have agreed to the operating agreement.
Amendment of Operating Agreement. Unless otherwise provided in the articles or the operating agreement, the amendment of the operating agreement shall require the vote of members necessary to amend the articles.
Enforcement of Operating Agreement.
1. A court of equity may enforce an operating agreement by injunction or by such other equitable relief as the court in its discretion determines to be fair and appropriate in the circumstances.
2. As an alternative to injunctive or other equitable relief, when § 48-245-801 is applicable, a court of equity may conduct or continue the dissolution and winding up of the LLC.
3. Notwithstanding anything to the contrary, any agreement to give dissolution avoidance consent, whether or not contained in the articles, the operating agreement or other agreement entered into before the event of dissolution, is not specifically enforceable.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 13; 1999, ch. 455, § 7.

Chapter 207
Name

48-207-101. LLC name.

Name Requirements. An LLC name:
1. Must contain the words “limited liability company,” or the abbreviation “L.L.C.” or “LLC,” or words or abbreviations of like import in another language; provided, that they are written in roman characters or letters; and provided further, that, in the case of a foreign LLC, the name may contain, in lieu of the foregoing, the designations allowed by the jurisdiction in which the foreign LLC was formed or organized. An organization formed pursuant to chapter 248 of this title must contain the words or the abbreviation as required by § 48-248-301. Notwithstanding the foregoing, the name of an LLC or foreign LLC must not contain the word “corporation” or “incorporated” or an abbreviation of either or both these words; and
2. May not contain language stating or implying that the LLC:
  1. Transacts or has the power to transact any business for which authorization in whatever form and however denominated is required under the laws of this state, unless the appropriate commission or officer has granted such authorization and certifies that fact in writing;
  2. Is organized as, affiliated with, or sponsored by, any fraternal, veterans', service, religious, charitable, or professional organization, unless that fact is certified in writing by the organization with which affiliation or sponsorship is claimed;
  3. Is an agency or instrumentality of, affiliated with or sponsored by the United States or any state thereof or a subdivision or agency thereof, unless such fact is certified in writing by the appropriate official of the United States or the state or subdivision or agency thereof; or
  4. Is organized for a purpose other than that permitted by § 48-203-101 and the LLC's articles.
Name Must Be Distinguishable. Except as authorized by subsection (c), the name of a domestic LLC, and the name of a foreign LLC that is authorized to transact business in this state or is applying for a certificate of authority to transact business in this state, shall be distinguishable upon the records of the secretary of state from the respective names of or for every other entity, whether true, assumed, reserved or registered, to the extent the use or reservation of such names is evidenced by a filing with the secretary of state under applicable law.
Nondistinguishable Name of Entity Under Common Control. A domestic or foreign LLC, or person acting on behalf of an LLC not yet formed, may apply to the secretary of state for authorization to use a name that is not distinguishable upon the secretary of state's records from one (1) or more of the names described in subsection (b). The secretary of state shall authorize use of the indistinguishable name applied for, if:
1. The person holding the right to use the previously filed name described in subsection (b) consents to the use in writing and submits an undertaking, in a form satisfactory to the secretary of state, to cancel its reservation of such name or change such name to a name that is distinguishable upon the records of the secretary of state from the name of the applicant;
2. The applicant delivers to the secretary of state a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state; or
3. The person holding the right to use the previously filed name described in subsection (b) consents in writing to the use of such name by the applicant, and both the other person and the applicant consent in a form satisfactory to the secretary of state to use the same registered agent.
Assumed Name.
1. An LLC or a foreign LLC authorized to transact business or applying for a certificate of authority to transact business may elect to adopt an assumed name that complies with the requirements of subsections (a)-(c), except that such name need not contain the designations contained in subdivision (a)(1).
2. As used in chapters 201-248 of this title, “assumed name” means any name used by the LLC, other than the LLC's true name, except that the following shall not constitute the use of an assumed name:
  1. The identification by an LLC of its business with a trademark or service mark of which it is the owner or licensed user; and
  2. The use of a name of a division, not separately organized and not containing the words “limited liability company” or an abbreviation of such words; provided, that the LLC also clearly discloses its name.
3. Before transacting any business in this state under an assumed name or names, the LLC shall, for each assumed name, pursuant to resolution by its governing body, execute and file in accordance with §§ 48-247-101 and 48-247-103, an application setting forth:
  1. The true LLC name;
  2. The state or country under the laws of which it is organized;
  3. That it intends to transact business under an assumed name; and
  4. The assumed name which it proposes to use.
4. The right to use an assumed name shall be effective for five (5) years from the date of filing by the secretary of state.
5. An LLC shall renew the right to use its assumed name or names, if any, within the two (2) months preceding the expiration of such right, for a period of five (5) years, by filing an application to renew each assumed name and paying the renewal fee as prescribed by § 48-247-103(a).
Cancellation of Assumed Name. Any LLC or foreign LLC may, pursuant to resolution by its governing body, change or cancel any or all of its assumed names by executing and filing, in accordance with §§ 48-247-101 and 48-247-103, an application setting forth:
1. The true LLC name;
2. The state or country under the laws of which it is organized;
3. That it intends to cease transacting business under an assumed name by changing or cancelling it;
4. The assumed name to be changed from or cancelled; and
5. If the assumed name is to be changed, the assumed LLC name which the LLC proposes to use.
Upon the filing of an application to change an assumed name, the LLC shall have the right to use such assumed name for the period authorized by subsection (d).
Cancellation of Assumed Name by Secretary of State. The right of a foreign or domestic LLC to use an assumed name shall be cancelled by the secretary of state if:
1. The LLC fails to renew an assumed name;
2. The LLC has filed an application to change or cancel an assumed name;
3. A domestic LLC has been dissolved; or
4. A foreign LLC has had its certificate of authority to transact business in this state revoked.
Unfair Competition. Nothing in this section, or in § 48-207-102 or § 48-207-103 shall abrogate or limit the law as to unfair competition or unfair trade practice, or derogate from the common law, the principles of equity, or the statutes of this state or of the United States with respect to the right to acquire and protect trade names and trademarks.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 14; 2010, ch. 743, §§ 7, 8; 2017, ch. 333, § 2.

48-207-102. Reserved name.

Reserving a Name. A person may reserve the exclusive use of an LLC name, including an assumed name, by delivering an application to the secretary of state for filing. The application must set forth the name and address of the applicant and the name proposed to be reserved. If the secretary of state finds that the LLC name applied for meets the requirements of § 48-207-101 and is available, the secretary of state shall reserve the name for the applicant's exclusive use for a four-month period. Upon the expiration of the four-month period, the same or any other party may apply to reserve the same name.
Transfer of Reserved Name. The owner of a reserved LLC name, including an assumed name, may transfer the reservation to another person by delivering to the secretary of state a notice of the transfer signed by the owner that states the name and address of the transferee.
Cancellation of Reserved Name. The reservation of a specific name may be cancelled by filing with the secretary of state a notice, executed by the applicant or transferee, specifying the name reservation to be cancelled and the name and address of the applicant or transferee.

Acts 1994, ch. 868, § 1.

48-207-103. Registered name.

Registration of Name. A foreign LLC may register its name, or an assumed name under which it transacts business, or its name with any addition pursuant to § 48-207-101(a), if the name is distinguishable upon the records of the secretary of state as required by § 48-207-101(b).
Process for Registration. A foreign LLC registers its name, or its assumed name, or its name with any addition pursuant to § 48-207-101(a), by delivering to the office of the secretary of state for filing an application:
1. Setting forth its name, its assumed name, or its name with any addition pursuant to § 48-207-101(a), the state or country and date of its organization, and a brief description of the nature of the business in which it is engaged; and
2. Accompanied by a certificate copy of existence (or a document of similar import) from the state or country of organization, which certificate shall bear a date of not more than one (1) month prior to the date the application is filed in this state.
Effective Date of Registration. The name is registered for the applicant's exclusive use upon the effective date of the application and until the end of the calendar year in which such registration occurs.
Renewal of Registered Name. A foreign LLC whose registration is effective may renew it for successive years by delivering to the office of the secretary of state for filing a renewal application, which complies with the requirements of subsection (b), between October 1 and December 31 of the preceding year. The renewal application renews the registration for the following calendar year.
Use of Registered Name. A foreign LLC whose registration is effective may thereafter qualify as a foreign LLC under that name or consent in writing to the use of that name by an LLC thereafter organized under this title or by another foreign LLC thereafter authorized to transact business in this state. The registration terminates when the domestic LLC is organized or the foreign LLC qualifies or consents to the qualification of another foreign LLC under the registered name.

Acts 1994, ch. 868, § 1.

Chapter 208
Registered Agent

48-208-101. Registered office and registered agent.

Registered Office and Agent. Each foreign and domestic LLC must continuously maintain in this state:
1. A registered office that may be the same as any of its places of business; and
2. A registered agent, who may be: an individual who resides in this state, a domestic corporation, a not-for-profit domestic corporation, an LLC, or a foreign corporation, not-for-profit foreign corporation, or foreign LLC authorized to transact business in this state. The registered agent must maintain a business office that is identical with the registered office.
New Registered Agent Required. If a registered agent resigns or is unable to perform such agent's duties, the foreign or domestic designating LLC shall promptly designate another registered agent to the end that it shall at all times have a registered agent in this state.

Acts 1994, ch. 868, § 1.

48-208-102. Change of registered office or registered agent.

Change in Registered Office and/or Agent by LLC. A foreign or domestic LLC may change its registered office or registered agent by delivering to the secretary of state for filing a statement of change that sets forth:
1. The name of the LLC;
2. If the current registered office is to be changed, the street address of the new registered office and the zip code for such office and the county in which the office is located;
3. If its current registered agent is to be changed, the name of its new registered agent; and
4. That after the change or changes are made, the street addresses of its registered office and the business office of its registered agent will be identical.
Change in Registered Office by Registered Agent. If a registered agent changes the street address of such registered agent's business office, such registered agent may change the street address of the registered office of any LLC for which such registered agent is the registered agent by notifying the LLC in writing of the change and signing (either manually or in facsimile) and delivering to the secretary of state for filing a statement that complies with the requirements of subsection (a) and recites that the LLC has been notified of the change.

Acts 1994, ch. 868, § 1.

48-208-103. Resignation of registered agent.

Resignation of Registered Agent. A registered agent of a foreign or domestic LLC may resign such agent's agency appointment by signing and filing with the secretary of state an original statement of resignation accompanied by such agent's certification that such agent has mailed a copy thereof to the principal office of the LLC by certified mail. The statement may include a statement that the registered office is also discontinued.
Effective Date of Resignation. The agency appointment is terminated, and the registered office discontinued if so provided, on the date on which the statement is filed by the secretary of state.

Acts 1994, ch. 868, § 1.

Cross-References. Workers' Compensation Law, “employer” defined, § 50-6-102.

48-208-104. Service on LLC.

Agent for Service of Process. A foreign or domestic LLC's registered agent is the LLC's agent for service of process, notice, or demand required or permitted by law to be served on the LLC.
Secretary of State Is Default Agent. Whenever a domestic or foreign LLC authorized to do business in this state fails to appoint or maintain a registered agent in this state, whenever its registered agent cannot be found with reasonable diligence, whenever a foreign LLC shall transact business or conduct affairs in this state without first obtaining a certificate of authority from the secretary of state, or whenever the certificate of authority of a foreign LLC shall have been cancelled or revoked, then the secretary of state shall be an agent of such LLC upon whom any such process, notice or demand may be served.
Special Agent for Workers' Compensation. Whenever a domestic or foreign LLC authorized to do business in this state is an employer within the meaning of the Workers' Compensation Law and such LLC is, for the purpose of such Workers' Compensation Law, self-insured or a part of a self-insurance pool as provided in title 50, chapter 6, part 4, such LLC shall, for workers' compensation actions only, be required to appoint the commissioner of commerce and insurance and such commissioner's chief deputy, or their successors, as its true and lawful attorneys upon either of whom all lawful process in any such action or legal proceeding against it may be served as is required of insurance companies by § 56-2-103.
Not Exclusive Means of Service. This section does not prescribe the only means, or necessarily the required means, of service on a domestic or foreign LLC.

Acts 1994, ch. 868, § 1.

NOTES TO DECISIONS

1. Service on Secretary of State.

Under T.C.A. § 48-208-104(b), plaintiff was justified in serving a summons and complaint on the Tennessee secretary of state as an agent of defendant because plaintiff had mailed service packets to: (1) the address given for defendant at the Tennessee secretary of state's website; (2) the warehouse where defendant maintained its current operations; (3) an address where defendant formerly had offices; and (4) the personal post office box of defendant's registered agent, and a process server retained by plaintiff made several unsuccessful attempts to serve defendant. Arch Wood Prot., Inc. v. FlamedXX, — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 43746 (E.D. Tenn. Mar. 29, 2012).

48-208-105. Procedure for service on domestic or foreign LLC by service on secretary of state.

Service on the secretary of state, when the secretary of state is an agent for a domestic or foreign LLC as provided in § 48-208-104(b), of any process, notice, or demand shall be made by delivering to the office of the secretary of state the original and one (1) copy of such process, notice, or demand, duly certified by the clerk of the court in which the suit or action is pending or brought, together with the proper fee. A statement which identifies which of the grounds, as listed in § 48-208-104(b), for service on the secretary of state is applicable, must be included. The office of the secretary of state shall endorse the time of receipt upon the original and copy and immediately shall send the copy, along with a written notice that service of the original was also made, by registered or certified mail, with return receipt requested, addressed to such LLC at its registered office or principal office (or designated alternative mailing address) as shown in the records on file in the secretary of state's office or as shown in the official registry of the state or country in which such LLC is organized. If none of the previously mentioned addresses are available to the secretary of state, service may be made on any one (1) of the organizers at the address set forth in the articles. The secretary of state may require the plaintiff (or complainant, as the case may be) or plaintiff's attorney to furnish the latter address.
Refusal of Service Ineffective. The refusal or failure of such LLC to accept delivery of the registered or certified mail provided for in subsection (a), or the refusal or failure to sign the return receipt, shall not affect the validity of such service; and any such LLC refusing or failing to accept delivery of such registered or certified mail shall be charged with knowledge of the contents of any process, notice, or demand contained therein.
Receipt Received by Secretary of State. When the registered or certified mail return receipt is received by the office of the secretary of state or when a foreign or domestic LLC refuses or fails to accept delivery of the registered or certified mail and it is returned to the office of the secretary of state, the office of the secretary of state shall forward the receipt or such refused or undelivered mail to the clerk of the court in which the suit or action is pending, together with the original process, notice, or demand, a copy of the notice the secretary of state sent to the defendant LLC and the secretary of state's affidavit setting forth the secretary of state's compliance with this section. Upon receipt thereof, the clerk shall copy the affidavit on the rule docket of the court and shall mark it, the receipt or refused or undelivered mail, and the copy of notice as of the day received and place them in the file of the suit or action where the process and pleadings are kept, and such receipt or refused or undelivered mail, affidavit, and copy of notice shall be and become a part of the technical record in the suit or action, and thereupon service on the defendant shall be complete. Service made under this section shall have the same legal force and validity as if the service had been made personally in this state.
Subsequent Pleadings. Subsequent pleadings or papers permitted or required to be served on such defendant domestic or foreign LLC may be served on the secretary of state as agent for such defendant LLC in the same manner, at the same cost and with the same effect as process, notice, or demand are served on the secretary of state as agent for such defendant LLC under this section.
Minimum Time for Appearance. No appearance shall be required in the suit or action by the defendant domestic or foreign LLC nor shall any judgment be taken against the defendant domestic or foreign LLC in less than one (1) month after the date service is completed under this section.
Record Retained. The secretary of state shall keep a record of all processes, notices, and demands served upon the secretary of state under this section, which record shall include the time of such service and the secretary of state's action with reference thereto.

Acts 1994, ch. 868, § 1; 2014, ch. 783, § 10.

Compiler's Notes. The phrase “The secretary of state” has been substituted for “be” following “ a copy of the notice” in (c), as a possible interpretation of unclear language in the original text of the section.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

Chapter 209
Amendment of Articles

48-209-101. Authority to amend.

An LLC may amend its articles at any time to add or change a provision that is required or permitted in the articles or to delete a provision not required in the articles. Whether a provision is required or permitted in the articles is determined as of the effective date of the amendment.
A member of an LLC does not have a vested property right resulting from any provision in the articles or operating agreement, including provisions relating to management, control, capital structure, distribution entitlement or purpose or duration of the LLC.

Acts 1994, ch. 868, § 1.

48-209-102. Amendment by board of governors.

Unless the articles provide otherwise, the board of governors of a board-managed LLC may adopt one (1) or more amendments to the LLC's articles without member action to:

Delete the name and address of the initial registered agent or registered office, if a statement of change is on file with the secretary of state;
Designate or change the address of the principal office of the LLC;
Change the LLC's name by substituting the words “limited liability company” or the abbreviation “LLC,” for a similar word or abbreviation in the name, or by adding, deleting or changing a geographical attribution for the name;
Designate the street address and zip code of the LLC's current registered office, the county in which the office is located, and the name of its current registered agent at the office;
Delete the initial principal office, if an annual report is on file with the secretary of state; or
Make any other change expressly permitted by chapters 201-248 of this title to be made without member action.

Acts 1994, ch. 868, § 1.

48-209-103. Amendment by board of governors and members.

The board of governors of a board-managed LLC may propose one (1) or more amendments to the articles for submission to the members.
For the amendment to be adopted:
1. The board of governors shall recommend the amendment to the members, unless the board of governors determines that because of conflict of interest or other special circumstances, it should make no recommendation and communicate the basis for its determination to the members with the amendment; and
2. The members entitled to vote on the amendment shall approve the amendment as provided in subsection (f).
The board of governors may condition its submission of the proposed amendment on any basis.
Notwithstanding the above, unless the articles or operating agreement provide otherwise, any member or group of members of either a board-managed or member- managed LLC entitled to call a meeting may propose an amendment to the articles and call a meeting of the members to consider such amendment.
The LLC shall notify each member, whether or not entitled to vote, of the proposed members' meeting in accordance with § 48-222-102. The notice of meeting must also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed amendment and contain or be accompanied by a copy or summary of the amendment.
Unless chapters 201-248 of this title, the articles, or the board of governors (acting pursuant to subsection (c)) requires a greater vote, the amendment to be adopted must be approved by a majority vote of the members entitled to vote thereon.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 15.

48-209-104. Articles of amendment.

An LLC amending its articles shall deliver to the secretary of state for filing articles of amendment setting forth:

The name of the LLC;
The text of each amendment adopted;
The date of each amendment's adoption;
If an amendment was duly adopted by the board of governors without member action, a statement to that effect and that member action was not required; and
If an amendment was duly adopted by the members, a statement to that effect.

Acts 1994, ch. 868, § 1.

48-209-105. Restated articles.

An LLC's board of governors may restate its articles at any time with or without member action.
The restatement may include one (1) or more amendments to the articles. If the restatement includes an amendment requiring member approval, it shall be adopted as provided in § 48-209-103.
If the board of governors submits a restatement for member action, the LLC shall notify each member, whether or not entitled to vote, of the proposed members' meeting in accordance with § 48-222-102. The notice shall also state that the purpose, or one (1) of the purposes, of the meeting is to consider the proposed restatement and contain or be accompanied by a copy of the restatement that identifies any amendment or other change it would make in the articles.
An LLC restating its articles shall deliver to the secretary of state the restated articles, setting forth the name of the LLC and the text of the restated articles, together with a certificate setting forth:
1. Whether the restatement contains an amendment to the articles requiring member approval and, if it does not, that the board of governors adopted the restatement; or
2. If the restatement contains an amendment to the articles requiring member approval, the information required by § 48-209-104.
If the restatement contains an amendment to the articles, it shall be designated in the heading as “Amended and Restated Articles.”
The restated articles must contain all the requirements of articles as set out in § 48-205-101.
Duly adopted and restated articles supersede the original articles and all prior amendments thereto.
The secretary of state may certify restated articles as the articles currently in effect, without including the certificate information required by subsection (d).

Acts 1994, ch. 868, § 1.

48-209-106. Amendment to articles pursuant to reorganization.

An LLC's articles may be amended without action by the board of governors or members to carry out a plan of reorganization ordered or decreed by a court of competent jurisdiction under federal statute, if the articles after amendment contain only provisions required or permitted by § 48-205-101.
The individual or individuals designated by the court shall deliver to the secretary of state for filing articles of amendment setting forth:
1. The name of the LLC;
2. The text of each amendment approved by the court;
3. The date of the court's order or decree approving the articles of amendment;
4. The title of the reorganization proceeding in which the order or decree was entered; and
5. A statement that the court had jurisdiction of the proceeding under federal statute.
Members of an LLC undergoing reorganization do not have dissenters' rights except as and to the extent provided in the reorganization plan.
This section does not apply after entry of a final decree in the reorganization proceedings, even though the court retains jurisdiction of the proceeding for limited purposes unrelated to consummation of the reorganization plan.

Acts 1994, ch. 868, § 1.

48-209-107. Effect of amendment.

An amendment to the articles does not affect a cause of action existing against or in favor of the LLC, a proceeding to which the LLC is a party or the existing rights of persons other than members of the LLC. An amendment changing an LLC's name does not abate a proceeding brought by or against the LLC in its former name.

Acts 1994, ch. 868, § 1.

Chapter 210
[Reserved]

Chapter 211
Classification for Tax Purposes

48-211-101. LLC classification.

For purposes of all state and local Tennessee taxes, a foreign or domestic LLC shall be treated as a partnership or an association taxable as a corporation as such classification is determined for federal income tax purposes. The members of a foreign LLC treated as a partnership are subject to all state and local Tennessee taxes in the same manner and extent as partners in a foreign partnership. The members of a domestic LLC are subject to all state and local Tennessee taxes in the same manner and extent as partners in a domestic partnership.

Acts 1994, ch. 868, § 1.

Law Reviews.

Key Tax Aspects of the Tennessee Limited Liability Company Act (Andrhe Sophia Blumstein), 30 Tenn. B.J. 14 (1994).

Where There's a Will: The 95% family-owned test for family limited partnerships (Dan Holbrook), 37 Tenn. B.J. 31 (2001).

Attorney General Opinions. Applicability of corporate campaign contribution prohibitions to limited liability companies, OAG 98-053, 1998 Tenn. AG LEXIS 53 (3/2/98).

Chapter 212
General Powers of LLC

48-212-101. General powers.

The LLC has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including without limitation, power to:

Sue and be sued, complain and defend in its LLC name;
Make and amend an operating agreement not inconsistent with its articles or with the laws of this state, for managing the business and regulating the affairs of the LLC;
Purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
Sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of, or grant a security interest in, all or any part of its property;
Purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, or grant a security interest in; and deal in and with shares or other interests in, or obligations of, any other entity;
Make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations (which may be convertible into or include the option to purchase other securities of the LLC), and secure any of its obligations or those of any other person by mortgage, pledge of, or security interest in, any of its property, franchises, or income;
Lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
Be a promoter, partner, member, associate, or manager of any partnership, joint venture, trust, or other entity;
Conduct its business, locate offices, and exercise the powers granted by chapters 201-248 of this title within or without this state;
Elect governors, if board-managed, and appoint managers, employees, and agents of the LLC, define their duties, fix their compensation, lend them money and credit, and guarantee debt on their behalf;
Pay pensions and establish pension plans, pension trusts, profit-sharing plans, and benefit or incentive plans for any or all of the current or former governors, managers, employees, and agents of the LLC or any of its subsidiaries;
Make donations for the public welfare or for charitable, scientific or educational purposes;
Make payments or donations, or do any other act, not inconsistent with law, that furthers the business and affairs of the LLC;
Procure for its benefit insurance on the life of any of its governors, managers or employees, to insure the life of any member for the purpose of acquiring at the member's death the membership interest owned by such member and to continue such insurance after the relationship terminates;
Accept gifts, devises, and bequests subject to any conditions or limitations contained in such gift, devise, or bequest so long as such conditions or limitations are not contrary to any provisions of chapters 201-248 of this title or the purposes for which the LLC is organized;
Accept contributions under § 48-232-101 and enter into contribution agreements under § 48-233-101 and contribution allowance agreements under § 48-234-101; and
Have and exercise all other powers necessary or convenient to effect any or all of the business purposes for which the LLC is organized.

Acts 1994, ch. 868, § 1.

Attorney General Opinions. Application of campaign finance legislation to limited liability companies, OAG 99-086, 1999 Tenn. AG LEXIS 86 (4/8/99).

NOTES TO DECISIONS

1. Power to Sue.

Under T.C.A. § 48-212-101, the limited liability company (LLC) itself was granted certain general powers to do all things necessary or convenient to carry out its business and affairs, and the first power granted to the LLC was the power to sue and be sued, complain and defend its LLC name; as the LLC and its member were bound by the LLC operating agreement under T.C.A. § 48-206-101(c), any breach of the operating agreement would constitute the LLC's business and affairs; thus, the LLC had the authority to sue in its name to enforce its operating agreement. Riverside Surgery Ctr., LLC v. Methodist Health Sys., 182 S.W.3d 805, 2005 Tenn. App. LEXIS 147 (Tenn. Ct. App. 2005), appeal denied, — S.W.3d —, 2005 Tenn. LEXIS 914 (Tenn. Oct. 24, 2005).

Chapter 213
Ultra Vires Actions

48-213-101. Ultra vires actions.

Limit on Power to Challenge. Except as provided in subsection (b), the validity of an LLC's action may not be challenged on the ground that the LLC lacks or lacked the power to act.
Challenge of Power. An LLC's power to act may be challenged in a proceeding by:
1. A member against the LLC to enjoin the act;
2. The LLC, directly, derivatively, or through a receiver, trustee, or other legal representative, against an incumbent or former governor (if board-managed), manager, employee, or agent of the LLC; or
3. The attorney general and reporter under § 48-245-902.
Derivative Action. In a member's proceeding under subdivision (b)(1) to enjoin an unauthorized LLC act, the court may enjoin or set aside the act, if equitable and if all affected persons are parties to the proceeding, and may award damages for loss (other than anticipated profits) suffered by the LLC or another party because of enjoining the unauthorized act.

Acts 1994, ch. 868, § 1.

Cross-References. For profit business corporations, Ultra vires actions, § 48-13-104.

Nonprofit corporations, Ultra vires actions, § 48-53-104.

NOTES TO DECISIONS

1. Constructive Trust.

Member's actions were sufficiently wrongful to support the imposition of a constructive trust over the proceeds from the sale of the limited liability company's (LLC) lots because the grantee, of which the member owned one-half, obtained title to the lots due to the member's violation of his fiduciary duty to the LLC, and through inequitable means, paying no compensation to the LLC for the lots; the grantee could not, in equity and good conscience retain the beneficial interest. Lascassas Land Co., LLC v. Allen, — S.W.3d —, 2018 Tenn. App. LEXIS 189 (Tenn. Ct. App. Apr. 10, 2018).

Chapter 214
Transaction of Business Outside Tennessee

48-214-101. Transaction of business outside Tennessee.

Transaction of Business Outside Tennessee. By enacting chapters 201-248 of this title the general assembly recognizes the LLC as an important and constructive form of business organization. The general assembly understands that:
1. Businesses organized under chapters 201-248 of this title will often transact business in other states;
2. For businesses organized under chapters 201-248 of this title to function effectively and for such chapters to be a useful enactment, such chapters must be accorded the same comity and full faith and credit that states typically accord to each other's corporate laws; and
3. Specifically, it is essential that other states recognize both the legal existence of limited liability companies formed under chapters 201-248 of this title and the legal status of all members of these limited liability companies.
The general assembly, therefore, specifically seeks that, subject to any reasonable registration requirements, other states extend to chapters 201-248 of this title the same full faith and credit under article IV, section 1 of the United States Constitution, and the same comity, that Tennessee extends to statutes that other states enact to provide for the establishment and operation of business organizations.

Acts 1994, ch. 868, § 1.

Law Reviews.

Key Tax Aspects of the Tennessee Limited Liability Company Act (Andrhe Sophia Blumstein), 30 Tenn. B.J. 14 (1994).

48-214-102. Governing law.

The liability of a member, holders of financial interest, governor, employee, or agent of a limited liability company formed and existing under chapters 201-248 of this title shall at all times be governed by chapters 201-248 of this title and the laws of this state.
If a conflict arises between the laws of this state and the laws of any other jurisdiction with regard to the liability of a member, holder of financial interest, governor, employee, or agent of a limited liability company formed and existing under chapters 201-248 of this title for the debts, obligations and liabilities of the limited liability company, or for the acts or omissions of another member, holder of financial interest, governor, employee or agent of the limited liability company, chapters 201-248 of this title and the laws of this state shall govern in determining such liability.

Acts 1994, ch. 868, § 1.

Chapter 215
Members and Membership Interests

48-215-101. Nature of a membership interest and statement of interest owned.

Generally. 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 itself.
Statement of Membership Interest. At the request of any member, the LLC shall state in writing the particular membership interest owned by that member as of the time the LLC makes the statement. The statement must describe the member's rights to vote, to share in profits and losses, and to share in distributions, as well as any assignment of the member's rights then in effect. The statement shall not be deemed to be a “security,” as defined in § 47-8-102, 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 may be effected.

Acts 1994, ch. 868, § 1; 1997, ch. 79, §§ 21, 22.

Attorney General Opinions. Application of campaign finance legislation to limited liability companies, OAG 99-086, 1999 Tenn. AG LEXIS 86 (4/8/99).

NOTES TO DECISIONS

1. Interest in Specific Property.

Pursuant to T.C.A. § 48-215-101(a), a debtor's 100 percent membership interest in a limited liability company (LLC) was an intangible right of ownership and did not provide the debtor with an interest in the LLC's specific property; in exchange, the debtor was not otherwise personally liable for the LLC's debts and obligations pursuant to T.C.A. § 48-217-101(a)(1). Thus, a bankruptcy court declined to use its power under 11 U.S.C. § 105(a) to extend the automatic stay to the LLC, as this would not only deprive the creditor of the benefit of its bargain, but also would permit the LLC to receive a major benefit of the bankruptcy process without having to be subject to its burdens and safeguards. In re Burgess, — B.R. —, 2010 Bankr. LEXIS 1352 (Bankr. M.D. Tenn. Apr. 26, 2010).

Trial court erred in awarding a wife a lien to secure the wife's alimony in solido payment against various parcels of real property because the parcels were owned by limited liability companies which the husband owned and not by the husband, individually. Barton v. Barton, — S.W.3d —, 2020 Tenn. App. LEXIS 502 (Tenn. Ct. App. Nov. 10, 2020).

2. Unauthorized Actions of Member.

Member's unauthorized actions did not bind the limited liability company (LLC) because the member did not have authority to act for the LLC in the particular matter at issue; because the member was simultaneously acting as the agent for a grantee in the transaction, the grantee necessarily had knowledge of the fact that the transacting member of the LLC had no authority. Lascassas Land Co., LLC v. Allen, — S.W.3d —, 2018 Tenn. App. LEXIS 189 (Tenn. Ct. App. Apr. 10, 2018).

Chapter 216
Termination of Membership Interest

48-216-101. Termination of membership interest.

Member's Power to Terminate Membership. If an LLC formed prior to July 1, 1999, has, pursuant to § 48-245-101(c)(1), eliminated as events of dissolution all of the events enumerated in § 48-245-101(a)(5)(A)-(J), unless otherwise provided by the articles or operating agreement, no member shall have the power or right to perform an event enumerated in § 48-245-101(a)(5)(B), (a)(5)(C), or (a)(5)(J) or the right to perform an event enumerated in § 48-245-101(a)(5)(G) or (a)(5)(H). Except as provided above, a member always has the power, though not necessarily the right, to terminate membership by withdrawing at any time. Unless otherwise provided in chapters 201-248 of this title, the articles, operating agreement, or the events enumerated in § 48-245-101(a)(5)(A), (D), (E) and (I), any other withdrawal or termination shall be deemed wrongful.
When Expulsion Permitted. Unless otherwise provided in the articles, a member may not be expelled.
Effect of Termination of Membership on the Governance Rights of the Terminated Member. If, for any reason, the continued membership of a member is terminated:
1. If the existence and business of the LLC is continued, then the member whose membership has terminated loses all governance rights and will be considered merely an assignee of the financial rights owned before the termination of membership; and
2. Unless the articles or operating agreement provide otherwise, if the existence and business of the LLC is not continued, the member whose continued membership has terminated, except through wrongful withdrawal or wrongful termination, retains all governance rights owned before the termination of the membership and may exercise those rights through the winding up and termination of the LLC.
Additional Effects If Termination of Membership Is Wrongful. If a member withdraws in contravention of the articles or an operating agreement then:
1. The member who has wrongfully withdrawn forfeits governance rights in the winding up and termination process or in the continued business; and
2. The member who has wrongfully withdrawn is liable to all the other members and to the LLC to the extent damaged, including the loss of foregone profits, by the wrongful withdrawal. Such damages may be offset against any amount to be paid to the wrongfully withdrawing or terminating member by the LLC.
Value If LLC Is Continued. If the business and existence of the LLC are continued, any withdrawing or terminating member, whether such withdrawal or termination was wrongful or otherwise, is entitled to receive, subject to subsection (d), the lesser of the fair market value of the withdrawing or terminating member's interest determined on a going concern basis or the fair market value of the withdrawing member's interest determined on a liquidation basis.
Value If LLC Terminates. Except as provided in subsection (d), if the business and existence of the LLC are not continued, then any withdrawing or terminating member, whether such withdrawal or termination was wrongful or otherwise, is entitled to receive that member's distribution under § 48-245-1101.
Terms of Payment. Except as provided in the articles or operating agreement, any amount to which a withdrawing or terminating member is entitled under subsection (e) or (f) shall be paid to such withdrawing or terminating member within six (6) months of the determination of such amount.
Modification by Articles or Operating Agreement. Notwithstanding other provisions in this section, the articles or operating agreement may establish the amount to be paid a withdrawing or terminating member or a method for establishing such amount and may also establish the terms of payment of such amount. Such established amount, or the method of determining such amount, and such established terms of payment shall control.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 16-21; 1999, ch. 455, §§ 8-12.

Chapter 217
Absence of Personal Liability

48-217-101. Personal liability.

Limited Liability Rule.
1. Except as provided in subsections (e) and (f), a member, holder of financial interest, governor, manager, employee or other agent of an LLC does not have any personal obligation and is not otherwise personally liable for the acts, debts, liabilities, or obligations of the LLC whether such arise in contract, tort or otherwise.
2. A member, holder of financial interest, governor, manager, employee or other agent of an LLC does not have any personal obligation and is not otherwise personally liable for the acts or omissions of any other member, manager, governor, employee or other agent of the LLC.
3. Notwithstanding subdivisions (a)(1) and (2), a member, holder of financial interest, governor, manager, employee or other agent may become personally liable in contract, tort or otherwise by reason of such person's own acts or conduct.
Limited Liability after Dissolution. The limited liability described in subsection (a) continues in full force regardless of any dissolution, winding up, and termination of an LLC.
Member Not a Proper Party to Proceeding. A member, holder of financial interest, governor, or manager of an LLC is not a proper party to a proceeding by or against an LLC except:
1. Where the object of the proceeding is to enforce such person's right against or liability to the LLC;
2. In a derivative action brought pursuant to chapters 201-248 of this title, the articles or the operating agreement; or
3. Where the proceeding asserts personal liability of such member, holder of financial interest, governor, or manager as described in subdivision (a)(3).
Sales Tax Liability. Notwithstanding any other provision of chapters 201-248 of this title to the contrary, each person, member, or employee required to collect, truthfully account for, and pay over to the department of revenue any tax collected from the customers of an LLC shall be personally liable for such taxes in the same manner as responsible persons of a corporation under § 67-1-1443.
Failure to Follow Formalities Not to Generate Personal Liability. The failure of an LLC to observe the usual company formalities or requirements relating to the exercise of its LLC powers or management of its business is not a ground for imposing personal liability on the members, governors, managers, employees or other agents of the LLC.
Voluntary Unlimited Liability.
1. Notwithstanding anything to the contrary in this section, the articles may provide that one (1) or more specifically identified members, as named in the articles, will be personally liable for all of the debts, obligations and liabilities of the LLC and, if so, each such specifically identified member shall be liable to the same extent as a general partner in a general partnership; provided, that:
  1. In order to be effective, each member so identified must sign the articles, or an amendment to the articles containing this provision; and
  2. Each such member shall continue to be personally liable for debts, obligations and liabilities of the LLC until the articles are amended to strike such member's name, but the amendment must be signed by the chief manager or secretary and any remaining members who continue to be identified in the articles as being personally liable for the debts, obligations and liabilities of the LLC.
2. A member who is identified in the articles as being personally liable has the power, but not necessarily the right, to withdraw from the LLC by filing an amendment to the articles stating that such member has withdrawn from the LLC and will not be liable for any future debts, obligations and liabilities of the LLC; provided, that such an amendment to the articles shall be effective immediately except with respect to parties that have reasonably relied upon the articles naming such person as individually liable for the debts, obligations and liabilities of the LLC.
3. An amendment to the articles filed pursuant to subdivisions (f)(1) and (2) is not effective against such parties reasonably relying upon such articles until the passage of ninety (90) days from the filing of the amendment to the articles. Notwithstanding the preceding, such member or former member will continue to be liable for all debts and obligations of the LLC incurred by the LLC while such member assumed liability.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 22-24.

NOTES TO DECISIONS

1. Applicability.

Because a limited liability company formed by a debtor was an entity that was separate from the debtor under T.C.A. § 48-217-101(a)(1) and T.C.A. § 48-249-114(a)(1)(B), a creditor's failure to establish that the LLC's “corporate veil” was properly pierced resulted in a finding that the creditor, the owner of a state court judgment against the LLC, was not a “creditor” of debtors and thus lacked standing to assert nondischargeability claims against them under either 11 U.S.C. § 727 or 11 U.S.C. § 523. Hulsing Hotels Tenn., Inc. v. Steffner (In re Steffner), 479 B.R. 746, 2012 Bankr. LEXIS 3805 (Bankr. E.D. Tenn. Aug. 17, 2012).

Pursuant to T.R.A.P. 13(d), in parties' employment dispute, the evidence did not support the trial court's piercing of the veil of the employer in order to hold the president personally liable for an employee's unpaid compensation under T.C.A. §§ 48-217-101(a)(1) and 48-249-114(a)(1)(B), as the Allen factors did not weigh in favor of such piercing; there was no evidence to show that the president's control of the employer-limited liability company was used to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of third parties' rights. Edmunds v. Delta Partners, L.L.C., 403 S.W.3d 812, 2012 Tenn. App. LEXIS 884 (Tenn. Ct. App. Dec. 18, 2012), rehearing denied, — S.W.3d —, 2013 Tenn. App. LEXIS 28 (Tenn. Ct. App. Jan. 9, 2013), appeal denied, Edmunds v. Delta Partners, LLC, — S.W.3d —, 2013 Tenn. LEXIS 457 (Tenn. May 9, 2013).

Pursuant to T.R.A.P. 13(d), in parties' employment dispute, the evidence did not support the trial court's piercing of the veil of the employer in order to hold the president personally liable for an employee's unpaid compensation under T.C.A. §§ 48-217-101(a)(1) and 48-249-114(a)(1)(B), as the assurances of payment by the president were made on behalf of the employer-limited liability company rather than by him personally; his assurances were qualified that the employee would receive compensation when the employer had the money to pay it. Edmunds v. Delta Partners, L.L.C., 403 S.W.3d 812, 2012 Tenn. App. LEXIS 884 (Tenn. Ct. App. Dec. 18, 2012), rehearing denied, — S.W.3d —, 2013 Tenn. App. LEXIS 28 (Tenn. Ct. App. Jan. 9, 2013), appeal denied, Edmunds v. Delta Partners, LLC, — S.W.3d —, 2013 Tenn. LEXIS 457 (Tenn. May 9, 2013).

2. Fraud.

Defendant, by holding herself out as an officer of a limited liability company (LLC), with the express authorization of her husband, the sole member of the LLC, acted as an agent of the LLC, and was liable to the plaintiff for any tortuous or fraudulent conduct against it while in that role. Prime Fin. Servs. v. Brandenburg (In re Brandenburg), 2011 Bankr. LEXIS 816 (Bankr. E.D. Tenn. Mar. 3, 2011).

Chapter 218
Assignment

48-218-101. Assignment of financial rights.

Assignment of Financial Rights Permitted. Except as provided in subsection (c), a member's financial rights are transferable in whole or in part.
Effect of Assignment of Financial Rights. An assignment of a member's financial rights entitles the assignee to receive, to the extent assigned, only the share of profits and losses and the distributions to which the assignor would otherwise be entitled. An assignment of a member's financial rights does not dissolve the LLC and does not entitle or empower the assignee to become a member, to cause a dissolution, to exercise any governance rights, or, except as specifically provided by chapters 201-248 of this title, to receive any notices from the LLC, or to cause dissolution. The assignment may not allow the assignee to control the member's exercise of governance rights, and any attempt to do so shall be null and void.
Restrictions on Assignment of Financial Rights.
1. A restriction on the assignment of financial rights may be imposed in the articles, in the operating agreement, by a written resolution adopted by the members, or by a written agreement among, or other written action by, members, or among them and the LLC.
2. A restriction on the assignment of financial rights referenced in subdivision (c)(1) that is not manifestly unreasonable under the circumstances is enforceable against the owner of the restricted financial rights. A written restriction on the assignment of financial rights that is not manifestly unreasonable under the circumstances and is noted in the articles or operating agreement may be enforced against a successor or transferee of the owner of the restricted financial rights, including a pledgee or a legal representative, whether or not such successor or transferee of the owner had actual notice thereof. Unless noted in the articles or operating agreement, a restriction, even though permitted by this section, is ineffective against a person without knowledge of the restriction.

Acts 1994, ch. 868, § 1.

NOTES TO DECISIONS

1. Consent for Transfer of Security Interest.

Where debtor pledged his interests in various entities to a law firm to secure existing legal fees incurred by debtor and his companies, the firm did not have a security interest in the debtor's membership interest in one limited liability company (LLC) because the firm had not met its burden with respect to receipt of the consent of the LLC's Board prior to transfer of the security interest in that entity or even prior to the filing of the voluntary petition. In re McKenzie, — B.R. —, 2011 Bankr. LEXIS 2088 (Bankr. E.D. Tenn. May 27, 2011), aff'd, — F. Supp. 2d —, 2012 U.S. Dist. LEXIS 143160 (E.D. Tenn. Oct. 2, 2012).

48-218-102. Assignment of a membership interest or governance rights.

Transfer of Membership Interests Restricted. A member may assign the member's full membership interest only by assigning all of the member's governance rights coupled with an assignment to the same assignee of all the member's financial rights. A member's governance rights are assignable only as provided in this section. A member or holder of a financial right has no power to assign all or any part of the member's membership interest or financial rights, except as provided in § 48-218-101 and this section.
Consents Required.
1. Except as otherwise provided in the articles or the operating agreement, a member may, without the consent of any other member, assign governance rights to another member.
2. 1. Except as provided in subdivisions (b)(2)(B) and (C), any other assignment of any governance rights is effective only if all the members, other than the member seeking to make the assignment, approve the assignment by unanimous consent or if the articles or operating agreement so permit, if the assignment is approved in accordance with § 48-232-102. The consent of a member may be evidenced in any manner specified in the articles or operating agreement, but in the absence of such specification, consent shall be evidenced by a written instrument, dated and signed by such person. The giving of consent is at the discretion of the consenting party and may be unreasonably withheld.
  2. If the articles or operating agreement so provide, the governors who are members may approve, by a majority or greater in number of the nonassigning governors who are members, the assignment of governance rights to a nonmember. In the event there are no nonassigning governors who are members, the assignment must be approved by unanimous consent of the governors or, if the articles or operating agreement so permit, the assignment shall be approved by at least a majority vote of the members exclusive of the member seeking to make the assignment.
  3. Pursuant to § 48-232-102(a), if permitted in the articles or operating agreement, the governance rights associated with membership interests or classes of membership interests may be assigned without the consent of the members or the governors who are members.
Effect on Membership. When an assignment of governance rights is effective under subsection (b):
1. The assignee becomes a member, if not already a member;
2. If the assignor does not retain any governance rights, the assignor ceases to be a member, and the consent required under subsection (b), shall, if applicable, also constitute the consent to avoid dissolution that would otherwise result under § 48-245-101(a)(5); and
3. An assignee who has become a member has, to the extent assigned, the rights and powers and is subject to the restrictions and liabilities, of a member under the articles, any operating agreement and chapters 201-248 of this title.
Effect on Liability for Contributions and Illegal Distributions. When an assignment is effective under subsection (a):
1. The assignee is liable for any obligations of the assignor under § 48-232-101 existing at the time of transfer, except to the extent that, at the time the assignee became a member, the liability was unknown to the assignee, and could not be ascertained from the required records of the LLC;
2. Notwithstanding subdivision (d)(1), the assignee shall not be liable for the obligations of the assignor under § 48-237-101; and
3. The assignor is not released from liability to the LLC for obligations of the assignor existing at the time of transfer under §§ 48-232-101 and 48-237-101.
Pledge of Membership Interest. Unless otherwise provided in the articles or an operating agreement, the pledge of, or granting of a security interest, lien or other encumbrance in or against, any or all of the membership interest of a member is not an assignment 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.
Consequences of Ineffective Assignment. If any purported or attempted assignment of governance rights is ineffective for failure to obtain the consent required in subsection (b):
1. The purported or attempted assignment is ineffective in its entirety; and
2. Any assignment of financial rights that accompanied the purported or attempted assignment of governance rights is void.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 25-27; 1999, ch. 455, §§ 13-15.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-218-103. Consensual restrictions on assignment of governance rights.

In addition to restrictions set forth in this chapter, restrictions on the assignment of governance rights may be imposed in accordance with the procedures and under the same conditions as stated in § 48-218-101(c), for restricting the assignment of financial rights.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 28.

48-218-104. Effective date of assignments.

Any permissible assignment of financial rights under § 48-218-101 and of governance rights under § 48-218-102 will be effective as to and binding on the LLC only when the assignee's name, address, social security or taxpayer identification number and the nature and extent of the assignment are reflected in the required records of the LLC.

Acts 1994, ch. 868, § 1.

48-218-105. Rights of judgment creditor.

On application to a court of competent jurisdiction by any judgment creditor of a member, 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 an assignee of such person's financial rights under § 48-218-101. This section does not deprive any member or assignee of financial rights of the benefit of any exemption laws applicable to the membership interest. This section is the sole and exclusive remedy of a judgment creditor with respect to the judgment debtor's membership interest.

Acts 1994, ch. 868, § 1.

Chapter 219
Powers of Estate of Deceased or Incompetent Member

48-219-101. Powers of estate of a deceased or incompetent member.

General Rule. If a member who is an individual dies or a court of competent jurisdiction adjudges the member to be incompetent to manage the member's person or property, or the court places the individual in bankruptcy, the member's executor, administrator, guardian, conservator, trustee, or other legal representative, except as otherwise provided in the articles or operating agreement, may exercise all of the member's rights, except voting rights, for the purpose of settling the estate or administering the member's property. If a member is a corporation, trust, or other entity and is dissolved, terminated, or placed by a court in receivership or bankruptcy, the powers of that member, except as otherwise provided in the articles or operating agreement, may be exercised by its legal representative or successor, except the interest shall be a nonvoting interest.
When Membership Is Terminated. If an event referred to in subsection (a) causes the termination of a member's membership interest and the business of the LLC is continued, then:
1. As provided in § 48-216-101(c), the terminated member's interest will be considered to be merely that of an assignee of the financial rights owned before the termination of membership; and
2. The rights to be exercised by the legal representative of the successor will be limited accordingly.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 29.

Chapter 220
Sharing of Profits and Losses

48-220-101. Sharing of profits and losses.

Unless otherwise provided in the articles or operating agreement, the profits and losses of an LLC must be allocated equally among the members.

Acts 1994, ch. 868, § 1.

Chapter 221
Preemptive Rights

48-221-101. Preemptive rights.

Presumption and Modification. Unless otherwise provided in the articles, members and parties, other than the LLC, to a contribution agreement or a contribution allowance agreement shall not have preemptive rights. If the articles provide for the possibility of preemptive rights, such rights shall be granted on the terms and conditions prescribed in the articles or operating agreement to provide a fair and reasonable opportunity to exercise the rights to acquire additional proportional interests.
Definition. A preemptive right is the right of a member to make contributions of a certain amount or to make a contribution allowance agreement specifying future contributions of a certain amount before the LLC may accept new contributions from other persons or to make contribution allowance agreements with other persons.
Exemptions. No preemptive rights arise as to contributions to be accepted from others or as to contribution allowance agreements to be made with others when the contribution is to be made:
1. In a form other than money;
2. Reflected pursuant to a plan of merger or exchange;
3. Reflected pursuant to an employee or incentive benefit plan approved at a meeting by the affirmative vote of the owners of a majority of the voting power of all membership interests entitled to vote;
4. Pursuant to a previously made contribution allowance agreement; or
5. Reflected pursuant to a plan of reorganization approved by a court of competent jurisdiction pursuant to a statute of this state or of the United States.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 30.

Chapter 222
Membership Meetings

48-222-101. Meetings of members.

Frequency — Member-Managed. Unless the LLC has elected in its articles to be board-managed, meetings of members may but need not be held unless required by the articles or operating agreement. Unless otherwise provided by the articles, operating agreement or by chapters 201-248 of this title, no particular business is required to be transacted at a meeting, and any business appropriate for action by the members may be transacted at any meeting.
Frequency — Board-Managed. If the LLC has elected in its articles to be board-managed, unless the articles or operating agreement provide for more frequent meetings, there shall be an annual meeting of the members. At such annual meeting, the governors shall be elected and any other proper business may be conducted.
Demand for Meeting. Unless otherwise provided by the articles or operating agreement, a meeting of the members of an LLC may be called by any one (1) or more of the following persons:
1. The chief manager, the secretary or any member; or
2. If the LLC is board-managed, in addition to those persons in subdivision (c)(1), a meeting of the members of the LLC may be called by any governor of the LLC.
Calling of Meeting.
1. The person having the authority to call a meeting under subsection (c) may call the meeting by:
  1. Giving written notice of demand to the members in accordance with § 48-222-102; or
  2. Giving written notice of demand to the secretary of the LLC who shall give such notice to the members, in accordance with § 48-222-102, at the expense of the LLC, within seven (7) days after receipt of the demand.
2. If the secretary fails to cause a meeting to be called and held as required by this subsection (d), the person making that demand may call the meeting by giving notice as required by § 48-222-102, all at the expense of the LLC. In any case, the notice of a meeting of members must be given no fewer than ten (10) days nor more than two (2) months before the meeting date.
Time and Place. Meetings must be held on the date and at the time and place fixed by the person authorized by chapters 201-248 of this title or by the articles or operating agreement to call a meeting, except that a meeting called by or at the demand of any member pursuant to subsection (c) must be held in the county in which the principal executive office is located or, if there is no principal executive office, in the county in which the registered office is located unless the articles or operating agreement provide for a specific county, in or out of the state, in which such meeting must be held. A meeting by electronic conference will be deemed to be held at the principal executive office or registered office, as required by chapters 201-248 of this title or at the place properly named in the notice calling the meeting.
Business Limited. Except for the annual meeting required in subsection (b) for a board-managed LLC, or as otherwise provided in the articles or operating agreement, the business transacted at a meeting is limited to the purposes stated in the notice of the meeting.
Validity of Actions. The failure for any reason to hold any regularly scheduled meeting on the date stated in the articles or operating agreement does not affect the validity of any action taken by the LLC.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 31.

48-222-102. Notice.

To Whom Given. Except as otherwise provided in this chapter or in the articles, written notice of all meetings of members must be given to every member entitled to vote on the matters to be considered, unless:
1. The meeting is an adjourned meeting and the date, time, and place of the meeting were announced at the time of adjournment; or
2. 1. The following have been mailed by first class, certified or registered mail to a member at the address in the LLC records and returned undeliverable:
    1. Two (2) consecutive meeting notices; and
    2. All payments of distributions for the greater of a twelve-month period or two (2) distributions;
  2. An action or meeting that is taken or held without notice under this subdivision (a)(2) has the same force and effect as if notice was given. If the member delivers a written notice of the member's current address to the LLC, the notice requirement is reinstated;
3. Unless otherwise provided in the articles or operating agreement, the record date for the determination of the owners of membership interests entitled to notice of and to vote at any meeting of members is the close of business on the date before the first notice is sent to the members.
Contents. The notice must contain the date, time, and place of the meeting, and any other information required by this chapter. In the case of a meeting, other than the required annual meeting of a board-managed LLC, the notice must contain a statement of the purposes of the meeting. The notice may also contain any other information required by the articles or operating agreement or considered necessary or desirable by the person or persons calling the meeting.
Prima Facie Evidence of Notice. A certificate of the secretary or other person giving the notice that the notice required by this section has been given, in the absence of fraud, shall be prima facie evidence of the facts stated therein.
Waiver and Objections. A member may waive any notice required by this chapter. Except as otherwise provided herein, a waiver of notice by a member entitled to notice is effective, whether given before or after the meeting or other balloting, if such notice is given in writing. If a written waiver is given, the secretary shall place such written waiver in the records of the LLC. Attendance by a member at a meeting is a waiver of notice of that meeting, except where the member objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. The secretary is required to note the objection in the minutes of the meeting.
Required Notice to Members.
1. Notwithstanding provisions in the articles or operating agreement to the contrary, all members and parties to contribution agreements and/or contribution allowance agreements shall be entitled to receive notices of the annual meetings of the members of a board-managed LLC and notices of all meetings of an LLC called for the purpose of considering any of the following actions:
  1. Dissolution;
  2. Liquidation;
  3. Sale of all or substantially all of the assets of the LLC outside the ordinary course of business; or
  4. Merger.
2. The failure of the LLC to properly notify the parties not entitled to vote on a matter shall not invalidate or void any action described above taken at such meeting.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 32.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-222-103. Electronic communications.

Unless otherwise provided in the articles or operating agreement, a conference among members (or governors, if any) by any means of communication through which the participants may simultaneously hear each other during the conference constitutes attendance at the meeting in person or by proxy if all the other requirements for a meeting of this chapter are met.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 33.

Chapter 223
Member Actions Without a Meeting

48-223-101. Actions without a meeting.

General. Unless the articles provide otherwise, any action required or permitted to be taken at a meeting of the members may be taken without a meeting by action on written consent as provided in § 48-223-102 or on recommendation of the board of governors or chief manager as provided in § 48-223-103. Any action taken pursuant to § 48-223-102 or § 48-223-103 has the effect of a meeting and vote and may be described as such in any document. Any requirement in chapters 201-248 of this title for action at a meeting will be satisfied by an action taken in accordance with § 48-223-102 or § 48-223-103.
Notice to Members. If chapters 201-248 of this title, the articles or operating agreement require that notice of proposed action be given to members and the action is to be taken by members pursuant to § 48-223-102 or § 48-223-103, then the LLC must give its members who would not be entitled to vote on such matter a written notice of the proposed action at least ten (10) days before action is taken on written consent or at the same time notice is given to the members entitled to vote under § 48-223-103. The notice must contain or be accompanied by the same material that would have been required to be sent to members in a notice of meeting at which the proposed action would have been submitted to the members for action.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 34.

48-223-102. Action on written consent.

Procedure. To take action on written consent:
1. A written waiver of acting at a meeting must be signed by all members, or such smaller number or percentage interest as provided for in the articles or operating agreement (but not less than a majority in voting power); and
2. A written consent must be signed by members who own membership interests with voting power equal to the voting power that would be required to take the same action at a meeting of the members at which all members are present.
Execution. The action must be evidenced by one (1) or more instruments evidencing the waiver and consent, which shall be delivered to the secretary for inclusion in the records of the LLC. All such instruments may be signed in counterparts.
Record Date. If not otherwise determined under § 48-224-104, the record date for determining members entitled to take action without a meeting is the date the first member signs the consent under subsection (a).
Effective Time. Unless otherwise provided in the articles or the operating agreement, the action on written consent is effective when the last required member signs the waiver and written consent, unless a different effective time is provided in the instrument evidencing the written consent itself.

Acts 1994, ch. 868, § 1.

48-223-103. Action on recommendation of the board of governors or chief manager.

Except with respect to dissolution avoidance consent, the board of governors, for a board-governed LLC, or the chief manager, for a member-managed LLC, may, acting on such board's or person's own initiative, make a proposal to the members to take an action without a meeting. All members entitled to vote shall be given written notice of such proposal. Such notice shall require a written response within a specified time but not less than thirty (30) days from the effective date of the notice and shall contain the recommendation of the board of governors or the chief manager. The failure of a member to respond within the time specified in the notice shall constitute a vote in favor of the recommendation of the board of governors or chief manager, as the case may be. The notice shall contain a statement concerning the voting effect of the failure of a member to timely respond to the proposal. Except as provided in subsection (b), if the voting power of the members responding in favor of the recommendation as to the proposal, combined with the voting power of the members failing to respond, is equal to the voting power that would be required to take the same action at a meeting of the members at which all members are present, then such proposal shall become the action of the members of the LLC effective as of the expiration of the notice period.
Notwithstanding subsection (a), if members with twenty percent (20%) of the aggregate voting power of the LLC or the class, series, or group of the members entitled to vote on the specific matter notify the secretary in writing within fifteen (15) days of the giving of the notice that a meeting should be called to consider one (1) or more of the matters on which the board of governors or chief manager has made recommendation, the vote may not be taken as provided in this section, but a meeting of the members shall be called to consider and to take action on such matter.

Acts 1994, ch. 868, § 1.

Chapter 224
Voting

48-224-101. Members vote.

Unless otherwise provided in the articles or operating agreement, each member shall have equal voting power per capita with each other member.

Acts 1994, ch. 868, § 1.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-224-102. Quorum.

Except as otherwise provided in chapters 201-248 of this title, the members holding majority of the voting interest of the membership interests entitled to vote at a meeting are a quorum for the transaction of business, unless a larger proportion is provided in the articles or operating agreement. Once a membership interest is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 35.

48-224-103. Act of members.

Majority Required. Except where chapters 201-248 of this title, the articles or the operating agreement requires a larger proportion, the members shall take action by the affirmative vote of the members holding a majority of the voting power present and entitled to vote on that item of business in a meeting in which a quorum is present.
Voting by Class or by Voting Group. The articles or operating agreement may establish classes, series or voting groups and provide the voting interests and the terms and conditions of exercising such voting interests.
Quorum Requirement. An amendment to the articles or operating agreement that adds, changes, or deletes a greater quorum or voting requirement shall meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirements then in effect or proposed to be adopted, whichever is greater.

Acts 1994, ch. 868, § 1.

48-224-104. Record date and voting list.

The articles or operating agreement may fix a date (“record date”) for the determination of the owners of membership interests entitled to notice of and entitled to vote at a meeting, to demand a meeting, to vote or to take any other action. When a date is so fixed, only members on that date are entitled to notice of and permitted to vote at that meeting of members or to take such other action on the subject of this notice. If no date is so fixed, the record date is the close of business the business day before the first notice is sent.
The secretary of the LLC shall prepare a list of the names of all members who are entitled to vote at the meeting of the members and show the address of and membership interest or interests held by each member as reflected in the records of the LLC.
The list must be available for inspection and copying by any member, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the LLC's principal executive office or at a place identified in the meeting notice in the city where the meeting will be held. The violation of this provision entitles any member seeking to inspect such list to equitable relief under § 48-230-105.

Acts 1994, ch. 868, § 1.

48-224-105. Miscellaneous voting.

Membership Interests Held by Subsidiary. Membership interests of an LLC reflected in the required records as being owned by a subsidiary of the LLC are not entitled to vote on any matter and are excluded from the calculation of membership interests for all purposes related to voting or the existence of a quorum.
Redeemable Interests after Notice of Redemption. Redeemable membership interests are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the interests has been deposited with the bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the membership interests, and no such membership interests shall be counted in determining the total number of outstanding membership interests of the LLC at any given time or within any class, series or voting group.

Acts 1994, ch. 868, § 1.

Chapter 225
Proxies

48-225-101. Proxies.

The articles or operating agreement may provide for proxies with terms and conditions consistent with the proxy provisions applicable to shareholders under § 48-17-203. The person to whom proxies may be given and the purposes of such proxies is limited in the same manner as voting agreements under § 48-226-101(b).

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 36.

Chapter 226
Member Voting Agreements

48-226-101. Voting agreements.

General Rule. An agreement between two (2) or more persons who are members or are parties to binding contribution agreements, if in writing and signed by the parties thereto, may provide that, in exercising any voting rights, the interests held by them or to be acquired by them shall be voted as therein provided or as they may agree or as determined in accordance with a procedure agreed upon by them. Such agreement shall be subject to the conditions and limitations set forth in § 48-17-302 with respect to voting agreements between shareholders.
Limitation on Voting Agreements. Any assignee of any member's financial rights may not be a party to an agreement under subsection (a), unless that assignee is also a member or person or entity bound by a binding contribution agreement at the time the agreement is entered into. A voting agreement may not relate to the consents referred to in § 48-218-102(b), § 48-232-101, § 48-232-102, § 48-234-101(c) or § 48-245-101(b).
Automatic Termination. Unless otherwise provided in the articles, operating agreement or the voting agreement, the voting agreement will not terminate if the LLC is combined into a new LLC pursuant to merger whether by a merger in dissolution or otherwise. Any other termination of the LLC's existence will automatically terminate the voting agreement.

Acts 1994, ch. 868, § 1.

Chapter 227
[Reserved]

Chapter 228
Records and Reports

Part 1
Required Records and Information

48-228-101. Required records and information.

Board-Managed LLC. If an LLC has elected to be board-managed, it shall keep at its principal executive office, or at another place or places within the United States determined by the board of governors:
1. A current list of the full name and last-known business, residence, or mailing address of the chief manager, secretary and each member and governor;
2. A current list of the full name and last-known business, residence, or mailing address of each assignee of financial rights and a description of the rights assigned;
3. A copy of the articles and all amendments to the articles;
4. Copies of the currently effective operating agreement and/or any agreements concerning classes or series of membership interests;
5. Copies of the LLC's federal, state, and local income tax returns and reports, if any, for the three (3) most recent years;
6. Financial statements required by § 48-228-201 and accounting records of the LLC;
7. Records of all proceedings of members, if any;
8. Any written consents obtained from members under chapters 201-248 of this title;
9. Records of all proceedings of the board of governors for the last three (3) years;
10. A statement of all contributions accepted under § 48-232-101, the identity of the contribution and the agreed value of the contribution;
11. A copy of all contribution agreements and contribution allowance agreements; and
12. A copy of the LLC's most recent annual report delivered to the secretary of state under § 48-228-203.
Member-Managed LLC. If an LLC has elected to be governed by the members directly, it shall keep at its principal executive office, or at another place or places within the United States determined by its members:
1. All records required by subsection (a), except for subdivision (a)(6) and other records relating solely to a board of governors, the identity of governors, or actions of a board of governors; and
2. Financial information sufficient to provide true and full information regarding the status of the business and financial condition of the LLC.

Acts 1994, ch. 868, § 1.

48-228-102. Inspection of records by members.

Right of Inspection. A member of an LLC is entitled to inspect and copy, during regular business hours at the LLC's principal executive office, any of the records of the LLC described in § 48-228-101, if the member gives the LLC written notice of such demand at least five (5) business days before the date on which the member wishes to inspect and copy.
No Limitation. The right of inspection granted by this section may not be abolished or limited by an LLC's articles or operating agreement.
Other Rights and Powers Unaffected. This section does not affect:
1. The right of a member to inspect records, if the member is in litigation with the LLC, to the same extent as any other litigant; or
2. The power of a court to compel the production of records for examination.

Acts 1994, ch. 868, § 1.

48-228-103. Scope of inspection right.

Agent or Attorney. A member's agent or attorney has the same inspection and copying rights as the member such agent or attorney represents.
Right to Copy. The right to copy records under § 48-228-102 includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means.
Reasonable Charge Allowed. The LLC may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the member. The charge may not exceed the estimated cost of production or reproduction of the records.

Acts 1994, ch. 868, § 1.

48-228-104. Court-ordered inspection.

If an LLC does not allow a member who complies with § 48-228-102(a) to inspect and copy any records required by that subsection to be available for inspection, a court in the county where the LLC's principal executive office (or, if none in this state, its registered office) is located may summarily order inspection and copying of the records demanded at the LLC's expense upon application of the member.
If the court orders inspection and copying of the records demanded, it shall also order the LLC to pay the member's costs (including reasonable counsel fees) incurred to obtain the order if the member proves that the LLC refused inspection without a reasonable basis for doubt about the right of the member to inspect the records demanded.
If the court orders inspection and copying of the records demanded, it may impose reasonable restrictions on the use or distribution of the records by the demanding member.

Acts 1994, ch. 868, § 1.

Part 2
Reports

48-228-201. Financial statements for members.

A board-managed LLC shall prepare financial statements at least annually, which may be consolidated or combined statements of the LLC and one (1) or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the reporting period and an income statement for that period. If financial statements are prepared for the LLC on the basis of generally accepted accounting principles, the financial statements must also be prepared on that basis. If requested in writing by any member or holder of financial rights, the LLC shall furnish such statements to such person as set out in subsection (c).
If the annual financial statements are reported upon by a public accountant, the accountant's report must accompany them. If not, the statements must be accompanied by a statement of the chief manager or the person responsible for the LLC's accounting records:
1. Stating such person's reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and
2. Describing any respects in which the statements were not prepared on a basis for accounting consistent with the statements prepared for the preceding year.
An LLC shall mail the annual financial statements to each requesting member or holder of financial rights, within one (1) month after notice of the request; provided, that with respect to the financial statements for the most recently completed fiscal year, the statements shall be mailed to the member within four (4) months after the close of the fiscal year.

Acts 1994, ch. 868, § 1.

48-228-202. Financial statements for member-managed LLCs.

A member or holder of financial rights of a member-managed LLC shall have access to true and full information regarding the status of the business and financial condition of the LLC.

Acts 1994, ch. 868, § 1.

48-228-203. Annual report for secretary of state.

Each domestic LLC, and each foreign LLC authorized to transact business in this state, shall deliver to the secretary of state for filing an annual report that sets forth:
1. The name of the LLC and the jurisdiction under whose law it is incorporated;
2. The street address and zip code of its registered office and the name of its registered agent at that office in this state;
3. The street address, including the zip code, of its principal executive office (and a mailing address such as a post office box if the United States postal service does not deliver to the principal executive office);
4. If the LLC is board-managed (or its equivalent), the names and business addresses, including the zip code, of its governors (or their equivalent);
5. The names and business addresses, including the zip code, of its managers (or equivalent);
6. The federal employer identification number (FEIN) of the LLC, or if such number has not been obtained, a representation that it has been applied for; and
7. The number of members of the LLC at the date of filing.
Information in the annual report shall be current as of the date the annual report is executed on behalf of the LLC.
Every LLC shall file the annual report with the secretary of state on or before the first day of the fourth month following the end of the close of the LLC's fiscal year or upon a date set by rule by the secretary of state.

Acts 1994, ch. 868, § 1; 2014, ch. 783, § 11; 2020, ch. 719, § 14.

Amendments. The 2020 amendment added “or upon a date set by rule by the secretary of state” at the end of (c).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Chapter 229
[Reserved]

Chapter 230
Derivative Actions and Equitable Remedies

48-230-101. Actions.

Board-managed Action. A member may not commence a proceeding in the right of a domestic (or foreign) LLC unless the member was a member of such LLC when the transaction complained of occurred or unless the member becomes a member through transfer by operation of law from one who was a member at that time.
Member-managed Action. Notwithstanding subsection (a), if the articles or operating agreement of a domestic (or foreign) member-managed LLC permit derivative actions, a member may commence a proceeding to the same extent as a member of a board-managed LLC.

Acts 1994, ch. 868, § 1.

48-230-102. Complaint.

A complaint in a proceeding brought in the right of an LLC must allege with particularity the demand made, if any, to obtain action by the board of governors or managers and either that the demand was refused or ignored or why the member did not make the demand.

Acts 1994, ch. 868, § 1.

48-230-103. Discontinuance.

A proceeding commenced under this section may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the LLC or a class of members and/or holders of financial rights, the court shall direct that notice be given the members and/or holders of financial rights affected. If notice is so directed to be given, the court may determine which one (1) or more parties to the suit shall bear the expense of giving such notice, in such proportions as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the suit and recoverable in the same manner as other taxable costs.

Acts 1994, ch. 868, § 1.

48-230-104. Award of expenses.

On termination of the proceeding, the court may require the plaintiff to pay any defendant's reasonable expenses (including counsel fees) incurred in defending the proceeding if it finds that the proceeding was commenced without reasonable cause.
If a derivative action is successful in whole or in part, or if anything is received by the plaintiff as a result of a judgment, compromise or settlement of any such action, the court may award the plaintiff reasonable expenses, including reasonable attorneys' fees. If anything is so received by the plaintiff, the court shall make such award of the plaintiff's expenses payable out of those proceeds and direct the plaintiff to remit to the LLC the remainder thereof, and if those proceeds are insufficient to reimburse the plaintiff's reasonable expenses, the court may direct that any such award of the plaintiff's expenses or portion thereof be paid by the LLC.

Acts 1994, ch. 868, § 1.

48-230-105. Equitable remedies.

If an LLC or a manager or governor of the LLC violates a provision of chapters 201-248 of this title, a court in this state may, in an action brought by a member of the LLC, grant any equitable relief it considers just and reasonable in the circumstances and award expenses, including counsel fees and disbursements, to the member.

Acts 1994, ch. 868, § 1.

NOTES TO DECISIONS

1. Dismissal Improper.

Trial court erred in dismissing an assignee's claims against a company where the assignor's suit sought the appointment of a receiver to take control of a company and remedies under T.C.A. § 48-230-105 to rectify the wrongs committed by a principal and to compensate the assignor and the company for all losses suffered at the hands of the partner. Huggins v. McKee, 403 S.W.3d 781, 2012 Tenn. App. LEXIS 818 (Tenn. Ct. App. Nov. 28, 2012), appeal denied, — S.W.3d —, 2013 Tenn. LEXIS 448 (Tenn. May 9, 2013).

2. Accounting.

Trial court did not err in declining to order an accounting because a limited liability company (LLC) member had access to or the ability to access the LLC's financial records; the LLC's books and records, other than those related to the sale of the LLC's assets, were in the hands of the member or his counsel. Huggins v. McKee, 500 S.W.3d 360, 2016 Tenn. App. LEXIS 354 (Tenn. Ct. App. May 31, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 697 (Tenn. Sept. 22, 2016).

Chapter 231
Dissenters' Rights

Part 1
Definitions

48-231-101. Chapter definitions.

As used in this chapter:

“Dissenter” means a member who is entitled to dissent from LLC action under § 48-231-201(a) and who exercises that right when and in the manner required under this chapter;
“Fair value” means the value of the dissenter's membership interest of an LLC immediately before the effective date of the LLC action referred to in § 48-231-201(a), excluding any appreciation or depreciation in anticipation of the LLC action;
“Interest” means interest from the effective date of the action referred to in § 48-231-201(a) that gave rise to the member's right to dissent until the date of payment, at the average auction rate paid on United States treasury bills with a maturity of six (6) months (or the closest maturity thereto) as of the auction date for such treasury bills closest to such effective date;
“LLC” means an LLC whose members have obtained rights to dissent under § 48-231-201(a), and includes any successor by merger;
“Member” includes a former member when dissenters' rights exist because:
1. The membership of that former member has terminated causing dissolution; and
2. The dissolved LLC has then entered into a merger under § 48-244-101 or § 48-244-201.

Acts 1994, ch. 868, § 1.

Part 2
Right to Dissent

48-231-201. Right to dissent.

A member of an LLC is entitled to dissent from, and obtain payment of the fair value, as determined under § 48-231-206, of the member's membership interests in the event of, any of the following LLC actions:
1. Consummation of a plan of merger to which the LLC is a party;
2. Consummation of a sale, lease, transfer, or other disposition of all or substantially all of the property and assets of the LLC not made in the usual or regular course of its business, but not including a disposition in dissolution described in § 48-245-501(d), or a disposition pursuant to an order of a court, or a disposition for cash on terms requiring that all or substantially all of the net proceeds of disposition be distributed to the members in accordance with their respective membership interests within one (1) year after the date of disposition;
3. Except as provided in the articles or operating agreement in effect when the person becomes a member or placed in such agreement without the opposing vote of the member, an amendment of the articles or operating agreement that materially and adversely affects the rights or preferences of the membership interests of the dissenting member because it:
  1. Alters or abolishes a preferential right of the membership interests;
  2. Alters or abolishes a preemptive right of the owner of the membership interests to make a contribution;
  3. Excludes or limits the right of a member to vote on a matter, or to cumulate votes, except as the right may be excluded or limited through the acceptance of contributions or the making of contribution agreements pertaining to membership interests with similar or different voting rights; or
  4. Establishes or changes the conditions for or consequences of expulsion;
4. An amendment to the articles or operating agreement that materially and adversely affects the rights or preferences of the membership interests of the dissenting member because it:
  1. Changes a member's right to resign or retire; or
  2. Alters or abolishes a right in respect of the redemption of the membership interests, including a provision respecting a sinking fund for the redemption or repurchase of such membership interests;
5. Any other LLC action taken pursuant to a member vote to the extent the articles, the operating agreement, or a resolution approved by the members provides that dissenting members are entitled to dissent and obtain payment for their membership interests.
A member entitled to dissent and obtain payment for such member's membership interest under this chapter may not challenge the LLC action creating such member's entitlement unless the action is unlawful or fraudulent with respect to the member or the LLC.

Acts 1994, ch. 868, § 1.

48-231-202. Notice of dissenters' rights.

If proposed LLC action creating dissenters' rights under § 48-231-201 is submitted to a vote at a members' meeting, the meeting notice must state that members are or may be entitled to assert dissenters' rights under this chapter and be accompanied by a copy of this chapter.
If LLC action creating dissenters' rights under § 48-231-201 is taken without a vote of the members, the LLC shall notify in writing all members entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in § 48-231-204.
An LLC's failure to give notice pursuant to this section will not invalidate the LLC action.

Acts 1994, ch. 868, § 1.

48-231-203. Notice of intent to demand payment.

If proposed LLC action creating dissenters' rights under § 48-231-201 is submitted to a vote at a members' meeting, a member who wishes to assert dissenters' rights:
1. Must deliver to the LLC, before the vote is taken, written notice of such member's intent to demand payment for such member's membership interest if the proposed action is effectuated; and
2. Must not vote such member's membership interest in favor of the proposed action. No such written notice of intent to demand payment is required of any member to whom the LLC failed to provide the notice required by § 48-231-202.
A member who does not satisfy the requirements of subsection (a) is not entitled to payment for such member's membership interest under this chapter.

Acts 1994, ch. 868, § 1.

48-231-204. Dissenters' notice.

If proposed LLC action creating dissenters' rights under § 48-231-201 is authorized at a members' meeting, the LLC shall deliver a written dissenters' notice to all members who satisfied the requirements of § 48-231-203.
The dissenters' notice must be sent no later than ten (10) days after the LLC action was authorized by the members or effectuated, whichever is the first to occur, and must:
1. State where the payment demand must be sent;
2. Supply a form for demanding payment that includes the date of the first announcement to news media or to members of the principal terms of the proposed LLC action and requires that the person asserting dissenters' rights certify whether or not the member acquired membership interest before that date;
3. Set a date by which the LLC must receive the payment demand, which date may not be fewer than one (1) nor more than two (2) months after the date required in subsection (a) is delivered; and
4. Be accompanied by a copy of this chapter, if the LLC has not previously sent a copy of this chapter to the member pursuant to § 48-231-202.

Acts 1994, ch. 868, § 1.

48-231-205. Duty to demand payment.

A member sent a dissenters' notice described in § 48-231-204 must demand payment and certify whether the member acquired the membership interest before the date required to be set forth in the dissenters' notice pursuant to § 48-231-204(b)(2).
The member who demands payment under subsection (a) retains all other rights of a member until these rights are cancelled or modified by the effectuation of the proposed LLC action.
A member who does not demand payment by the date set in the dissenters' notice is not entitled to payment for such member's membership interest under this chapter.
A demand for payment filed by a member may not be withdrawn unless the LLC with which it was filed, or the surviving LLC, consents to such withdrawal.

Acts 1994, ch. 868, § 1.

48-231-206. Payment.

Except as provided in § 48-231-208, as soon as the proposed LLC action is effectuated, or upon receipt of a payment demand, whichever is later, the LLC shall pay each dissenter who complied with § 48-231-205 the amount the LLC estimates to be the fair value of such dissenter's partnership interest, plus accrued interest.
The payment must be accompanied by:
1. The LLC's balance sheet as of the end of a fiscal year ending not more than sixteen (16) months before the date of payment, an income statement for that year, and the latest available interim financial statements, if any;
2. A statement of the LLC's estimate of the fair value of the membership interests;
3. An explanation of how the value of the membership interest was calculated;
4. A statement of the dissenter's right to demand payment under § 48-231-209; and
5. A copy of this chapter, if the LLC has not previously sent a copy of this chapter to the member pursuant to § 48-231-202 or § 48-231-204.

Acts 1994, ch. 868, § 1.

48-231-207. Failure to take action.

If the LLC does not effectuate the proposed action that gave rise to the dissenters' rights within two (2) months after the date set for demanding payment, it must send a new dissenters' notice under § 48-231-203 and repeat the payment demand procedure if it effectuates the proposed action.

Acts 1994, ch. 868, § 1.

48-231-208. After-acquired membership interests.

An LLC may elect to withhold payment required by § 48-231-206 from a dissenter unless the dissenter was a member before the date set forth in the dissenters' notice as the date of the first announcement to news media or to members of the principal terms of the proposed LLC action.
To the extent the LLC elects not to withhold payment under subsection (a), after effectuating the proposed LLC action, it shall estimate the fair value of the membership interest, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of the dissenter's demand. The LLC shall send with its offer a statement of its estimate of the fair value of the membership interest, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under § 48-231-209.

Acts 1994, ch. 868, § 1.

48-231-209. Procedure if member dissatisfied with payment or offer.

A dissenter may notify the LLC in writing of the dissenter's own estimate of the fair value of such dissenter's membership interest and amount of interest due, and demand payment of the dissenter's estimate (less any payment under § 48-231-206), or reject the LLC's offer under § 48-231-208 and demand payment of the fair value of membership interest and interest due, if:
1. The dissenter believes that the amount paid under § 48-231-206 or offered under § 48-231-208 is less than the fair value of such dissenter's membership interest or that the interest due is incorrectly calculated; or
2. The LLC fails to make payment under § 48-231-206 within two (2) months after the date set for demanding payment.
A dissenter waives the right to demand payment under this section unless the dissenter notifies the LLC of such dissenter's demand in writing under subsection (a) within one (1) month after the LLC made or offered payment for such dissenter's membership interest.

Acts 1994, ch. 868, § 1.

Part 3
Court Action

48-231-301. Court action.

If a demand for payment under § 48-231-209 remains unsettled, the LLC shall commence a proceeding within two (2) months after receiving the payment demand and petition the court to determine the fair value of the membership interest and accrued interest. If the LLC does not commence the proceeding within the two-month period, it shall pay each dissenter whose demand remains unsettled the amount demanded.
The LLC shall commence the proceeding in a court of record having equity jurisdiction in the county where the LLC's principal executive office (or, if none in this state, its registered office) is located. If the LLC is a foreign LLC without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic LLC merged with, or whose membership interests were acquired by, the foreign LLC was located.
The LLC shall make all dissenters (whether or not residents of this state) whose demands remain unsettled, parties to the proceeding as in an action against their membership interests, and all parties must be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.
The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.
Each dissenter made a party to the proceeding is entitled to judgment:
1. For the amount, if any, by which the court finds the fair value of the dissenter's membership interest plus accrued interest exceeds the amount paid by the LLC; or
2. For the fair value, plus accrued interest, of such dissenter's after-acquired membership interests for which the LLC elected to withhold payment under § 48-231-208.
The LLC is entitled to judgment against each specific dissenter for the amount, if any, by which the court finds the fair value of such dissenter's membership interest, plus accrued interest, is less than the amount paid by the LLC to each dissenter.

Acts 1994, ch. 868, § 1.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-231-302. Court costs and counsel fees.

The court in an appraisal proceeding commenced under § 48-231-301 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the LLC, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under § 48-231-209.
The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:
1. Against the LLC and in favor of any or all dissenters if the court finds the LLC did not substantially comply with the requirements of part 2 of this chapter;
2. Against either the LLC or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this chapter.
If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the LLC, the court may award to these counsel reasonable fees to be paid out of the amounts awarded to the dissenters who were benefited.

Acts 1994, ch. 868, § 1.

Part 4
Procedures as to Assignees of Financial Rights

48-231-401. Procedures as to assignees of financial rights.

When an assignment of some or all of the financial rights of a membership interest is in effect and a copy delivered to the LLC prior to the time described in § 48-231-206, then as to that membership interest parts 1-3 of this chapter must be followed subject to the following revisions:

All rights to be exercised and actions to be taken by a member under parts 2 and 3 of this chapter shall be taken by the member and not by any assignee of the member's financial rights as between the LLC and the assignees, the actions taken or omitted by the member bind the assignees;
Instead of remitting a payment under § 48-231-206, the LLC shall forward to the dissenter member:
1. The materials described in § 48-231-206(b);
2. An offer to pay the amount listed in the materials, with that amount to be allocated among and paid to the member and the assignees of financial rights according to the terms of the assignments reflected in the required records; and
3. A statement of that allocation;
If the dissenter member accepts the amount of the offer made under subdivision (2) but disputes the allocation, the dissenter shall promptly so notify the LLC and promptly after the notification bring an action to determine the proper allocation. The suit must be filed in the county in which the registered office of the LLC is located, or in the case of a surviving foreign LLC or other entity that is complying with this section following a merger with a constituent LLC, the suit must be filed in the county in this state in which the last registered office of the constituent LLC was located. The suit must name as parties the member, the LLC and all assignees of the member's financial rights. Upon being served with the action, the LLC shall promptly pay into the court the amount offered under subdivision (2) and shall then be dismissed from the action;
If the dissenter considers the amount offered under subdivision (2) inadequate, the dissenter may decline the offer and demand payment under § 48-231-209. If the dissenter makes demand, part 3 of this chapter applies, with the court having jurisdiction also to determine the correctness of the allocation;
If the member fails to take action under either subdivision (3) or (4), then:
1. As to the LLC, both the member and the assignees of the member's financial rights are limited to the amount and allocation offered under subdivision (2); and
2. The LLC discharges its obligation of payment by making payment according to the amount and allocation offered under subdivision (2).

Acts 1994, ch. 868, § 1.

Chapter 232
Contributions and Admission of Members

48-232-101. Authorization, form and acceptance of contributions.

Permissible Forms. The contributions of a member to an LLC may be in cash, property, or services rendered or a promissory note.
Authority. Subject to any restrictions in the articles or operating agreement, an LLC through its organizers, members or board of governors may accept contributions, make contribution agreements under § 48-233-101, and make contribution allowance agreements under § 48-234-101. The action of the members or board of governors shall be by such number or interest as required to admit a member under § 48-232-102.
Obligation to Perform. Except as provided in the articles or an operating agreement, a member or a party to a contribution agreement is obligated to the LLC to perform any enforceable promise to contribute cash or property, even if the member or a party to a contribution agreement is unable to perform because of death, disability or any other reason. If a member or a party to a contribution agreement does not make the required contribution of property or services, such person is obligated at the option of the LLC to contribute cash equal to that portion of the value of such contribution that has not been made. The foregoing option shall be in addition to, and not in lieu of, any other rights, including the right to specific performance, that the LLC may have against such person under the articles or the operating agreement or applicable law.
Compromise of Obligation. Unless otherwise provided in the articles or an operating agreement, the obligation of a member or party to a contribution agreement to make a contribution may be compromised only by consent of all the members or the board of governors (if the LLC is board-managed). Notwithstanding the compromise, a creditor of an LLC who extends credit after the filing of articles or execution of an operating agreement or an amendment thereto which, in either case, reflects the obligation, and before the amendment thereof to reflect the compromise, may enforce the original obligation to the extent that, in extending credit, the creditor reasonably relied on the obligation of a member or party to a contribution agreement to make a contribution. A conditional obligation of a member to make a contribution to an LLC may not be enforced unless the conditions to the obligation have been satisfied or waived as to or by such member. Conditional obligations include contributions payable upon a discretionary call of the members of an LLC or the board of governors, if applicable, prior to the time the call occurs.
Remedies upon Default. The articles or an operating agreement may provide that the interest of any member who fails to make any contribution that the member is obligated to make shall be subject to specified penalties for, or specified consequences of, such failure. Such penalty or consequence may take the form of:
1. Reducing or eliminating the defaulting member's proportional interest in the LLC;
2. Subordinating the member's membership interest to that of non-defaulting members;
3. A forced sale of the member's membership interest;
4. Forfeiture of the member's membership interest;
5. The lending by other members of the amount necessary to meet the member's commitment and the charging of interest thereon of up to the highest rate allowed by law with the repayments of such made from the first distributions from the member's interest;
6. A fixing of the value of the member's membership interest by appraisal or by formula and redemption or sale of the member's membership interest at such value; or
7. Other penalty or consequence.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 37-39.

48-232-102. Admission of members.

Approval of a New Member. Except as otherwise provided in the articles or operating agreement after an LLC is formed, all members must approve the admission of a new person or entity as a member, the interest of such member and the contribution of such member. The articles or operating agreement may delegate the authority to approve the identity of a new member, such member's contribution and/or such member's interest to the board of governors. The sole member of an LLC may freely assign governance rights and/or membership interests in the LLC at any time. The articles or operating agreement may provide that the governance rights associated with membership interests or classes of membership interests may be transferred to persons who will become members upon such transfer without requiring consent of the members or governors.
Minimum Approval of Members. Except in the case of a single-member LLC or as provided in subsection (d), if approval of the admission of a new member is by the members, neither the articles nor the operating agreement may reduce the vote of the members required to approve the admission of a new member to less than either a per capita majority of the nontransferring members or a majority of the profits interest of the nontransferring members or a majority of the capital interest of the nontransferring members. With respect to a single-member LLC, the transferring member may approve the admission of one (1) or more new members.
Minimum Approval of Governors. If approval of the admission of a new member of a board-managed LLC is by the board of governors, neither the articles nor the operating agreement may reduce the vote of the governors required to approve the admission of a new member to less than a majority in number of the nontransferring governors who are members.
Consent Is Discretionary. All consents under this section may be unreasonably withheld and are in the sole discretion of the member or governor.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 40; 1999, ch. 346, §§ 4, 5; 1999, ch. 455, § 16.

Chapter 233
Contribution Agreements

48-233-101. Contribution agreements.

Signed Writing.
1. A contribution agreement, whether made before or after the formation of the LLC, is not enforceable against the prospective contributor unless it is in writing and signed by the prospective contributor.
2. A contribution agreement made after the formation of the LLC is not enforceable against the LLC unless it is approved by the required members or the board of governors sufficient to admit a new member under the articles or operating agreement and § 48-232-102.
3. If the consideration to be contributed to the LLC for the membership interest is other than money, the contribution agreement shall state the value being accorded such consideration.
Irrevocable Period. A contribution agreement is irrevocable for a period of six (6) months, unless the contribution agreement provides for, or unless all other prospective contributors who are a party to a contribution agreement consent to, a different duration.
Current and Deferred Payment. A contribution agreement, whether made before or after the formation of an LLC, must be paid or performed in full at the time or times, or in the installments, if any, specified in the contribution agreement. In the absence of a provision in the contribution agreement specifying the time at which the contribution is to be paid or performed, the contribution must be paid or performed at the time or times determined by the members or the board of governors. If a call is made for payment or performance of contributions, the contributions must be uniform for all membership interests of the same class or for all membership interests of the same series.
Restrictions on Assignment. The rights of a party to a contribution agreement may not be assigned, in whole or in part, to a person who was not a member or a party to a contribution agreement or a party to a contribution allowance agreement at the time of the assignment, unless all the members approve the assignment by unanimous written consent or, if the articles or operating agreement so permit, by the written consent of the members or governors sufficient to approve the admission of a new member under the articles or operating agreement and in accordance with § 48-232-102.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 41-44; 1999, ch. 455, § 17.

Chapter 234
Contribution Allowance Agreements

48-234-101. Contribution allowance agreements.

Agreements Permitted. Subject to any restrictions in the articles, an LLC may enter into contribution allowance agreements under the terms, provisions, and conditions, including the value being accorded such consideration called for in the contribution allowance agreement, fixed by the board of governors or the members by an action of the members or governors as required for the admission of a new member under § 48-232-102 and permitted under the articles or operating agreement.
Writing Required and Terms to Be Stated. A contribution allowance agreement must be in writing, and the writing must state in full, summarize, or incorporate by reference all the agreement's terms, provisions, and conditions. A contribution allowance agreement made after the formation of the LLC is not enforceable against the LLC unless it is approved by the required members or the board of governors, if applicable, sufficient to admit a new member under the articles or operating agreement and § 48-232-102.
Restrictions on Assignment. The rights of a party to a contribution allowance agreement may not be assigned in whole or in part to a person who was not a member or a party to a contribution agreement or a party to a contribution allowance agreement at the time of the assignment, unless all the members approve the assignment by unanimous written consent or, if the articles or the operating agreement so permit, by the written consent of the members or the board of governors as required under § 48-232-101 and as permitted in the articles or operating agreement.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 45-47.

Chapter 235
Financial Provisions

48-235-101. Special provisions.

Acceptance of Contributions. Except as provided in the articles or operating agreement, no purported contribution must be treated as a contribution, unless:
1. The board of governors in a board-managed LLC or members accept the contribution on behalf of the LLC and in that acceptance describe the contribution, if any, and state the value being accorded to the contribution; and
2. The fact of contribution and the contribution's accorded value are both reflected in the required records of the LLC.
Valuation. The determinations of the board of governors in a board-managed LLC or members as to the amount or fair value or the fairness to the LLC of the contribution accepted or to be accepted by the LLC or the terms of payment or performance, including under a contribution agreement in § 48-233-101, and a contribution allowance agreement in § 48-234-101, are valid and binding if they are made in good faith and on the basis of accounting methods, or a fair valuation or other method, reasonable in the circumstances.
Terms of Membership Interests. All the membership interests of an LLC must:
1. Be of one (1) class, without series, unless the articles or operating agreement establish, or authorize the establishment of more than one (1) class or series within classes; and
2. Share profits and losses as provided in § 48-220-101, and be entitled to distributions as provided in §§ 48-236-101, 48-236-102 and 48-245-1101(a)(1)(C).
Procedure for Fixing Terms. Subject to any restrictions in the articles or operating agreement, the power granted in § 48-232-101(b) may be exercised by a resolution or resolutions establishing a class or series, setting forth the designation of the class or series, and fixing the relative rights and preferences of the class or series. Any of the rights and preferences of a class or series may:
1. Be made dependent upon facts ascertainable outside the articles or operating agreement, or outside the resolution or resolutions establishing the class or series, if the manner in which the facts operate upon the rights and preferences of the class or series is clearly and expressly set forth in the articles, operating agreement or in the resolution or resolutions establishing the class or series; and
2. Incorporate by reference some or all of the terms of any agreements, contracts, or other arrangements entered into by the LLC in connection with the establishment of the class or series if the LLC retains at its principal executive office a copy of the agreements, contracts, or other arrangements or the portions incorporated by reference.
Specific Terms. Without limiting the authority granted in this section, an LLC may have membership interests of a class or series:
1. Subject to the right of the LLC to redeem any of those membership interests at the price fixed for their redemption by the articles or operating agreement or by the board of governors;
2. Entitling the members to cumulative, partially cumulative, or noncumulative distributions;
3. Having preference over any class or series of membership interests for the payment of distributions of any or all kinds;
4. Convertible into membership interests of any other class or any series of the same or another class; or
5. Having full, partial or limited voting rights.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 48; 1999, ch. 455, §§ 18, 19.

48-235-102. Restatement of value of previous contributions.

Definition. As used in this section, an “old” contribution is a contribution reflected in the required records of an LLC before the time the LLC accepts a new contribution.
Restatement Required. Whenever an LLC accepts a new contribution, the board of governors of a board-governed LLC or the members shall restate the value of all old contributions if and as required by applicable federal tax law.

Acts 1994, ch. 868, § 1.

Chapter 236
Distributions

48-236-101. Sharing of distributions.

Unless otherwise provided in or through the articles or operating agreement, distributions of cash or other assets of an LLC, including distributions on termination of the LLC except as provided in § 48-245-1101, must be allocated equally among the members.

Acts 1994, ch. 868, § 1.

NOTES TO DECISIONS

1. Distributions.

Finding that the defendant investor was liable to the plaintiff investors in plaintiffs' contribution action was appropriate because the evidence did not preponderate against the trial court's finding that the distributions made to plaintiffs by the limited liability company (LLC) constituted repayment of loans made to the LLC by plaintiffs. Thompson v. Davis, 308 S.W.3d 872, 2009 Tenn. App. LEXIS 613 (Tenn. Ct. App. Sept. 8, 2009), appeal denied, — S.W.3d —, 2010 Tenn. LEXIS 208 (Tenn. Feb. 22, 2010).

48-236-102. Interim distributions.

Except as provided in or through the articles or operating agreement or by a majority vote of the members, a member is entitled to receive distributions before the LLC's termination only as specified in the articles or operating agreement.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 49.

48-236-103. Distribution in kind.

Except as provided in the articles or an operating agreement, a member, regardless of the nature of the member's contribution, has no right to demand and receive any distribution from an LLC in any form other than cash. Except as provided in the articles or an operating agreement, a member may not be compelled to accept a distribution of any asset in kind from an LLC to the extent that the percentage of the asset distributed to the member exceeds a percentage of that asset that is equal to the percentage in which the member shares in distributions from the LLC.

Acts 1994, ch. 868, § 1.

48-236-104. Status as a creditor.

At the time a member becomes entitled to receive a distribution, the member has the status of, and is entitled to all remedies available to, a general, unsecured creditor of the LLC with respect to the distribution. The articles or an operating agreement may provide for the establishment of a record date with respect to allocations and distributions by an LLC.

Acts 1994, ch. 868, § 1.

48-236-105. Limitations on distribution.

Rule. No distribution may be made by an LLC if, after giving effect to the distribution:
1. The LLC would not be able to pay its debts as they became due in the normal course of business; or
2. The LLC's total assets would be less than the sum of its total liabilities plus, unless the articles or an operating agreement permit otherwise, the amount that would be needed, if the LLC were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of members whose preferential rights are superior to the rights of members receiving the distribution and excluding liabilities for which the recourse of creditors is limited to specified property of the LLC, except that the fair value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the assets of the LLC only to the extent that the fair value of the property exceeds that liability.
Determination. The LLC may base a determination that a distribution is not prohibited under subsection (a) either on:
1. Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or
2. A fair valuation or other method that is reasonable in the circumstances.
General Measuring Date. The effect of a distribution under subsection (a) is measured as of:
1. The date the distribution is authorized if the payment occurs within four (4) months after the date of authorization; or
2. The date the payment is made if it occurs more than four (4) months after the date of authorization.
Special Measuring Date. If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is actually made.
Status of LLC Indebtedness for Distributions. An LLC's indebtedness to a member incurred by reason of a distribution made in accordance with this section is at parity with the LLC's indebtedness to its general unsecured creditors, except to the extent subordinated by agreement and except to the extent provided otherwise by § 48-245-1101(a).

Acts 1994, ch. 868, § 1.

NOTES TO DECISIONS

1. Distributions.

Finding that the defendant investor was liable to the plaintiff investors in plaintiffs' contribution action was appropriate because the evidence did not preponderate against the trial court's finding that the distributions made to plaintiffs by the limited liability company (LLC) constituted repayment of loans made to the LLC by plaintiffs, T.C.A. § 48-236-101(a). Thompson v. Davis, 308 S.W.3d 872, 2009 Tenn. App. LEXIS 613 (Tenn. Ct. App. Sept. 8, 2009), appeal denied, — S.W.3d —, 2010 Tenn. LEXIS 208 (Tenn. Feb. 22, 2010).

LLC that was created when the court confirmed a Chapter 11 bankruptcy plan that was proposed by creditors of the LLC's predecessor—a Tennessee LLC that was created to offer wireless internet services—was entitled to an order requiring the managing member of the LLC's predecessor and his wife to return property the managing member took while he operated the predecessor, and to pay the LLC $209,345 pursuant to 11 U.S.C.S. § 548 because transfers they received from the LLC's predecessor before it declared bankruptcy were constructively fraudulent; however, monthly draws in the amount of $7,500 the managing member took before the plan was confirmed were not recoverable under § 548, 11 U.S.C.S. § 503, or T.C.A. § 48-236-105. Wisper II, LLC v. Abernathy (In re Wisper, LLC), — B.R. —, 2015 Bankr. LEXIS 4083 (Bankr. W.D. Tenn. Dec. 2, 2015).

Chapter 237
Liability upon Wrongful Distribution

48-237-101. Liability upon wrongful distribution.

Personal Liability. Unless such person complies with the applicable standards of conduct set forth in § 48-240-103 and § 48-241-111, a member or governor who votes for or assents to a distribution made in violation of § 48-236-105 or the articles or operating agreement is personally liable to the LLC for the amount of the distribution that exceeds what could have been distributed without violating § 48-236-105 or the articles or operating agreement.
Right of Contribution. A governor or member held liable for an unlawful distribution under subsection (a) is entitled to contribution:
1. From every other governor and member who voted for or assented to the distribution; and
2. From each member for the amount the member accepted, knowing the distribution was made in violation of § 48-236-105 or the articles or operating agreement.
Section Not a Limitation on Liability. Subject to subsection (d), this section shall not affect any obligation or liability of a governor or member under the articles or operating agreement or other applicable law for the amount of a distribution.
Member's Liability. Unless otherwise agreed, a member who receives a distribution from an LLC or a manager or governor who votes for or assents to such distribution shall have no liability under this section or other applicable law for the amount of the distribution after the expiration of three (3) years from the date of the distribution.

Acts 1994, ch. 868, § 1.

Law Reviews.

Punitive Damages and Business Organizations: A Pathetic Fallacy, 67 Tenn. L. Rev. 971 (2000).

NOTES TO DECISIONS

1. Applicability.

Statute of limitations was inapplicable because a limited liability company (LLC) member was not entitled to seek any damages from the LLC's chief manager with regard to the distribution of the proceeds from the sale of the LLC's assets. Huggins v. McKee, 500 S.W.3d 360, 2016 Tenn. App. LEXIS 354 (Tenn. Ct. App. May 31, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 697 (Tenn. Sept. 22, 2016).

Chapter 238
Governance

48-238-101. Management — Authorized signature.

Management.
1. If the LLC is member-managed, all powers shall be exercised by or under the authority of, and the business and affairs of the LLC shall be managed by or under the direction of its members.
2. If the LLC is board-managed, all powers shall be exercised by or under the authority of, and the business and affairs of the LLC shall be managed by or under the direction of the board of governors, subject to subsection (b) and any limitations set forth in the articles or operating agreement. An LLC shall be either member-managed or board-managed, as designated in its articles. Unless otherwise provided in the articles or operating agreement, each governor shall have equal voting power per capita with each other governor.
Authorized Signature. For convenience, one (1) or more managers, members or governors may be designated in the articles as persons authorized to execute instruments transferring real property held in the name of the LLC and may set forth any limitations on such authority. This designation, however, in the absence of a clear statement that the named person or persons are the only person or persons authorized to execute instruments transferring real property, does not imply that other members, managers or governors do not have the authority to execute such instruments under § 48-238-103 or § 48-238-104. A grant of authority contained in the current articles is conclusive in favor of a person who gives value without knowledge to the contrary.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 50-52.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-238-102. [Reserved.]

Unless the articles otherwise provide, if an LLC is member-managed, every member is an agent of the LLC for the purpose of its business, and the act of every member, including the execution in the LLC name of any instrument, for apparently carrying on in the usual way the business of the LLC of which such member is a member, binds the LLC, unless the member so acting has in fact no authority to act for the LLC in the particular matter, and the person with whom the member is dealing has knowledge of the fact that the member has no such authority.
An act of a member which is not apparently for carrying on of the business of the LLC in the usual way does not bind the LLC unless authorized by the other members.
Unless authorized by the other members, no single member or group of members less than all the members shall have authority to:
1. Dispose of the goodwill of the business;
2. Do any other act which would make it impossible to carry on the ordinary business of the LLC;
3. Confess a judgment; or
4. Submit an LLC claim or liability to arbitration or reference.
No act of a member in contravention of a restriction on such member's authority shall bind the LLC to persons having knowledge of the restriction.

Acts 1994, ch. 868, § 1.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-238-104. Agency of members in a board-managed LLC.

Unless the articles provide otherwise, if the LLC is board-managed, no member is an agent of the LLC for the purpose of its business, other than a member designated by the board of governors, including the execution in the LLC name of any instrument, for apparently carrying on in the usual way the business of the LLC of which such person is a member, does not bind the LLC, unless the member so acting has in fact the authority to act for the LLC in the particular matter.
Unless the articles provide otherwise, if the LLC is board-managed, the following persons are agents of the LLC and may legally bind the LLC, subject to the limitation on such persons contained in chapters 201-248 of this title:
1. The chief manager;
2. A person designated in the articles or the operating agreement as being so authorized; and
3. A person designated in writing by action of the governors as being so authorized.

Acts 1994, ch. 868, § 1; 1999, ch. 455, § 20.

48-238-103. Agency of members in a member-managed LLC.

Chapter 239
Governor Management

48-239-101. Board of governors.

General. In the event the LLC is board-managed, the initial board of governors may be named in the articles or may be elected by the members. The board of governors must consist of one (1) or more entities which are members or individuals. The number of governors must be fixed by or in the manner provided in the articles or the operating agreement. The number of governors may be increased or, subject to § 48-239-103(b), decreased at any time by amendment to or in the manner provided in the articles or the operating agreement.
Size. The articles or operating agreement may establish a variable range for the size of the board of governors by fixing a minimum and maximum number of governors. If a variable range is established, the number of governors may be fixed or changed from time to time, within the minimum and maximum, by the members or the board of governors as provided in the articles or the operating agreement. Unless the articles or operating agreement specifically provides otherwise, only the members may change the range for the size of the board or change from a fixed to a variable-range size board or vice versa.

Acts 1994, ch. 868, § 1; 1999, ch. 455, § 21.

48-239-102. Qualifications and election.

Natural Person. Governors must be natural persons. The method of election and any additional qualifications for governors may be imposed by or in the manner provided in the articles or operating agreement.
Nonresident. Unless the articles or operating agreement provides otherwise, a governor need not be a resident of this state or a member of the LLC.
Governor Other Than a Natural Person. Except for members, all governors shall be natural persons. In the event an entity that is a member is elected governor, the entity shall exercise its duties and authority by such officer or agent as the bylaws or equivalent of such entity may prescribe or, in the absence of such a provision, as the board of directors, board of governors or equivalent of such entity may determine. The secretary of the LLC shall be provided with written directions as to whom the designated natural person is that is to function on behalf of the entity. This designation may be changed from time to time. The LLC may rely upon the representations of such officer or agent as to the authority unless such authority is questioned.
Deemed Resignation of a Governor Other Than a Natural Person. In the event a governor, other than a natural person, bankrupts or dissolves, such governor is deemed to have immediately resigned as a governor.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 54.

48-239-103. Terms.

General. Unless fixed terms (including staggered terms) are provided for in the articles or operating agreement, a governor serves for an indefinite term that expires at the next regular meeting of the members. A fixed term of a governor must not exceed three (3) years. A governor holds office for the term for which the governor was elected and until a successor is elected and has qualified, or until the earlier death, resignation, removal, or disqualification of the governor.
Decrease in Number. A decrease in the number of governors does not shorten an incumbent governor's term.
Vacancy Term. The term of a governor elected to fill a vacancy expires at the next members' meeting at which governors are elected.

Acts 1994, ch. 868, § 1.

48-239-104. Acts not void or voidable.

The expiration of a governor's term with or without the election of a qualified successor does not make prior or subsequent acts of the governors or the board of governors void or voidable.

Acts 1994, ch. 868, § 1.

48-239-105. Compensation.

Subject to any limitations in the articles or operating agreement, the board of governors may fix the compensation of governors for the following board. Such compensation is subject to approval by the members. If the initial board of governors is selected by the organizers, that board's compensation, if any, shall be retroactively established by the members at the first meeting of the members.

Acts 1994, ch. 868, § 1.

48-239-106. Classification of governors.

Governors may be divided into classes as provided in the articles or operating agreement.

Acts 1994, ch. 868, § 1.

48-239-107. Voting for governors.

Plurality. Unless otherwise provided in the articles or operating agreement, governors are elected by a plurality of the voting power exercised in the election at a meeting at which a quorum is present.
Noncumulative Voting. Members do not have a right to cumulate their votes for governors unless the articles or operating agreement so provides.
Cumulative Voting. A statement included in the articles or operating agreement that “(all) (a designated voting group of) members are entitled to cumulate their votes for governors” (or words of similar import) means the members designated are entitled to multiply the number of votes they are entitled to cast by the number of governors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two (2) or more candidates.
Notice of Cumulative Voting. Membership interests otherwise entitled to vote cumulatively may not be voted cumulatively at a particular meeting unless:
1. The meeting notice states conspicuously that cumulative voting is authorized; or
2. A member who has the right to cumulate such member's votes gives notice to the secretary of the LLC no fewer than forty-eight (48) hours before the time set for the meeting of such member's intent to cumulate such member's votes during the meeting, and if one (1) member gives this notice, all other members in the same voting group participating in the election are entitled to cumulate their votes without giving further notice. The secretary shall announce before the election that cumulative voting is in effect.

Acts 1994, ch. 868, § 1.

48-239-108. Resignation.

A governor may resign at any time by giving a written resignation to the secretary or chief manager of the LLC. The resignation is effective without acceptance when such resignation is actually received by the secretary or chief manager of the LLC, unless a later effective time is specified in such resignation.

Acts 1994, ch. 868, § 1.

48-239-109. Removal of governors.

The members may remove one (1) or more governors with or without cause at any time unless the articles or operating agreement provide that governors may only be removed for cause.
If a governor is elected by a voting group of members, only the members of that voting group may participate in the vote to remove the governor without cause.
Cumulative voting and removal. If cumulative voting is authorized, a governor may not be removed if the number of votes sufficient to elect the governor under cumulative voting is voted against the governor's removal. If cumulative voting is not authorized, a governor may be removed only if the number of votes cast to remove the governor exceeds the number of votes cast not to remove the governor.
If the articles or operating agreement so provide, any or all of the governors may be removed for cause by a vote of a majority of the entire board of governors.
Meeting for removal. A governor may be removed by the members or governors only at a meeting called for the purpose of removing the governor and the meeting notice must state that the purpose, or one (1) of the purposes, of the meeting is removal of one (1) or more governors.
Removal of governor by judicial proceeding.
1. A court of record having equity jurisdiction in the county where an LLC's principal executive office (or, if none in this state, its registered office) is located may remove a governor of the LLC from office in a proceeding commenced either by the LLC or by such number of its members as represent at least ten percent (10%) of the outstanding voting power of the members of the LLC if the court finds that:
  1. The governor engaged in fraudulent or dishonest conduct, or gross abuse of authority or discretion, with respect to the LLC; and
  2. Removal is in the best interest of the LLC.
2. The court that removes a governor may bar the governor from reelection for a period prescribed by the court.
3. If removal is by a court, the secretary or the court on its own motion may call a meeting of the members to elect one (1) or more new governors.

Acts 1994, ch. 868, § 1.

48-239-110. Vacancy on board.

Unless the articles or operating agreement provide otherwise, if a vacancy occurs on a board of governors, including a vacancy resulting from an increase in the number of governors or a vacancy resulting from a removal with or without cause:
1. The members may fill the vacancy;
2. The board of governors may fill the vacancy; or
3. If the governors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the governors remaining in office.
If the vacant office was held by a governor elected by a voting group of members, only members within that voting group are entitled to vote to fill the vacancy if it is filled by the members.
A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date under § 48-239-108 or otherwise) may be filled before the vacancy occurs but the new governor may not take office until the vacancy occurs.

Acts 1994, ch. 868, § 1.

48-239-111. Board of governors meetings.

Time and Place. Meetings of the board of governors may be held from time to time as provided in the articles or operating agreement at any place within or without the state that the board of governors may select or by any means described in subsection (b). If the board of governors fails to select a place for a meeting, the meeting must be held at the principal executive office, unless the articles or operating agreement provides otherwise.
Electronic Communications.
1. Unless the articles or operating agreement provides otherwise, the board of governors may permit any or all governors to participate by or conduct the meeting through the use of any means of communication by which all governors participating may simultaneously hear each other during the meeting. A governor participating in a meeting by this means is deemed to be present in person at the meeting and the minutes may reflect such.
2. A meeting held by electronic communication shall be deemed held at the location required by this section, articles or operating agreement.
Calling Meetings and Notice. Unless the articles or operating agreement provides otherwise, the chief manager or the lesser of a majority of the governors or two (2) governors may call a special meeting of the board of governors by giving two (2) days' notice to all governors of the date, time, and place of the meeting. The notice need not state the purpose of the meeting unless chapters 201-248 of this title, the articles or the operating agreement requires it.
Previously Scheduled Meetings. If the day or date, time, and place of a board of governors meeting have been provided in the articles or operating agreement, or a regular meeting date, time and place have been established by the board of governors, no notice of such meeting is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken; provided, that the period of adjournment does not exceed one (1) month for any one (1) adjournment.
Waiver of Notice.
1. A governor may waive any notice required by this section, the articles or operating agreement before or after the date and time stated in the notice. Except as provided in subdivision (e)(2), the waiver must be in writing, signed by the governor entitled to the notice, and filed with the minutes or other records of the LLC.
2. A governor's attendance at or participation in a meeting waives any required notice to the governor of the meeting unless the governor at the beginning of the meeting (or promptly upon arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to any action taken at the meeting.

Acts 1994, ch. 868, § 1.

48-239-112. Quorum and voting of board of governors.

Unless the articles or operating agreement requires a different number, a quorum of a board of governors consists of:
1. A majority of the fixed number of governors, if the LLC has a fixed board size;
2. A majority of the number of governors prescribed under § 48-239-101, or if no number is prescribed, the number in office immediately before the meeting begins, if the LLC has a variable-range board.
The articles or operating agreement may authorize a quorum of a board of governors to consist of no fewer than one third (1/3) of the fixed or prescribed number of governors determined under subsection (a).
If a quorum is present, the affirmative vote of a majority of governors present is the act of the board of governors unless the act, articles or operating agreement requires the vote of a greater number of governors.
If a quorum is present when a duly called or held meeting is convened, the governors present may continue to transact business until adjournment, even though the withdrawal of a number of governors originally present leaves less than the proportion or number otherwise required for a quorum.
A governor who is present at a meeting of the board of governors when LLC action is taken is deemed to have assented to the action taken unless:
1. The governor objects at the beginning of the meeting (or promptly upon the governor's arrival) to holding it or transacting business at the meeting;
2. The governor's dissent or abstention from the action taken is entered in the minutes of the meeting; or
3. The governor delivers written notice of dissent or abstention to the presiding officer of the meeting before its adjournment or to the LLC immediately after adjournment of the meeting. The right of dissent or abstention is not available to a governor who votes in favor of the action taken.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 55.

48-239-113. Action without a meeting.

Method.
1. Unless the articles or operating agreement provides otherwise, an action required or permitted to be taken at a board of governors meeting may be taken without a meeting. If all governors consent to taking such action without a meeting, the affirmative vote of the number of governors that would be necessary to authorize or take such action at a meeting is the act of the board of governors. The action must be evidenced by one (1) or more written consents describing the action taken, signed by each governor in one (1) or more counterparts, indicating the signing governor's vote or abstention on the action, and shall be included in the minutes or filed with the LLC's records reflecting the action taken.
2. Notwithstanding subdivision (a)(1), the articles or operating agreement may provide for written governor action to be taken without all governors consenting to the waiver of actual meeting, but such consent must be of at least two thirds (2/3) of the governors.
Effective Time. The written action is effective when the last required governor signs the action, unless a different effective time is provided in the written action.
Notice and Liability. If the articles or operating agreement permits written action and waiver of meetings by less than all governors, all governors must be notified immediately of the action's text and effective date. Failure to provide the notice does not invalidate the written action. A governor who does not sign or consent to the written action has no liability for the action or actions taken by this written action.
Consent Equals Meeting. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. Any action requiring a meeting by the board of governors is satisfied by a consent signed under this section.

Acts 1994, ch. 868, § 1.

48-239-114. Committees established by the board of governors.

Generally. With respect to a board-managed LLC, a resolution approved by the affirmative vote of a majority of the board of governors may establish committees having the authority of the board in the management of the business of the LLC only to the extent provided in the resolution, including special litigation committees to consider legal rights or remedies of the LLC and whether those rights and remedies should be pursued. Committees other than special litigation committees are subject at all times to the direction and control and serve at the pleasure of the board of governors.
Membership. With respect to a board-managed LLC, unless the articles or operating agreement provides for a different membership or manner of appointment, a committee consists of one (1) or more persons appointed by affirmative vote of a majority of the governors in office when the action is taken. Each member of a committee must be a member of the board of governors of the LLC; provided, that unless the articles or operating agreement provides otherwise, non-governors may serve on the special litigation committee.
Procedure. Sections 48-239-111 — 48-239-113 apply to committees and members of committees to the same extent as those sections apply to the board of governors and governors.
Minutes. Minutes, if any, of committee meetings must be made available upon request to members of the committee and to any governor.
Standard of Conduct. The establishment of, delegation of authority to, and action by a committee does not alone constitute compliance by a governor with the standard of conduct set forth in § 48-239-115.
Committee Authority. To the extent specified by the board of governors or in the articles or operating agreement, each committee may exercise the authority of the board of governors under § 48-238-101(a)(2).
Limitations on Committee Authority. A committee may not, however:
1. Authorize distributions, except according to a formula or method prescribed by the board of governors;
2. Approve or propose to members actions that chapters 201-248 of this title requires to be approved by members;
3. Fill vacancies on the board of governors or on any of its committees;
4. Adopt a plan of merger not requiring member approval;
5. Authorize or approve reacquisition of membership interest, except according to a formula or method prescribed by the board of governors; or
6. Authorize or approve the issuance or sale or contract for sale of membership interest, or determine the designation and relative rights, preferences, and limitations of a class or series of membership interests, except that the board of governors may authorize a committee (or chief manager of the LLC) to do so within limits specifically prescribed by the board of governors.
Standard of Conduct for Committee Members. Each governor serving on a committee and each person not a governor serving on a special litigation committee shall be subject to the standard of conduct set forth in § 48-239-115 and shall be subject to the same conflict of interest rules and exemptions as found in § 48-239-116.

Acts 1994, ch. 868, § 1.

48-239-115. Standard of conduct.

Standard and Liability. A governor shall discharge the duties of the position as a governor, including duties as a member of a committee, in good faith, in a manner the governor reasonably believes to be in the best interests of the LLC, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.
Reliance.
1. A governor is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
  1. One (1) or more managers or employees of the LLC whom the governor reasonably believes to be reliable and competent in the matters presented;
  2. Legal counsel, public accountants, or other persons as to matters that the governor reasonably believes are within the person's professional or expert competence; or
  3. A committee of the board of governors of which the governor is not a member, if the governor reasonably believes the committee merits confidence.
2. A governor is not acting in good faith if the governor has knowledge concerning the matter in question that makes reliance otherwise permitted by subdivision (b)(1) unwarranted.
Limitation on Liability. A governor is not liable for any action taken as a governor, or any failure to take action, if the governor performed the duties of the office in compliance with subsections (a) and (b).
Elimination or Limitation of Liability. A governor's personal liability to the LLC or its members for monetary damages for breach of fiduciary duty as a governor may be eliminated or limited in the articles or operating agreement; such provisions shall not eliminate or limit the liability of a governor for the following:
1. For any breach of the governor's duty of loyalty to the LLC or its members; however, the articles or operating agreement may define the duty of loyalty in a manner to reflect the understanding of the parties, provided such definition is not manifestly unreasonable under the circumstances;
2. For acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
3. Under § 48-237-101; or
4. For any act or omission occurring before the date when the provision in the articles eliminating or limiting liability becomes effective.
Modification of Standard of Conduct in Articles or Operating Agreement. Notwithstanding anything to the contrary in this section, the articles or operating agreement may define the standard of conduct for governors in a manner to reflect the understanding of the parties; provided, that such definition is not manifestly unreasonable under the circumstances.
Burden of Proof. A person alleging a violation of this section has the burden of proving the violation.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 56-58.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-239-116. Governor and manager conflict of interest.

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.
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.
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.
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.

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

Chapter 240
Member Management

48-240-101. Member-managed.

If the LLC has elected to be member-managed, any actions that would require the action of the board of governors shall be made by the members. Unless chapters 201-248 of this title, the articles or operating agreement require otherwise, decisions shall be made and actions taken by a majority vote of the members acting in their capacity as members present at a meeting at which a quorum is established.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 60.

Law Reviews.

Getting Your Fair Share: What Are the Fiduciary Duties When One Member Takes a Piece of the LLC Pie? (Richard Spore), 40 Tenn. B.J. 22 (2004).

48-240-102. Standard of member conduct in a member-managed LLC.

Fiduciary Duty of Members of Member-Managed LLC. Except as provided in the articles or operating agreement, every member of a member-managed LLC must account to the LLC for any benefit, and hold as trustee for it any profits derived by the member without the consent of the other members from any transaction connected with the formation, conduct, or liquidation of the LLC or from any use by the member of its property including, but not limited to, confidential or proprietary information of the LLC or other matters entrusted to the member as a result of such person's status as a member.
Standard of Conduct. A member of a member-managed LLC shall discharge such member's duties as a member, including all duties as a member of a committee:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the member reasonably believes to be in the best interest of the LLC.
Reliance. A member of a member-managed LLC is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more managers or employees of the LLC whom the member reasonably believes to be reliable and competent in the matters presented;
2. Legal counsel, public accountants or other persons as to matters the member reasonably believes are within the person's professional or expert competence; or
3. A committee of the members of which such member is not a member, if the member reasonably believes the committee merits confidence.
Good Faith Requirement. The member is not acting in good faith if the member has knowledge concerning the matter in question that makes reliance otherwise committed by subsection (c) unwarranted.
Limitation of Liability for Action. A member is not liable for any action taken as a member, or any failure to take any action, if the member performed the duties of the position as a member in compliance with this section.
Burden of Proof. A person alleging a violation of this section has the burden of proving the violation.
Modification of Standard of Conduct in Articles or Operating Agreement. Notwithstanding anything to the contrary in this section, the articles or operating agreement may define the standard of conduct in a manner to reflect the understanding of the parties provided such definition is not manifestly unreasonable under the circumstances.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 61.

Cross-References. Confidentiality of public records, § 10-7-504.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-240-103. Member conflicts of interest.

Conflict and Procedure When Conflict Arises. A contract or other transaction between an LLC and one (1) or more of its members, or between a member-managed LLC and an organization in or of which one (1) or more of its members are governors, directors, managers, officers, partners, fiduciaries or similar equivalent or have a material financial interest, is not voidable because the member or members or the other organizations are parties or because the member or members are present at the meeting of the members or a committee at which the contract or transaction is authorized, approved, or ratified, if:
1. The contract or transaction was, and the person asserting the validity of the contract or transaction sustains the burden of establishing that the contract or transaction was, fair and reasonable as to the LLC at the time it was authorized, approved, or ratified;
2. The material facts as to the contract or transaction and as to the member's or members' interest are fully disclosed or known to the members and, unless the articles or operating agreement requires the specific approval of subdivision (a)(2)(A) or (a)(2)(B), the contract or transaction is approved in good faith by either:
  1. The owners of a majority of the voting power of the membership interests entitled to vote that are owned by persons other than the interested member or members; or
  2. The owners of a majority of the financial interest of the membership interests that are owned by persons other than the interested member or members;
3. The material facts as to the contract or transaction and as to the member's or members' interest are fully disclosed or known to the members or a committee, and the members or committee authorizes, approves, or ratifies the contract or transaction in good faith by a majority of the membership interest entitled to vote or committee members, but the interested member or members must not be counted in determining the presence of a quorum and must not vote;
4. The material facts of the transaction and the member's or members' interest were disclosed or known to a committee of not less than three (3) members, none of whom had a direct or indirect interest in the transaction, and such committee authorized, approved or ratified the transaction;
5. The contract or transaction is a distribution described in chapter 236 of this title or a merger or sale of assets described in chapter 244 of this title; or
6. Notwithstanding anything to the contrary in this section, the articles or operating agreement may define the standard of conduct of the members in a manner to reflect the understanding of the parties; provided, that such definition is not manifestly unreasonable under the circumstances.
Material Financial Interest. For purposes of this section:
1. A member does not have a material financial interest in a resolution fixing the compensation of a manager, employee, or agent of the LLC, even though the member is also receiving compensation from the LLC; and
2. A member has a material financial interest in each organization in which the member, or the spouse, parents, children and spouses of children, brothers and sisters and spouses of brothers and sisters of the member, or other lineal descendants of the member, or any combination of them, has a material financial interest.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 62-64.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

Chapter 241
Managers

48-241-101. Managers required.

An LLC must have individuals exercising the functions of the offices, however designated, of chief manager and secretary.

Acts 1994, ch. 868, § 1.

48-241-102. Duties of required managers.

Presumption and Modification. Unless:
1. The articles or the operating agreement provide otherwise;
2. If the LLC is board-managed, a resolution of the board of governors providing otherwise; or
3. If the LLC is member-managed, a written resolution of the members providing otherwise;
  the chief manager and secretary have the duties specified in this section.
Chief Manager. The chief manager shall:
1. See that all orders and resolutions of the board of governors or members are carried into effect;
2. Sign and deliver in the name of the LLC any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the LLC, except in cases in which the authority to sign and deliver is required by law to be exercised by another person or is expressly delegated:
  1. By the articles or operating agreement;
  2. The board of governors if the LLC is board-managed; or
  3. Members if the LLC is member-managed to some other manager or agent of the LLC;
3. Perform other duties prescribed by the board of governors or the members; and
4. In the event the LLC has a vacancy in the office of secretary, any notices, documents or other matters that otherwise are required to go to the secretary may be delivered to the chief manager.
Secretary. The secretary shall:
1. Keep accurate membership records for the LLC;
2. Maintain records of and, whenever necessary, certify all proceedings of the board of governors, members or committees of the LLC;
3. Receive notices required to be sent to the secretary and to keep a record of such notices in the records of the LLC; and
4. Perform other duties prescribed by the board of governors, the members or by the chief manager.

Acts 1994, ch. 868, § 1.

48-241-103. Election or appointment of managers.

Board of Governors Form. If the LLC is board-managed, the board of governors shall elect or appoint, in a manner set forth in the articles or operating agreement or in a resolution approved by the affirmative vote of a majority of the governors present, the chief manager, secretary and any other managers or agents the board of governors considers necessary or desirable for the operation and management of the LLC. These managers and agents have the powers, rights, duties, responsibilities, and terms in office provided for in the articles or operating agreement or determined by the board of governors.
Member-Managed Form. If the LLC is member-managed, the members shall elect or appoint, in a manner set forth in the articles or operating agreement or in a resolution approved by the affirmative vote of a majority of the voting power at a duly held meeting, the chief manager, secretary and any other managers or agents the members consider necessary or desirable for the operation of the LLC. These managers and agents have the powers, rights, duties, responsibilities, and terms in office provided for in the articles, operating agreement or as determined by the members and set forth in the resolution establishing the other manager positions.

Acts 1994, ch. 868, § 1.

48-241-104. Qualifications of managers.

Managers need not be residents of this state or members of the LLC unless the articles or operating agreement so require. The articles or operating agreement may prescribe other qualifications for managers.

Acts 1994, ch. 868, § 1.

48-241-105. Multiple managerial positions.

Any number of managerial positions or functions of those positions other than those of chief manager and secretary may be held or exercised by the same person. If a document must be signed by persons holding different positions or functions and a person holds or exercises more than one (1) of those positions or functions, that person may sign the document in more than one (1) capacity, but only if the document indicates each capacity in which the person signs.

Acts 1994, ch. 868, § 1.

48-241-106. Managers considered elected.

If the LLC is board-managed, in the absence of an election or appointment of managers by the board of governors, or if the LLC is member-managed in the absence of an election or appointment of managers by the members, then the person or persons exercising the principal functions of the chief manager or the secretary are considered to have been elected to those offices, except for the purpose of determining the location of the principal executive office, which in that case is the registered office of the LLC.

Acts 1994, ch. 868, § 1.

48-241-107. Removal of a manager.

Unless otherwise provided in the articles or operating agreement, if the LLC is board-managed:
1. A manager serves at the pleasure of the board of governors;
2. The board of governors may remove a manager at any time with or without cause; and
3. The board of governors may eliminate any manager position other than chief manager or secretary at any time.
Unless otherwise provided in the articles or operating agreement, if the LLC is member-managed:
1. A manager serves at the pleasure of the members;
2. The members may remove a manager at any time with or without cause; and
3. The members may eliminate any manager position other than chief manager or secretary at any time.
The removal of a manager under subsection (a) or (b) is without prejudice to the contractual rights of the manager, if any.

Acts 1994, ch. 868, § 1.

48-241-108. Contract rights.

Board-Managed. With respect to a board-managed LLC, the election or appointment of a person as a manager or agent does not, of itself, create contract rights. An LLC may enter into a contract with a manager or agent for any period of time if, in the board of governors' judgment, the contract would be in the best interests of the LLC. The fact that the contract may be for a term longer than the terms of the governors who authorized or approved the contract does not make the contract void or voidable.
Member-Managed. With respect to a member-managed LLC, the election or appointment of a person as a manager or agent does not, of itself, create contract rights. An LLC may enter into a contract with a manager or agent for any period of time if, in the members' judgment, the contract would be in the best interest of the LLC.
Removal or Resignation Does not Affect Contract Rights. A manager's removal does not affect the manager's contract rights, if any, with the LLC. A manager's resignation does not affect the LLC's contract rights, if any, with the manager.

Acts 1994, ch. 868, § 1.

48-241-109. Resignation and vacancy.

Resignation. Unless otherwise provided in an employment contract or an agreement with the LLC, a manager may resign at any time by giving written notice to the LLC. The resignation is effective without acceptance when the notice is delivered to the LLC, unless a later effective date is specified in the notice.
Vacancy. A vacancy in an office because of death, resignation, removal, disqualification, or other cause may, or in the case of a vacancy in the office of chief manager or secretary, must be filled for the unexpired portion of the term in the manner provided in the articles or operating agreement, or, if the LLC is board-managed, as determined by the board of governors, or, if the LLC is member-managed, as determined by the members. If a vacancy will be created by a resignation which is made effective at a later date and the LLC accepts the future effective date, the board of governors of a board-managed LLC or the members of a member-managed LLC may fill the pending vacancy before the effective date if the action provides that the successor does not take office until the effective date.

Acts 1994, ch. 868, § 1.

48-241-110. Delegation.

Unless prohibited by the articles, the operating agreement, or by a resolution:

Adopted by the affirmative vote of the governors present at a duly held meeting of a board-managed liability company; or
Approved by the affirmative vote of a majority of the membership interest entitled to vote at a duly held meeting of the members of a member-managed LLC;
a manager elected or appointed may, without further approval, delegate some or all of the duties and powers of an office to other persons. A manager who delegates the duties or powers of an office remains subject to the standard of conduct for a manager with respect to the discharge of all duties and powers so delegated.

Acts 1994, ch. 868, § 1.

48-241-111. Standard of conduct.

General. A manager shall discharge the duties of an office in good faith, in a manner the manager reasonably believes to be in the best interests of the LLC, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. Notwithstanding anything to the contrary in this section, the articles or operating agreement may define the standard of conduct of the managers in a manner to reflect the understanding of the parties; provided, that such definition is not manifestly unreasonable under the circumstances.
Reliance Permitted. In discharging such duties, a manager is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more managers or employees of the LLC whom the member reasonably believes to be reliable and competent in the matters presented; or
2. Legal counsel, public accountants, or other persons as to matters the officer reasonably believes are within the person's professional or expert competence.
Where Reliance not Permitted. A manager is not acting in good faith who has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) unwarranted.
Limitation on Liability. A manager is not liable for any action taken as a manager, or any failure to take any action, if the manager performed the duties of the office in compliance with this section.
Effect of Delegation. A person exercising the principal functions of an office or to whom some or all of the duties and powers of an office are delegated pursuant to § 48-241-110 is considered a manager for purposes of this section.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 65.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

Chapter 242
Loans and Obligations

48-242-101. Loans, guarantees and suretyship.

Prerequisites. Unless otherwise provided in chapters 201-248 of this title or the articles or operating agreement, an LLC may lend money to, guarantee an obligation of, become a surety for, or otherwise financially assist a person:
1. In the usual and regular course of business of the LLC;
2. With, or for the benefit of, a related LLC, an organization in which the LLC has a financial interest, an organization with which the LLC has a business relationship, or an organization to which the LLC has the power to make donations; or
3. With, or for the benefit of, a manager or other employee of the LLC or a subsidiary, including a manager or employee who is a member but not a governor of the LLC or a subsidiary, and may reasonably be expected, in the judgment of the body giving the requisite approval, to benefit the LLC. In the case of a loan or guarantee which is with, or for the benefit of, a person who is a governor, approval by a majority of the membership interests of disinterested members entitled to vote is required.
Interest and Security. A loan, guaranty, surety contract, or other financial assistance under subsection (a) may be with or without interest and may be unsecured or may be secured in any manner, including, without limitation, a grant of a security interest in a member's financial rights in the LLC.
Banking Authority not Granted. This section does not grant any authority to act as a bank or to carry on the business of banking.
Requisite Approval.
1. Except as otherwise provided in this section, for purposes of this section, “requisite approval” means:
  1. If the LLC is board-managed, an action taken at a duly held meeting and approved by a majority of the disinterested governors or by a majority of the disinterested members at a duly held meeting of the members; or
  2. If the LLC is member-managed, an action taken at a duly held meeting and approved by a majority of the voting interest of members entitled to vote which are held by disinterested persons.
2. For purposes of this section, a “disinterested person” is a person other than:
  1. A person who receives a direct or indirect benefit from receipt of the loan or guarantee;
  2. The spouse, parents, children and spouses of children, brothers and sisters, other lineal descendants and spouses of brothers and sisters of such person; or
  3. Any entity in which any of the people, or any combination of the people, in subdivisions (d)(2)(A) and (B) have a material financial interest.
Validity of Obligation of Borrower. The fact that a loan or guarantee is made in violation of this section does not affect the borrower's liability on the loan.
Exception for Sales on Credit. A sale on credit in the ordinary course of business shall not be subject to the restrictions of this section.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 66, 67.

48-242-102. Advances.

Unless otherwise provided in the articles or the operating agreement, an LLC may, without a vote of the governors or its members, advance money to its governors, managers, or employees to cover expenses that can reasonably be anticipated to be incurred by them in the ordinary course of the performance of their duties and for which they would be entitled to reimbursement in the absence of an advance.

Acts 1994, ch. 868, § 1.

Chapter 243
Indemnification

48-243-101. Indemnification.

Definitions. As used in this chapter, unless the context otherwise requires:
1. “Expenses” include counsel fees;
2. “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding;
3. “LLC” includes any domestic or foreign predecessor of an LLC in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction;
4. 1. “Official capacity” means:
    1. With respect to a governor in a board-managed LLC, the position of governor;
    2. With respect to a member in a member-managed LLC, a member who took an action of management as a member; and
    3. With respect to a person in a capacity not described in subdivision (a)(4)(A)(i) or (a)(4)(A)(ii), the elective or appointive office or position held by a manager, member of a committee of the board of governors or member of a committee of the members, or the employment or agency relationship undertaken by an employee or agent on behalf of the LLC;
  2. “Official capacity” does not include service for any other foreign or domestic corporation, LLC, partnership, joint venture, trust, employee benefit plan, or other enterprises;
5. “Party” includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding;
6. “Proceeding” means any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal;
7. “Responsible person” means an individual who is or was a governor of a board-managed LLC or a member of a member-managed LLC acting pursuant to chapter 238, 239 or 240 of this title or an individual who, while a governor of a board-managed LLC or member of a member-managed LLC, is or was serving at the LLC's request as a governor, manager, director, officer, partner, trustee, employee, or agent of another foreign or domestic LLC, corporation, partnership, joint venture, employee benefit plan or other enterprise. A governor of a board-managed or member of a member-managed LLC is considered to be serving an employee benefit plan at the LLC's request if the governor's or member's duties to the LLC also impose duties on, or otherwise involve services by the governor or member to the plan or to participants in or beneficiaries of the plan. “Responsible person” includes, unless the context requires otherwise, the estate or personal representative of a responsible person; and
8. “Special legal counsel” means counsel who has not represented the LLC or a related LLC, or a governor, manager, member of a committee of the board of governors, member of a committee of the members, agent or employee, whose indemnification is in issue.
Authority to Indemnify.
1. Except as provided in subsection (d), an LLC may indemnify an individual made a party to a proceeding because such individual is or was a responsible person against liability incurred in the proceeding if the individual:
  1. Acted in good faith; and
  2. Reasonably believed:
    1. In the case of conduct in such individual's official capacity with the LLC that such individual's conduct was in its best interest; and
    2. In all other cases, that such individual's conduct was at least not opposed to its best interests; and
  3. In the case of any criminal proceeding, had no reasonable cause to believe such individual's conduct was unlawful.
2. A responsible person's conduct with respect to an employee benefit plan for a purpose such person reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subdivision (b)(1)(B).
3. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the responsible person did not meet the standard of conduct described in this section.
4. Except as provided in subsection (e), an LLC may not indemnify a responsible person under this section:
  1. In connection with a proceeding by or in the right of the LLC in which the responsible person was adjudged liable to the LLC; or
  2. In connection with any other proceeding charging improper personal benefit to such responsible person, whether or not involving action in such person's official capacity, in which such person was adjudged liable on the basis that personal benefit was improperly received by such person.
Mandatory Indemnification. Unless limited by its articles, an LLC shall indemnify a responsible person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a responsible person of the LLC against reasonable expenses incurred by the person in connection with the proceeding.
Advances for Expenses.
1. An LLC may pay for or reimburse the reasonable expenses incurred by a responsible person who is a party to a proceeding in advance of final disposition of the proceeding if:
  1. The responsible person furnishes the LLC a written affirmation of good faith belief that the person has met the standard of conduct described in subsection (b);
  2. The responsible person furnishes the LLC a written undertaking, executed personally or on such person's behalf, to repay the advance if it is ultimately determined that the person is not entitled to indemnification; and
  3. A determination is made that the facts then known to those making the determination would not preclude indemnification under this part.
2. The undertaking required by subdivision (d)(1)(B) must be an unlimited general obligation of the responsible person but need not be secured and may be accepted without reference to financial ability to make repayment.
3. Determinations and authorizations of payments under this section shall be made in the manner specified in subsection (f).
Court-Ordered Indemnification. Unless an LLC's articles provide otherwise, a responsible person of the LLC who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification if it determines:
1. The responsible person is entitled to mandatory indemnification under subsection (c), in which case the court shall also order the LLC to pay the responsible person's reasonable expenses incurred to obtain court-ordered indemnification; or
2. The responsible person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the person met the standard of conduct set forth in subdivision (b)(1) or was adjudged liable as described in subdivision (b)(4), but if the person was adjudged so liable the person's indemnification is limited to reasonable expenses incurred.
Determination and Authorization of Indemnification.
1. Except as provided in subsection (e), an LLC may not indemnify a responsible person under subsection (b) unless authorized in the specific case after a determination has been made that indemnification of the responsible person is permissible in the circumstances because the person has met the standard of conduct set forth in subdivision (b)(1).
2. The determination shall be made:
  1. By the board of governors in the case of a board-managed LLC or by the members of a member-managed LLC by majority vote of a quorum consisting of governors or members, as the case may be, not at the time parties to the proceeding;
  2. If a quorum cannot be obtained under subdivision (f)(2)(A), by majority vote of a committee duly designated by the board of governors in the case of a board-managed LLC or by the members of a member-managed LLC (in which designation governors or members as applicable who are parties may participate), consisting solely of two (2) or more governors or members (as applicable) not at the time parties to the proceeding;
  3. By independent special legal counsel:
    1. Selected by the board of governors in the case of a board-managed LLC or by the members of a member-managed LLC or by a committee in the manner prescribed in subdivision (f)(2)(A) or (f)(2)(B); or
    2. If a quorum of the board of governors in the case of a board-managed LLC or a quorum of the members of a member-managed LLC cannot be obtained under subdivision (f)(2)(A) and a committee cannot be designated under subdivision (f)(2)(B), selected by majority vote of the full board of governors in the case of a board-managed LLC or by the members of a member-managed LLC (in which selection governors or members, as appropriate, who are parties may participate); or
  4. By the members of a board-managed LLC, but ownership interests owned by or voted under the control of members who are at the time parties to the proceeding may not be voted on the determination.
3. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (f)(2)(C) to select counsel.
Indemnification of Managers, Employees and Agents. Unless the articles provide otherwise:
1. A manager of the LLC who is not a responsible person is entitled to mandatory indemnification under subsection (c), and is entitled to apply for court-ordered indemnification under subsection (e), in each case to the same extent as a responsible person;
2. The LLC may indemnify and advance expenses to a manager, employee, independent contractor or agent of the LLC who is not a responsible person to the same extent as a responsible person;
3. An LLC may also indemnify and advance expenses to a manager, employee, independent contractor or agent who is not a responsible person to the extent, consistent with public policy, that may be provided by its articles, operating agreement, general or specific action of its board of governors of a board-managed LLC or by members of a member-managed LLC, or by contract.
Insurance. An LLC may purchase and maintain insurance on behalf of an individual who is or was a responsible person, manager, employee, independent contractor, or agent of the LLC, or who, while a responsible person, manager, employee, independent contractor, or agent of the LLC, is or was serving at the request of the LLC as a responsible person, manager, partner, trustee, employee, independent contractor, or agent of another foreign or domestic LLC, corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by such person in that capacity or arising from such person's status as a responsible person, manager, officer, employee, independent contractor, or agent, whether or not the LLC would have power to indemnify such person against the same liability under subsection (b) or (c).
Application of Part.
1. The indemnification and advancement of expenses granted pursuant to, or provided by, this section shall not be deemed exclusive of any other rights to which a responsible person seeking indemnification or advancement of expenses may be entitled, whether contained in this section, the articles, or the operating agreement, or when authorized by such articles or operating agreement, in a resolution of members, a resolution of governors, or an agreement providing for such indemnification; provided, that no indemnification may be made to or on behalf of any responsible person if a judgment or other final adjudication adverse to the responsible person or officer establishes such person's liability:
  1. For any breach of the duty of loyalty to the LLC or its members;
  2. For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or
  3. Under § 48-237-101.
2. Nothing contained in this section shall affect any rights to indemnification to which the LLC's personnel, other than responsible persons, may be entitled by contract or otherwise under law. If the articles limit indemnification or advances for expenses, indemnification and advances for expenses are valid only to the extent consistent with the articles.
3. This section does not limit an LLC's power to pay or reimburse expenses incurred by a responsible person in connection with such person's appearance as a witness in a proceeding at a time when such person has not been made a named defendant or respondent to the proceeding.

Acts 1994, ch. 868, § 1.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

Chapter 244
Merger and Transfer of Assets

Part 1
Merger

48-244-101. Merger.

Merger. With or without a business purpose and pursuant to a plan of merger, a domestic LLC may merge with or into one (1) or more entities formed or organized under the laws of this state or foreign jurisdiction, with the domestic LLC or such other entity, as the plan of merger shall provide, being the surviving or resulting domestic LLC or other entity.
After a plan of merger is approved and before the merger takes effect, the plan may be amended or abandoned as provided in the plan.

Acts 1994, ch. 868, § 1.

48-244-102. Approval of merger.

LLC Organized Under the Law of the State of Tennessee. In the case of an LLC organized under the law of this state, unless the articles or operating agreement provide otherwise, the plan must be approved by:
1. A majority of the board of governors, if the LLC is board-managed; and
2. Whether or not the LLC is member-managed or board-managed, by the members holding a greater than sixty-six and two-thirds percent (66 2/3%) voting interest of all members entitled to vote and of each class or group entitled to vote. In no event may the articles or operating agreement provide for approval by less than fifty percent (50%) in voting interest in the aggregate.
Other Entities in General. As to entities other than domestic LLCs which are parties to the merger, the plan of merger must be approved by a vote of a majority in voting interest of all owners entitled to vote, except as otherwise specifically provided by the law of this state or of the foreign jurisdiction in which the entity is organized or by the articles, bylaws, partnership agreement or similar equivalent of such entity. In no case may the articles, bylaws, partnership agreement or similar equivalent require less than a fifty percent (50%) in voting interest vote unless the applicable law of the state or foreign jurisdiction specifically provides otherwise.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 68.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

48-244-103. Certificate of merger.

If a domestic LLC is merging under this section, the domestic LLC or business entity surviving or resulting in or from the merger shall file a certificate of merger in the office of the secretary of state. The certificate of merger must be executed by a duly authorized person and set forth:

The name, jurisdiction and date of formation or organization of each of the LLCs or other entities which is a party to the merger;
That a plan of merger has been approved and executed by each of the LLCs and other business entities which are a party to the merger;
The name and address of the principal executive office or equivalent thereof, of the surviving or resulting entity into which the other entities will merge;
Whether the surviving entity is an LLC, general partnership, limited partnership, corporation or form of other entity;
The future effective date or time, which shall be a date or time certain and which shall comply with § 48-247-109(b) of the merger if it is not to be effective upon the filing of the plan of merger;
That the plan of merger is on file at a place of business of the surviving or resulting entity, and shall state the address thereof;
That a copy of the plan of merger will be furnished by the surviving or resulting entity, on request and without cost, to any member of any domestic LLC or any persons holding an interest in any other entity which is or was a party to the merger; and
If the surviving or resulting entity is not a domestic LLC, or an entity other than a general partnership organized under the laws of this state, a statement that such surviving or resulting entity agrees that it may be served with process in this state in any action, suit or proceeding for the enforcement of any obligation of any entity which is a party to the merger, irrevocably appointing the secretary of state as its agent to accept service of process in any such action, suit or proceeding and specifying the address to which a copy of such process shall be mailed to it by the secretary of state. In the event of service hereunder upon the secretary of state, the procedures set forth in § 48-208-105 shall be applicable, except that the plaintiff in any such action, suit or proceeding shall furnish the secretary of state with the address specified in the certificate of merger provided for in this section and any other address which the plaintiff may elect to furnish, together with copies of such process as required by the secretary of state, and the secretary of state shall notify such surviving or resulting other business entity at all such addresses furnished by the plaintiff in accordance with the procedures set forth in § 48-208-105.

Acts 1994, ch. 868, § 1.

48-244-104. Filing and effect of certificate of merger.

Effective Date of Merger. Unless a future effective date or time complying with § 48-247-109(b) is provided in the certificate of merger, in which event the merger shall be effective at any such future effective date or time, a merger shall be effective upon the filing in the office of the secretary of state of the plan of merger.
LLC Effect. The articles of merger as filed with the office of the secretary of state shall act as notice of dissolution and articles of termination for a domestic LLC which is not the surviving or resulting entity in the merger.
General Effect of Merger. When any merger shall have become effective under this part:
1. Every entity which is a party to the merger other than the surviving entity ceases to exist;
2. All property, real, personal, tangible and intangible, owned by each of the merged entities vests in the surviving or resulting entity;
3. All obligations and duties of every entity that is a party to the merger become the obligations and duties of the surviving or resulting entity and all liens upon any property of any of the merged business entities shall be preserved unimpaired and may be enforced against the surviving or resulting entity to the same extent as if the debts, liabilities and duties had been incurred or contracted by the surviving or resulting entity;
4. An action or proceeding pending against an entity which is a party to the merger may be continued as if the merger had not occurred or the surviving entity may be substituted as a party to the action or proceeding;
5. Unless otherwise provided in the certificate of merger or as may be required by applicable law, a domestic entity which is not the surviving or resulting entity in the merger shall not be required to wind up its affairs or pay its liabilities and distribute its assets; and
6. If obligations incurred before the merger by a party to the merger are not able to be satisfied out of the property of the surviving entity, all partners, members or shareholders of such party immediately before the effective date of the merger shall be obligated to contribute to the surviving entity to the extent and in the manner such persons would have been obligated to contribute to such party in the event such obligations of such party could not have been satisfied out of the property of such party.
Personal Liabilities of a Member. A member of the surviving LLC is liable for:
1. All obligations of a party to the merger for which the member was personally liable before the merger; and
2. All obligations of the surviving entity incurred after the merger takes effect, to the extent imposed under applicable law or by contract executed by such member.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 69-73.

Part 2
Transfer of Assets and When Permitted

48-244-201. Transfer of assets and when permitted.

Member Approval and When not Required. Unless otherwise provided in the articles or operating agreement, an LLC, by affirmative vote of a majority of the governors present at a duly called and held meeting, if board-managed, or by a majority vote, if member-managed, may sell, lease, transfer, or otherwise dispose of all or substantially all of its property and assets in the usual and regular course of its business and grant a security interest in all or substantially all of its property and assets whether or not in the usual and regular course of its business, upon those terms and conditions and for those considerations, which may be money, securities, or other instruments for the payment of money or other property.
Member Approval and When Required.
1. Unless otherwise provided in the articles or in an operating agreement, a board-managed LLC, by affirmative vote of a majority of the governors present at a duly called and held meeting, may sell, lease, transfer, or otherwise dispose of all or substantially all of its property and assets, including its goodwill, not in the usual and regular course of its business, upon those terms and conditions and for those considerations, which may be money, securities, or other instruments for the payment of money or other property, as the board of governors considers expedient.
2. In the case of a board-managed LLC, the action of the board of governors in subdivision (b)(1) must be approved by the members or, in the case of a member-managed LLC, the members must approve the sale, lease, transfer or other disposition of all or substantially all of the LLC's property and assets not in the usual and regular course of business at a regular or special meeting of the members by majority vote. Written notice of the meeting must be given to all members whether or not they are entitled to vote at the meeting. The written notice must state that a purpose of the meeting is to consider the sale, lease, transfer, or other disposition of all or substantially all of the property and assets of the LLC not in the usual and regular course of business.
Signing of Documents. Confirmatory deeds, assignments, or similar instruments to evidence a sale, lease, transfer, or other disposition may be signed and delivered at any time in the name of the transferor by any one (1) of its current managers or, if the LLC no longer exists, by any one (1) of its last managers.
Transferee Liability. The transferee is liable for the debts, obligations, and liabilities of the transferor only to the extent provided in the contract or agreement between the transferee and the transferor or to the extent provided by chapters 201-248 of this title or other statutes of this state.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 74, 75.

Chapter 245
Dissolution Generally

Part 1
Dissolution

48-245-101. Dissolution.

Dissolution Events. Except as stated in subsection (b) or (c), an LLC is dissolved upon the occurrence of any of the following events:
1. If a period is fixed in the articles for the duration of the LLC, upon the expiration of that period, except that, in the case of a LLC that is administratively dissolved pursuant to § 48-245-301 by reason of the expiration of that period of duration, the LLC may be reinstated pursuant to § 48-245-303;
2. By action of the organizers pursuant to § 48-245-201 or by the members pursuant to § 48-245-202, or upon the occurrence of an event specified in the articles or operating agreement;
3. By order of a court pursuant to § 48-245-901 and § 48-245-902;
4. By action of the secretary of state pursuant to § 48-245-302;
5. Except as provided in subdivision (a)(6) for LLCs created prior to July 1, 1999, upon the occurrence of any of the following events, unless the articles or operating agreement provide that one or more of the following events will not constitute an event of dissolution:
  1. Death of any member;
  2. Retirement from membership of any member;
  3. Resignation or other withdrawal of any member;
  4. Acquisition of a member's complete membership interest by the LLC;
  5. Assignment of a member's governance rights under § 48-218-102 which leaves the assignor with no governance rights;
  6. Expulsion of any member if expulsion is permitted by the articles;
  7. Bankruptcy of any member;
  8. Dissolution of any member;
  9. Insanity of any member; or
  10. The occurrence of any other event that terminates the continued membership of a member in the LLC;
6. For LLCs formed on or after July 1, 1999, or for LLCs formed prior to July 1, 1999, that elect by providing in their articles for the amendments by Acts 1999, ch. 455, regarding dissolution events to apply to such LLC, the LLC shall be dissolved upon the occurrence of:
  1. In accordance with § 48-245-202 or any event specified in the articles or operating agreement including, but not limited to, events of withdrawal by a member or action or procedure as set forth in the articles or operating agreement; or
  2. A merger in which the LLC is not the surviving organization.
Notwithstanding subdivisions (a)(5)(A)-(J), including if and as modified by subsection (c), the LLC is not dissolved and is not required to be wound up by reason of any event that terminates the continued membership of a member if there is at least one (1) remaining member and the existence and business of the LLC are continued by the consent of a majority vote of the remaining members or such greater vote of the remaining members as provided in the articles. Such consent must be obtained no later than ninety (90) days after the dissolution event. The granting of consent is at the discretion of each member and may be unreasonably withheld.
Reduction or Elimination of Dissolution Events.
1. With respect to LLCs created prior to July 1, 1999, the articles or operating agreement may specify that none or less than all of the events listed in subdivisions (a)(5)(A)-(J) constitute a dissolution event or events.
2. With respect to LLCs created prior to July 1, 1999, and which do not elect under § 48-245-101(a)(6) to have the amendments by Acts 1999, ch. 455, regarding dissolution events apply, the articles or the operating agreement of a board-managed LLC may provide that the events of dissolution enumerated in subdivisions (a)(5)(A)-(J) may be limited to one (1) or more events that are applicable only to one (1) or more members.
Procedures Following Dissolution. An LLC dissolved by one (1) of the dissolution events specified in subsection (a), as modified by subsection (c) if applicable, unless subsection (b) applies, must be wound up and terminated as provided in this chapter.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 76-79; 1999, ch. 346, § 6; 1999, ch. 455, §§ 22-31; 2016, ch. 688, § 5.

Law Reviews.

Delaware LLCs for Tennessee Lawyers? (Richard Spore), 35 Tenn. B.J. 27 (1999).

NOTES TO DECISIONS

1. Distribution of Assets.

Because a limited liability company (LLC) was for all intents and purposes dissolved, the trial court did not err in apportioning the proceeds of the sale of the LLC's assets first to the only member who had made a capital contribution to the LLC, as suggested by the distribution terms contained in the LLC's operating agreement. Huggins v. McKee, 500 S.W.3d 360, 2016 Tenn. App. LEXIS 354 (Tenn. Ct. App. May 31, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 697 (Tenn. Sept. 22, 2016).

2. Dissolution of Limited Liability Company Required.

Because a limited liability company (LLC) was not within the exception for LLCs created before July 1, 1999, and because the LLC's operating agreement did not remove any of the statutory dissolution events, the LLC had to be dissolved when a member of the LLC declared bankruptcy. FDA Props. v. Miller, — S.W.3d —, 2018 Tenn. App. LEXIS 660 (Tenn. Ct. App. Nov. 13, 2018).

Part 2
Nonjudicial Dissolution

48-245-201. Nonjudicial termination by organizers.

Manner. An LLC that has not accepted contributions may be dissolved and terminated by the organizers in the manner set forth in this section.
Articles of Termination. A majority of the organizers shall sign and file with the secretary of state articles of termination containing:
1. The name of the LLC;
2. The date of organization;
3. A statement that contributions have not been accepted; and
4. A statement that no debts remain unpaid.
The secretary of state shall file the articles of termination of existence of the LLC if the secretary of state finds that the articles:
1. Comply with subsection (b); and
2. Are accompanied by a tax clearance for termination or withdrawal relative to such LLC.
When the articles of termination have been filed in accordance with subsection (c), the existence of the LLC is terminated.

Acts 1994, ch. 868, § 1; 2009, ch. 349, §§ 1, 2; 2010, ch. 741, § 26.

48-245-202. Nonjudicial dissolution by members.

Manner. An LLC may be dissolved by the members:
1. Upon any event of dissolution set forth in the articles, operating agreement, or the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title, requiring member action;
2. By any procedures set forth in the articles or operating agreement; or
3. By the members when authorized in the manner set forth in this section.
Notice and Approval.
1. The proposed dissolution must be submitted for approval at a meeting of members. Written notice shall be given to each member, whether or not entitled to vote at a meeting of members, within the time and in the manner provided in § 48-222-101 for meetings of members, and whether the meeting is a regular or a special meeting, must state that a purpose of the meeting is to consider dissolving the LLC and that dissolution must be followed by the winding up and termination of the LLC.
2. If the proposed dissolution is approved at a meeting by a majority vote or such greater vote as may be provided for in the articles or operating agreement, the LLC must be dissolved and notice of dissolution shall be filed with the office of the secretary of state pursuant to § 48-245-401.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 80; 1999, ch. 455, § 32.

Part 3
Administrative Dissolution

48-245-301. Grounds for administrative dissolution.

The secretary of state may commence a proceeding under § 48-245-302 to administratively dissolve the LLC if:

The LLC does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
The LLC is without a registered agent or registered office in this state for two (2) months or more;
The name of an LLC contained in a document filed pursuant to chapters 201-248 of this title fails to comply with § 48-207-101;
The LLC does not notify the secretary of state within two (2) months that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued;
The LLC submits to the secretary of state's office a check, bank draft, money order or other such instrument, for payment of any fee and it is dishonored upon presentation for payment;
A governor, manager, member or other representative of an LLC signed a document such person knew was false in any material respect with the intent that the document be delivered to the secretary of state for filing; or
A period is fixed in the articles of organization for the duration of the LLC, upon the expiration of that period, but if no such period is set forth in the articles, then the LLC shall have a perpetual existence.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 81; 2016, ch. 688, § 6.

48-245-302. Procedure for and effect of administrative dissolution.

If the secretary of state determines that one (1) or more grounds exist under § 48-245-301 for dissolving an LLC, the secretary of state shall serve the LLC with written communication of the secretary of state's determination in accordance with §§ 48-208-104 and 48-208-105, except that such determination may be sent by first class mail.
If the LLC does not correct each ground for dissolution or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the communication in accordance with §§ 48-208-104 and 48-208-105, the secretary of state shall administratively dissolve the LLC by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the LLC in accordance with §§ 48-208-104 and 48-208-105, except that the certificate may be sent by first class mail.
An LLC administratively dissolved continues its existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs under § 48-245-501 and notify claimants under § 48-245-502.
The administrative dissolution of an LLC does not terminate the authority of its registered agent.

Acts 1994, ch. 868, § 1.

48-245-303. Reinstatement following administrative dissolution.

An LLC administratively dissolved under § 48-245-302 may apply to the secretary of state for reinstatement following administrative dissolution. The application must:
1. Be accompanied by a confirmation of good standing relative to such LLC;
2. Recite the name of the LLC at its date of administrative dissolution;
3. State that the ground or grounds for dissolution either did not exist or have been eliminated; and
4. State an LLC name that satisfies the requirements of § 48-207-101;
1. If the secretary of state determines that the application is accompanied by the confirmation of good standing and contains the information required by subsection (a), and that such information is correct, then the secretary of state shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the LLC in accordance with § 48-208-104.
2. If the LLC name in subdivision (a)(4) is different than the LLC name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to the articles insofar as it pertains to the LLC's name.
When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution and the LLC resumes carrying on its business as if the administrative dissolution had never occurred.

Acts 1994, ch. 868, § 1; 2010, ch. 741, §§ 27, 28; 2011, ch. 99, §§ 5-7.

48-245-304. Appeal from denial of reinstatement.

If the secretary of state denies an LLC's application for reinstatement following administrative dissolution, the secretary of state shall serve the LLC in accordance with §§ 48-208-104 and 48-208-105 with a written notice that explains the reason or reasons for denial.
The LLC may appeal the denial of reinstatement to the chancery court of Davidson County within thirty (30) days after service of the notice of denial. The LLC appeals by petitioning the court to set aside the dissolution and attaching to the petition copies of the secretary of state's certificate of dissolution, the LLC's application for reinstatement, and the secretary of state's notice of denial.
The court may summarily order the secretary of state to reinstate the dissolved LLC or may take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.

Acts 1994, ch. 868, § 1.

48-245-305. Articles of termination following administrative dissolution.

When an LLC, which has been administratively dissolved, wishes to terminate its existence, it may do so without first being reinstated by delivering to the secretary of state for filing articles of termination following administrative dissolution setting forth:
1. The name of the LLC;
2. The date that termination of LLC existence was authorized;
3. That the resolution authorizing termination was duly adopted by the members;
4. A copy of the resolution or the written consent authorizing the termination; and
5. That all the assets of the LLC have been distributed to its creditors and members.
1. The secretary of state shall file the articles of termination following administrative dissolution if the secretary of state finds that the articles:
  1. Comply with subsection (a); and
  2. Are accompanied by a tax clearance for termination or withdrawal relative to such LLC.
2. Upon such filing, the existence of the LLC shall cease, except that the termination of LLC existence shall not take away or impair any remedy to or against the LLC or its members, governors, or managers for any right or claim existing or any liability incurred prior to such termination. Any such action or proceeding by or against the LLC may be prosecuted or defended by the LLC in its LLC name. The members, governors, or managers shall have the power to take such LLC or other action as may be appropriate to protect such remedy, right, or claim.

Acts 1994, ch. 868, § 1; 2010, ch. 741, § 29.

48-245-306. Reinstatement within certain amount of time — Amendment of articles of organization— Application for reinstatement.

A LLC that has been administratively dissolved by the expiration of its period of duration may reinstate within one (1) year of the expiration of the period of duration by:

Amending its articles of organization to extend its period of duration or set the period of duration to perpetual; and
Filing an application for reinstatement following administrative dissolution pursuant to § 48-245-303.

Acts 2016, ch. 688, § 7.

Part 4
Notice of Dissolution

48-245-401. Filing notice of dissolution and effect.

Contents. If dissolution of the LLC is approved pursuant to § 48-245-202(a), or it occurs under § 48-245-101(a)(5), the LLC shall file with the secretary of state a notice of dissolution, unless the existence and business of the LLC is continued pursuant to § 48-245-101(b). The notice must contain:
1. The name of the LLC; and
2. 1. If the dissolution is approved pursuant to § 48-245-202(b), the date of the meeting at which the resolution was approved, and a statement that the requisite vote of the members was received, or that members validly took action without a meeting; or
  2. If the dissolution occurs under § 48-245-101(a)(5), by the termination of a membership interest of a member, a statement that the continued membership of a member has terminated, and the date of that termination.
Winding Up. When the notice of dissolution has been filed with the secretary of state, the LLC shall cease to carry on its business, except to the extent necessary (or appropriate) for the winding up of the business of the LLC. The members shall retain the right to revoke the dissolution in accordance with § 48-245-601 and the right to remove or appoint governors or managers. The LLC's existence continues to the extent necessary to wind up the affairs of the LLC until the dissolution is revoked or articles of termination are filed with the secretary of state.
Certain Mergers Permitted During Winding Up. As part of winding up, the LLC may participate in a merger with another LLC or one (1) or more foreign or domestic business entities under chapter 244 of this title, but the dissolved LLC shall not be the surviving business entity.
Remedies Continued. The filing with the secretary of state of a notice of dissolution does not affect any remedy in favor of the LLC or any remedy against it or its members, governors, or managers in those capacities, except as provided in § 48-245-502.

Acts 1994, ch. 868, § 1; 2016, ch. 688, § 8.

Part 5
Procedure in Winding Up

48-245-501. Procedure in winding up.

Procedures to Be Followed Where Winding Up Accomplished by Merger. If the business of the LLC is wound up and terminated by merging the dissolved LLC into a surviving business entity:
1. The procedures stated in §§ 48-244-101 — 48-244-104 must be followed; and
2. Sections 48-245-502, 48-245-503 and 48-245-1101 do not apply.
Procedures to Be Followed Otherwise. If the business of the LLC is to be wound up and terminated other than by merging the dissolved LLC into a surviving business entity, the procedures stated in subsections (c)-(e) must be followed.
Collection and Payment. When a notice of dissolution has been filed with the secretary of state, the board of governors of a board-managed LLC, the members of a member-managed LLC, or the managers acting under the direction of the members or board of governors (as applicable), shall proceed as soon as possible to:
1. Collect or make provision for the collection of all known debts due or owing to the LLC, including unperformed contribution agreements; and
2. Except as provided in § 48-245-502, pay or make provision for the payment of all known debts, obligations, and liabilities of the LLC according to their priorities under § 48-245-1101.
Transfer of Assets. Notwithstanding § 48-244-201, when a notice of dissolution has been filed with the secretary of state, the governors of a board-managed LLC may sell, lease, transfer, or otherwise dispose of all or substantially all of the property and assets of a dissolved LLC without a vote of the members.
Distribution to Members. All tangible or intangible property, including money, remaining after the discharge of the debts, obligations, and liabilities of the LLC must be distributed to the members in accordance with § 48-236-103 and § 48-245-1101.

Acts 1994, ch. 868, § 1.

48-245-502. Known and unknown claims against LLC.

General. When a notice of dissolution has been filed with the secretary of state, and the business of the LLC is not to be wound up and terminated by merging the dissolved LLC into a successor organization under § 48-245-501(a), then the LLC may give notice of the filing to each creditor of and claimant against the LLC, known or unknown, present or future, and contingent or noncontingent, in accordance with subsections (b) and (c).
Known Claims Against Dissolved LLC — Notice of Dissolution.
1. An LLC may dispose of the known claims against it by following the procedure described in this subsection (b).
2. The dissolved LLC shall notify its known claimants in writing of the dissolution at any time after the effective date of the dissolution. The written notice must:
  1. Describe information that must be included in a claim;
  2. State whether the claim is admitted, or not admitted, and if admitted:
    1. The amount that is admitted, which may be as of a given date; and
    2. Any interest obligation if fixed by an instrument of indebtedness;
  3. Provide a mailing address where a claim may be sent;
  4. State the deadline, which may not be fewer than four (4) months from the effective date of the written notice, by which the dissolved LLC must receive the claim; and
  5. State that, except to the extent that any claim is admitted, the claim will be barred if written notice of the claim is not received by the deadline.
3. A claim against the dissolved LLC is barred to the extent that it is not admitted:
  1. If the dissolved LLC delivered written notice to the claimant in accordance with subdivision (b)(2) and the claimant does not deliver a written notice of the claim to the dissolved LLC by the deadline; or
  2. If the dissolved LLC delivered written notice to the claimant that the claimant's claim is rejected, in whole or in part, and the claimant does not commence a proceeding to enforce the claim within three (3) months from the effective date of the rejection notice.
4. For purposes of this section, “claim” does not include a contingent liability or a claim based on an event occurring after the effective date of dissolution.
5. For purposes of this section, written notice is effective at the earliest of the following:
  1. When received;
  2. Five (5) days after its deposit in the United States mail, if mailed correctly addressed and with first class postage affixed thereon;
  3. On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or
  4. Twenty (20) days after deposit in the United States mail, as evidenced by the postmark if mailed correctly addressed, and with other than first class, registered or certified postage affixed.
Unknown Claims Against Dissolved LLC — Notice — Limitations.
1. A dissolved LLC may also publish notice of its dissolution and request that persons with claims against the LLC present them in accordance with the notice.
2. The notice must:
  1. Be published one (1) time in a newspaper of general circulation in the county where the dissolved LLC's principal executive office is or was last located;
  2. Describe the information that must be included in a claim and provide a mailing address where the claim may be sent; and
  3. State that a claim against the LLC will be barred unless a proceeding to enforce the claim is commenced within two (2) years after the publication of the notice.
3. If the dissolved LLC publishes a newspaper notice in accordance with subsection (b), the claim of each of the following claimants is barred unless the claimant commences a proceeding to enforce the claim against the dissolved LLC within two (2) years after the publication date of the newspaper notice:
  1. A claimant who did not receive written notice under subsection (b);
  2. A claimant whose claim was timely sent to the dissolved LLC but not acted on; or
  3. A claimant whose claim is contingent or based on an event occurring after the effective date of dissolution.
4. A claim may be enforced under this subsection (c):
  1. Against the dissolved LLC, to the extent of its undistributed assets; or
  2. If the assets have been distributed in liquidation, against a member of the dissolved LLC to the extent of the member's pro rata share of the claim or the LLC assets distributed to the member in liquidation, whichever is less, but a member's total liability for all claims under this subsection (c) may not exceed the total amount of assets distributed to the member.
If Notice is Not Given. If the dissolved LLC does not comply with subsections (b) and (c), then claimants against the LLC may enforce their claims:
1. Against the dissolved LLC to the extent of its undistributed assets; or
2. If the assets have been distributed in liquidation, against a member of the dissolved LLC to the extent of the member's pro rata share of the claim or the LLC assets distributed to the member in liquidation, whichever is less, but a member's total liability for all claims under this section may not exceed the total amount of assets distributed to the member; provided, that a claim may not be enforced against a member of a dissolved LLC who received a distribution in liquidation after three (3) years from the date of the filing of articles of termination.

Acts 1994, ch. 868, § 1.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-245-503. Articles of termination.

The articles of termination shall be filed with the secretary of state upon the dissolution and the completion of winding up of the LLC.
Articles of termination shall set forth:
1. The name of the LLC;
2. The date of filing of its articles of organization;
3. The reason for the filing of the articles of termination;
4. Whether known and potential creditors and claimants have been notified of the dissolution under § 48-245-502; and
5. Any other information which the person filing the articles of termination determines necessary or desirable to include.
The secretary of state shall file the articles of termination if the secretary of state finds that the articles of termination:
1. Comply with subsection (b); and
2. Are accompanied by a tax clearance for termination or withdrawal relative to such LLC.

Acts 1994, ch. 868, § 1; 2010, ch. 741, § 30.

Part 6
Revocation of Dissolution

48-245-601. Revocation of dissolution.

Generally. In the case of dissolution by the members as provided in § 48-245-101(a)(2), an LLC may revoke its dissolution at any time prior to the filing of the articles of termination with the secretary of state, except as provided in subsection (d).
Approval. Revocation of dissolution shall be authorized by the same vote of the members required to approve the dissolution, unless the authorization for dissolution permitted revocation by action by the board of governors alone, in which event the board of governors may revoke the dissolution without member action.
Articles of Revocation of Dissolution. After the revocation of dissolution is authorized, the LLC may revoke the dissolution by delivering to the office of the secretary of state for filing articles of revocation of dissolution that set forth:
1. The name of the LLC;
2. The effective date of the dissolution that was revoked;
3. The date that the revocation of dissolution was authorized;
4. If the LLC's governors of a board-managed LLC revoked a dissolution authorized by the members, a statement that revocation was permitted by action by the board of governors alone pursuant to that authorization; and
5. If member action was required to revoke the dissolution, a statement that the resolution was duly adopted by the members and a copy of the resolution or the written consent authorizing the revocation of dissolution.
Restrictions on Revocation. If a dissolved LLC is being wound up and terminated by being merged into a successor organization under § 48-245-501(a), and the plan of merger has been approved under § 48-244-102(a), then the dissolution may be revoked under this section only after the plan of merger has been properly abandoned under § 48-244-101(b).

Acts 1994, ch. 868, § 1.

Part 7
Effective Date of Termination and Certificate

48-245-701. Effective date of articles of termination.

When the articles of termination have been filed with the secretary of state, the existence of the LLC is terminated.

Acts 1994, ch. 868, § 1.

Part 8
Supervised Winding Up and Termination

48-245-801. Supervised winding up and termination following a nonjudicial dissolution.

After an event of dissolution has occurred and before a certificate of termination has been issued, the LLC or, for good cause shown, a member or creditor may apply to a court within the county in which the registered office of the LLC is situated to have the dissolution conducted or continued under the supervision of the court as provided in part 9 of this chapter.

Acts 1994, ch. 868, § 1.

Part 9
Judicial Intervention

48-245-901. Judicial intervention and dissolution.

A court may grant any equitable relief it considers just and reasonable in the circumstances or may dissolve an LLC and/or direct that the dissolved entity be merged into another or new LLC or other entity on the terms and conditions the court deems equitable.

Acts 1994, ch. 868, § 1.

48-245-902. Judicial dissolution.

On application by the attorney general and reporter or by or for a member, the court may decree dissolution, winding up and termination of an LLC whenever it is not reasonably practicable to carry on the business in conformity with the articles and/or the operating agreement.
The dissolution is effective upon the decree of dissolution becoming final and nonappealable. Such decree shall be filed with the office of the secretary of state and shall serve as a notice of dissolution.
The termination is effective upon a decree of termination becoming final and nonappealable. Such decree shall be filed with the office of the secretary of state and shall serve and have the same effect as articles of termination.

Acts 1994, ch. 868, § 1; 2010, ch. 742, § 3.

48-245-903. Procedure for judicial dissolution.

Venue. Venue for a proceeding by the attorney general and reporter to dissolve an LLC lies in Davidson County. Venue for a proceeding brought by any other party lies in the county where the LLC's principal executive office is or was last located.
Parties. It is not necessary to make members parties to a proceeding to dissolve an LLC unless relief is sought against them individually.
Injunctions. A court in a proceeding brought to dissolve an LLC may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, take other action required to preserve the LLC's assets wherever located, and carry on the business of the LLC until a full hearing can be held.
Bond and Expenses. In a proceeding for dissolution by a member, the petitioner shall execute and file in the proceeding a bond, with sufficient surety, to cover the defendant's probable costs, including reasonable attorney fees, in defending the petition. The court shall determine the amount of the bond and may award to any party its reasonable costs, including attorney fees, if it finds for such party in the proceeding.

Acts 1994, ch. 868, § 1.

48-245-904. Receivership or custodianship.

A court having equity jurisdiction in a judicial proceeding brought to dissolve an LLC may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage the business and affairs of the LLC. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the LLC and all of its property wherever located.
The court may appoint an individual or a domestic or foreign business entity (authorized to transact business in this state) as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
1. The receiver may:
  1. Dispose of all or any part of the assets of the LLC wherever located, at a public or private sale, if authorized by the court; and
  2. Sue and defend in the receiver's own name as receiver of the LLC in all courts of this state;
2. The custodian may exercise all of the powers of the LLC, through or in place of its board of governors or managers, to the extent necessary to manage the affairs of the LLC in the best interests of its shareholders and creditors.
The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the LLC and its members and creditors.
The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver's or custodian's counsel from the assets of the LLC or proceeds from the sale of the assets.

Acts 1994, ch. 868, § 1.

Compiler's Notes. “Governors or managers” has been substituted for “directors or officers” in (c)(2), the language as originally enacted in Acts 1994, ch. 868.

Part 10
[Reserved]

Part 11
Disposition upon Liquidation

48-245-1101. Disposition upon liquidation.

1. Distribution of assets in winding up. Upon the winding up of an LLC, the assets shall be distributed as follows:
  1. To creditors, including members who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the LLC (whether by payment or the making of reasonable provisions for payment thereof) other than:
    1. Liabilities for which reasonable provision for payment has been made; and
    2. Liabilities for distributions to members under § 48-236-102;
  2. Unless otherwise provided in the articles or operating agreement, to members and former members in satisfaction of liabilities for distributions under § 48-236-102; and
  3. Unless otherwise provided in the articles or operating agreement, to members, first, for the return of their contributions including any restated value thereof under § 48-235-102(b), and, second, respecting their membership interests, in the proportions in which the members share in distributions.
2. Any distributions in any form other than cash shall be in accordance with § 48-236-103.
Insufficient assets to pay creditors. An LLC which has dissolved shall pay or make reasonable operating provision to pay all claims and obligations, including all contingent, conditional or unmatured claims and obligations, known to the LLC and all claims and obligations which are known to the LLC but for which the identity of the claimant is unknown. If there are sufficient assets, such claims and obligations shall be paid in full and any such provision for payment made shall be made in full. If there are insufficient assets, such claims and obligations shall be paid or provided for according to their priority and, among claims and obligations of equal priority, ratably to the extent of assets available therefor. Unless otherwise provided in articles or operating agreement, any remaining assets shall be distributed as provided in chapters 201-248 of this title. Any liquidating trustee winding up an LLC's affairs who has complied with this section shall not be personally liable to the claimants of the dissolved LLC by reason of such person's actions in winding up the LLC.
Obligations incurred during proceedings. All known contractual debts, obligations, and liabilities incurred in the course of winding up and terminating the LLC's affairs must be paid or provided for by the LLC before the distribution of assets to a member. A person to whom this kind of debt, obligation, or liability is owed but not paid may pursue any remedy before the expiration of the applicable statute of limitations against the managers and governors of the LLC who are responsible for, but who fail to cause, the LLC to pay or make provision for payment of the debts, obligations, and liabilities or against members to the extent permitted under § 48-237-101. This subsection (c) does not apply to dissolution and/or termination under the supervision or order of a court.

Acts 1994, ch. 868, § 1.

48-245-1102. Omitted assets.

Title to assets remaining after payment of all debts, obligations, or liabilities and after distributions to members may be transferred by a court in this state.

Acts 1994, ch. 868, § 1.

Part 12
Right to Sue

48-245-1201. Right to sue or defend after termination.

After an LLC has been terminated, any of its former managers, governors, or members may assert or defend, in the name of the LLC, any claim by or against the LLC.

Acts 1994, ch. 868, § 1.

Chapter 246
Foreign Limited Liability Companies

Part 1
General

48-246-101. Governing law.

Subject to the Constitution of Tennessee:

The laws of the jurisdiction under which a foreign LLC is formed or organized govern its formation or organization and internal affairs and the liability of its members and representatives, regardless of whether the foreign LLC procured or should have procured a certificate of authority under this chapter; and
Except as provided in § 48-248-501, a foreign LLC may not be denied a certificate of authority to transact business in this state by reason of any difference between the laws of the jurisdiction of its organization and the laws of this state.

Acts 1994, ch. 868, § 1.

48-246-102. Activities not constituting transacting business.

The following activities of a foreign LLC, among others, do not constitute transacting business within the meaning of this chapter or § 48-247-110:
1. Maintaining, defending, or settling any proceeding, claim, or dispute;
2. Holding meetings of its members or representatives or carrying on any other activities concerning its internal affairs;
3. Maintaining bank accounts;
4. Maintaining offices or agencies for the transfer, exchange, and registration of the foreign LLC's own securities or appointing and maintaining trustees or depositories with respect to those securities;
5. Selling through independent contractors;
6. Soliciting or obtaining orders, whether by mail or through representatives or otherwise, if the orders require acceptance outside this state before they become contracts;
7. Creating or acquiring indebtedness, deeds of trust, mortgages, and security interests in real or personal property;
8. Securing or collecting debts or enforcing mortgages, deeds of trust, and security interests in property securing the debts;
9. Owning, without more, real or personal property; provided, that for a reasonable time the management and rental of real property acquired in connection with enforcing a mortgage or deed of trust shall also not be considered transacting business if the owner is attempting to liquidate the investment and if no office or other agency therefor, other than an independent agency, is maintained in this state;
10. Conducting an isolated transaction that is completed within one (1) month and that is not one in the course of repeated transactions of a like nature; or
11. Transacting business in interstate commerce.
An organization formed or organized under the laws of any foreign jurisdiction or the laws of any jurisdiction other than the state of Tennessee shall not be deemed to be doing business in Tennessee for purposes of obtaining a certificate of authority to do business solely by reason of its being or acting in its capacity as a member of a foreign or domestic LLC.
The list of activities in subsection (a) is not exhaustive, and is applicable solely to determine whether a foreign LLC must procure a certificate of authority and for no other purpose. This section does not apply in determining the contacts or activities that may subject a foreign LLC or its members to service of process or taxation in this state or to regulation under any other law of this state.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 82.

NOTES TO DECISIONS

1. Motion to Dismiss Properly Denied.

Company's motion to dismiss an LLC's counterclaim based on the LLC's lack of a certificate of authority to do business in Tennessee was properly denied because the LLC merely asserted the counterclaim as a defense to the action filed against the LLC in a Tennessee court. Battery Alliance, Inc. v. Allegiant Power, LLC, — S.W.3d —, 2017 Tenn. App. LEXIS 53 (Tenn. Ct. App. Jan. 30, 2017).

Part 2
Name

48-246-201. Name.

A foreign LLC name must meet the requirements of § 48-207-101.
A foreign LLC may apply to the office of the secretary of state under § 48-207-101 to utilize a nondistinguishable name.
A foreign LLC may elect to adopt an assumed name under § 48-207-101 and to renew such assumed name.
A foreign LLC may, pursuant to § 48-207-101, cancel an assumed name.
A foreign LLC may, pursuant to § 48-207-102, reserve a name, renew a reserved name and transfer or cancel a reserved name.
A foreign LLC may obtain and retain a registered name by complying with § 48-207-103.

Acts 1994, ch. 868, § 1.

Part 3
Certificate of Authority

48-246-301. Application for certificate of authority.

Before doing business in this state, a foreign LLC shall obtain a certificate of authority. An applicant for the certificate shall file with the office of the secretary of state an original copy of the application executed by the foreign LLC and setting forth:
1. The name of the foreign LLC;
2. The jurisdiction and date of its organization;
3. The street address, including zip code, of its registered office in this state and the name of its registered agent at that office;
4. The street address, including zip code, of the office required to be maintained in the jurisdiction of its organization by the laws of that jurisdiction or, if not so required, of the principal executive office of the foreign LLC or its equivalent; and
5. The number of members of the LLC at the date of filing the application for the certificate of authority.
The foreign LLC shall deliver with the completed application a certificate of existence (or document of similar import) duly authenticated by the secretary of state or other official having custody of LLC records in the jurisdiction of its organization. The certificate shall not bear a date of more than two (2) months prior to the date the application is filed in this state.

Acts 1994, ch. 868, § 1.

48-246-302. Certificate of authority.

If a document delivered to the office of the secretary of state conforms to the requirement of § 48-246-301(a) and all fees have been paid, the secretary of state shall:
1. Endorse on the application the word “Filed” and the date and time of the filing of it;
2. File the original of the application; and
3. Return the original of the application, together with the filing fee receipt, to the person who filed it and such document shall constitute a certificate of authority issued by the secretary of state.
The certificate of authority is effective from the date the application is filed with the secretary of state, as evidenced by the secretary of state's date and time endorsement on the original document, accompanied by the payment of the requisite fee.
If the secretary of state determines upon application that a foreign LLC has been transacting business in this state without a certificate of authority for a period of one (1) year or more, then the secretary of state shall not file the application until the foreign corporation submits a confirmation of good standing relative to such foreign LLC.

Acts 1994, ch. 868, § 1; 2010, ch. 741, § 31.

48-246-303. Amendments to the certificate of authority.

If any statement in the application for a certificate of authority by a foreign LLC was false when made or any matter described in the application has changed, making the application inaccurate in any respect, the foreign LLC shall promptly file with the secretary of state an application for amendment to the certificate of authority, executed by an authorized person correcting the statement; provided, that changes in the registered office or registered agent shall be made in accordance with § 48-246-301. The application for amendment to the certificate of authority shall be processed in the same manner as provided in § 48-246-302 for a certificate of authority.

Acts 1994, ch. 868, § 1.

Part 4
Cancellation of Certificate of Authority

48-246-401. Cancellation of certificate of authority.

A foreign LLC may cancel its certificate of authority by filing with the secretary of state a certificate of cancellation of authority executed by the foreign LLC, setting forth:
1. The name of the foreign LLC, and, if different, the name under which it does business in Tennessee;
2. The name of the jurisdiction under whose law it was organized;
3. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
4. That it either continues its registered agent in this state or revokes the authority of the registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
5. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (a)(4); and
6. A commitment to notify the secretary of state in the future of any change in mailing address.
The secretary of state shall file the certificate of cancellation of authority if the secretary of state finds that the certificate of cancellation of authority:
1. Complies with subsection (a); and
2. Is accompanied by a tax clearance for termination or withdrawal relative to such foreign LLC.
When the cancellation of certificate of authority has been filed in accordance with subsection (b), the certificate of authority of the foreign LLC is cancelled. After cancellation of the certificate of authority of the foreign LLC, service of process on the secretary of state or the continued registered agent under this section is service on the foreign LLC. Upon receipt of process, the secretary of state shall mail a copy of the process to the foreign LLC at the mailing address set forth under subdivision (a)(5).

Acts 1994, ch. 868, § 1; 2009, ch. 349, §§ 3, 4; 2010, ch. 741, § 32.

Part 5
Revocation of Certificate of Authority

48-246-501. Revocation of certificate of authority.

The secretary of state may commence a proceeding under § 48-246-502 to revoke the certificate of authority of a foreign LLC authorized to transact business in this state if:

The foreign LLC does not deliver its annual report to the secretary of state within two (2) months after it is due;
The foreign LLC is without a registered agent or registered office in this state for two (2) months or more;
The foreign LLC does not inform the secretary of state under § 48-208-102 or § 48-208-103 that its registered agent or registered office has changed, that its registered agent has resigned, or that its registered office has been discontinued within two (2) months of the change, resignation, or discontinuance;
The name of the foreign LLC contained in a document filed pursuant to this title fails to comply with § 48-246-201;
A member or representative of the foreign LLC signed a document such person knew was false in any material respect with the intent that the document be delivered to the secretary of state for filing;
The secretary of state receives a duly authenticated certificate from the secretary of state or other official having custody of the foreign LLC's records in the jurisdiction under whose law the foreign LLC is organized, stating that it has been terminated or has disappeared as the result of a merger;
The foreign LLC is exceeding the authority conferred upon it by this chapter; or
The foreign LLC submits to the office of the secretary of state a check, bank draft, money order or other such instrument for payment of any fee and it is dishonored upon presentation for payment.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 83.

48-246-502. Procedure for and effect of revocation.

If the secretary of state determines that one (1) or more grounds exist under § 48-246-501 for revocation of a certificate of authority, the secretary of state shall serve the foreign LLC with written communication of the secretary of state's determination, except that such determination may be sent by first class mail. Notice need not be sent if the grounds for revocation are pursuant to § 48-246-501(5) and a certificate of revocation may be sent without the two (2) month waiting period required by subsection (b).
If the foreign LLC does not correct each ground for revocation or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist within two (2) months after service of the communication, the secretary of state may revoke the foreign LLC's certificate of authority by signing a certificate of revocation that recites the ground or grounds for revocation and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the foreign LLC, except that the certificate may be sent by first class mail.
The authority of a foreign LLC to transact business in this state ceases on the date shown on the certificate revoking its certificate of authority.
The secretary of state's revocation of a foreign LLC's certificate of authority appoints the secretary of state the foreign LLC's agent for service of process in any proceeding based on a cause of action which arose during the time the foreign LLC was authorized to transact business in this state. Service of process on the secretary of state under this subsection (d) is service on the foreign LLC. Upon receipt of process, the secretary of state shall comply with § 48-208-105.
Revocation of a foreign LLC's certificate of authority does not terminate the authority of the registered agent of the LLC.

Acts 1994, ch. 868, § 1.

48-246-503. Reinstatement following administrative revocation.

A foreign LLC whose certificate of authority is administratively revoked under § 48-246-502 may apply to the secretary of state for reinstatement. The application must:
1. Be accompanied by a confirmation of good standing relative to such foreign LLC;
2. Recite the name of the foreign LLC at its date of revocation;
3. State that the ground or grounds for revocation either did not exist or have been eliminated; and
4. State a foreign LLC name that satisfies the requirements of § 48-246-201.
1. If the secretary of state determines that the application is accompanied by the confirmation of good standing and contains the information required by subsection (a), and that such information is correct, then the secretary of state shall reinstate the certificate of authority, prepare a certificate that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the foreign LLC; and
2. If the foreign LLC name in subdivision (a)(4) is different than the foreign LLC name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to its certificate of authority insofar as it pertains to the foreign LLC name.
When the reinstatement is effective, it relates back and takes effect as of the effective date of the administrative revocation and the foreign LLC resumes carrying on its business as if the administrative revocation had never occurred.

Acts 1994, ch. 868, § 1; 2010, ch. 741, §§ 33, 34; 2011, ch. 99, §§ 8-10.

48-246-504. Appeal from denial of foreign LLC's reinstatement.

If the secretary of state denies a foreign LLC's application for reinstatement following administrative revocation, the secretary of state shall serve the foreign LLC with a writing that explains the reason or reasons for denial.
The foreign LLC may appeal the denial of reinstatement to the chancery court of Davidson County within one (1) month after service of the writing by petitioning the court to set aside the revocation and attaching to the petition copies of the secretary of state's writing.
The court's final decision may be appealed as in other civil proceedings.

Acts 1994, ch. 868, § 1.

48-246-505. Cancellation of certificate of authority following administrative revocation.

When a foreign LLC, which has had its certificate of authority revoked, wishes to withdraw from the state, it may do so without first being reinstated by delivering to the secretary of state for filing a certificate of cancellation of authority following administrative revocation of the certificate of authority. The application shall set forth:
1. The name of the foreign LLC and the date of revocation, its current name, if different, and the name of the jurisdiction under whose law it is organized;
2. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
3. That it either continues its registered agent in this state or revokes the authority of its registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
4. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (a)(3); and
5. A commitment to notify the secretary of state in the future of any change in its mailing address.
The secretary of state shall file the certificate of cancellation of authority of the foreign LLC if the secretary of state finds that the application:
1. Complies with subsection (a); and
2. Is accompanied by a tax clearance for termination or withdrawal relative to such foreign LLC.
After cancellation of the certificate of authority of the foreign LLC, service of process on the secretary of state or the continued registered agent under this section is service on the foreign LLC. Upon receipt of process, the secretary of state shall mail a copy of the process to the foreign LLC at the mailing address set forth under subdivision (a)(4).

Acts 1994, ch. 868, § 1; 2010, ch. 741, § 35.

Part 6
Consequences of Transacting Business Without Certificate of Authority

48-246-601. Transaction of business without certificate of authority.

A foreign LLC transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
The successor to a foreign LLC that transacted business in this state without a certificate of authority and the assignee of a cause of action arising out of that business may not maintain a proceeding on behalf of its predecessor based on an assigned cause of action in any court in this state until the foreign LLC or its successor obtains a certificate of authority.
A court may stay a proceeding commenced by a foreign LLC, its successor or assignee, until it determines whether the foreign LLC or its successor requires a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign LLC or its successor obtains the certificate.
A foreign LLC doing business in this state without first having obtained a certificate of authority shall be fined and shall pay to the secretary of state three (3) times the otherwise required filing fee for each year or part thereof during which the foreign LLC failed to have such certificate of authority.
An application for a certificate of authority by a foreign LLC which has transacted business in this state without a certificate of authority shall not be filed by the secretary of state until all amounts due under subsection (d) have been paid.
Notwithstanding subsections (a) and (b), the failure of a foreign LLC to obtain a certificate of authority does not impair:
1. The validity of any contract or act of the foreign LLC;
2. The right of any other party to the contract to maintain any action, suit, or proceeding on the contract; or
3. The foreign LLC from defending any action, suit, or proceeding in any court of the state of Tennessee.
A member or representative of a foreign LLC is not liable for the debts and obligations of the foreign LLC solely by reason of the company's having transacted business in this state without a valid certificate of authority.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 84.

NOTES TO DECISIONS

1. Motion to Dismiss Properly Denied.

48-246-602. Enjoined from doing business.

The attorney general and reporter shall, upon the attorney general and reporter's own motion or upon the relation of proper parties, proceed by complaint in the chancery court of Davidson County or in the chancery court of any county in which such foreign LLC is doing or has done business to enjoin any foreign LLC, or any representative thereof, from doing any business in the state of Tennessee if such foreign LLC has failed to obtain or maintain a certificate of authority or if such foreign LLC has secured a certificate of authority from the secretary of state under § 48-246-301 on the basis of false or misleading representations. The reasonable attorney fees and expenses of such an action by the attorney general and reporter may be recovered from the foreign LLC at the discretion of the court if an injunction is obtained.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 85.

Chapter 247
Filing Documents and Secretary of State

Part 1
Filing Documents

48-247-101. Filing requirements.

The form and filing of a document must satisfy the requirements of this section, and of all other applicable sections or rules that add to these requirements, to be entitled to filing by the secretary of state.
Chapters 201-248 of this title must require or permit filing the document in the office of the secretary of state.
The document must contain the information required by chapters 201-248 of this title or required by rule. It may contain other information as well.
The document must be capable of being printed in ink in a clear and legible fashion on one (1) side of letter size paper.
The document must be in the English language. An LLC's or other business entity's name need not be in English if written in English letters, or Arabic or Roman numerals, and the certificate of existence or equivalent required of foreign business entities need not be in English, if accompanied by a reasonably authenticated English translation.
The document must be executed:
1. By the chair of the board of directors of a domestic or foreign corporation, by its president, or by another of its authorized officers if a corporate action is taken, by the chief manager, a governor, or another authorized manager if an LLC action is taken, by a general partner if a partnership action is taken or by the equivalent person of another business entity;
2. If directors of a corporation or governors of a board-governed LLC have not been selected or the corporation or LLC has not been formed, by an incorporator or organizer; or
3. If the business entity is in the hands of a receiver, trustee, or other court-appointed fiduciary, by that fiduciary.
The person executing the document must sign it and state beneath or opposite the signature the person's name and the capacity in which the person signs. The document may, but need not, contain:
1. An attestation by the secretary or an assistant secretary;
2. An acknowledgment, verification, or proof; or
3. The date the document is signed, except that the date is required for the annual report for the secretary of state.
If the secretary of state, pursuant to statutory authority or rule, has prescribed a mandatory form for the document, then the document must be in or on the prescribed form.
The document must be delivered to the office of the secretary of state for filing in the form and manner prescribed by the secretary of state and must be accompanied by the current filing fee, and any tax, license fee, interest, or penalty required by chapters 201-248 of this title.
The document must contain a statement that makes it clear that the document is being filed pursuant to the Tennessee Limited Liability Company Act, compiled in chapter 249, of this title.
The secretary of state may promulgate appropriate rules establishing acceptable methods for execution of any document to be filed with the secretary of state.
Notwithstanding any other law to the contrary, whenever this title requires that an application or other document submitted to the secretary of state for filing be accompanied by a confirmation of good standing, tax clearance for termination, or withdrawal, or other similar communication of taxpayer status by the commissioner of revenue, then that requirement is met, and a paper certificate need not accompany the application or other document, if the commissioner provides to the secretary of state electronic verification of the required information. Upon request of the person seeking certificate information, the commissioner shall provide to the secretary of state electronic verification in lieu of a paper certificate.
Any Tennessee LLC that has not timely filed with the department of revenue such information as required by the commissioner of revenue under prior law, chapter 421, § 1 of the Public Acts of 1997, is subject to administrative dissolution in accordance with the procedures specified in § 48-245-302. The certificate of authority of any foreign LLC that has not timely filed such information with the department is subject to revocation as provided in § 48-246-502. Upon certification by the commissioner that it has complied with the information reporting requirements that were required under prior law, an LLC that has been administratively dissolved or that has had its certificate of authority revoked for failure to timely file such information may be reinstated.

Acts 1994, ch. 868, § 1; 1997, ch. 421, § 1; 1999, ch. 80, § 3; 1999, ch. 159, §§ 1, 2; 2010, ch. 741, § 36; 2011, ch. 99, § 27; 2020, ch. 719, § 15.

Amendments. The 2020 amendment rewrote (a), which read: “A document must satisfy the requirements of this section, and of any other section that adds to or varies these requirements, to be entitled to filing by the secretary of state.”; added “or required by rule” at the end of the first sentence in (c); substituted “capable of being printed” for “typewritten or printed” near the beginning of (d); in (g), substituted “must sign” for “shall sign” in the first sentence and added two commas in the second sentence; substituted “the date is” for “such date shall be” in the middle of (g)(3); in (h), inserted “or rule,” and inserted “then”; inserted “in the form and manner prescribed by the secretary of state” in (i); substituted “that makes it clear that the document” for “which makes it clear that it” in (j); substituted “may promulgate appropriate rules” for “has the power to promulgate appropriate rules and regulations” in (k); substituted “that requirement is met” for “such requirement shall be met” in the first sentence of (l); and, in (m), substituted “is subject” for “shall be subject” twice, deleted “has been” preceding “required” in the first sentence, and substituted “an LLC” for “a LLC” in the last sentence.

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-247-102. Mandatory forms and filing methods.

Mandatory Forms. The secretary of state may prescribe and furnish forms and filing methods for all filings required by this title.
If the secretary of state so requires, then use of these forms and filing methods is mandatory.

Acts 1994, ch. 868, § 1; 2020, ch. 719, § 16.

Amendments. The 2020 amendment rewrote the section, which read: “(a)(1) Mandatory Forms. The secretary of state may prescribe and furnish on request forms for: “(A) Articles of organization; “(B) Certificate of conversion; “(C) A foreign LLC's application for a certificate of authority to transact business in this state;“(D) A foreign LLC's application for a cancellation of a certificate of authority; and“(E) The annual report.“(2) If the secretary of state so requires, use of these forms shall be mandatory. “(b) Optional Forms. The secretary of state may prescribe and, if prescribed by the secretary of state, shall furnish on request forms for other documents required or permitted to be filed by chapters 201-248 of this title but their use is not mandatory.”

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-247-103. Filing, service and copying fees.

The office of the secretary of state shall collect the following fees when the documents described in chapters 201-248 of this title are delivered for filing, and for purposes of chapters 201-248 of this title, no document is considered delivered to the office of the secretary of state for filing unless accompanied by such fee:
Document Fee
1. Articles including designation of initial registered office and agent As provided in subsection (d)
2. Certificate of formation $20.00
3. Articles of conversion As provided in subsection (d)
4. Application for reserved LLC name 20.00
5. Application for use of indistinguishable name 20.00
6. Notice of transfer or cancellation of reserved name 20.00
7. Application for and renewal of registered name 20.00
8. Application for or change, cancellation, or renewal of assumed name 20.00
9. LLC's statement of change of registered agent, registered office, or both 20.00
10. Agent's statement of change of registered office 5.00 per limited liability company, but not less than 20.00
11. Agent's statement of resignation 20.00
12. Articles of amendment 20.00
13. Amended and restated articles 20.00
14. Restatement of articles 20.00
15. Articles of correction 20.00
16. Certificate of merger 100.00
17. [Reserved.]
18. Articles of termination by organizers 20.00
19. Notice of dissolution 20.00
20. Articles of revocation of dissolution 20.00
21. Articles of termination 20.00
22. Certificate of administrative dissolution No fee
23. Application for reinstatement following administrative dissolution 70.00
24. Articles of termination following administrative dissolution 100.00
25. Certificate of reinstatement No fee
26. Decree of judicial dissolution No fee
27. Application for certificate of authority (including designation of initial registered office and agent) As provided in subsection (d)
28. Application for amended certificate of authority 20.00
29. Certificate of cancellation of authority 20.00
30. Certificate of administrative revocation of certificate of authority No fee
31. Certificate of cancellation following administrative revocation 100.00
32. Application for certificate of existence or authorization 20.00
33. Application for reinstatement following administrative revocation 70.00
34. Annual report As provided in subsection (d)
35. Any other document required or permitted to be filed by chapters 201-248 of this title 20.00
The secretary of state shall collect a fee of twenty dollars ($20.00) each time process is served on the secretary of state under chapters 201-248 of this title. The party to a proceeding causing service of process is entitled to recover this fee as costs if it prevails in the proceeding.
The secretary of state shall collect a fee of twenty dollars ($20.00) for copying all filed documents relating to a domestic or foreign LLC. All such copies will be certified or validated by the secretary of state.
The secretary of state shall collect from each LLC or foreign LLC, if applicable, an annual fee equal to fifty dollars ($50.00) per each LLC member in existence on the date of the initial filing, and each year thereafter based on the number of LLC members in existence on the date of the filing for the annual report, with a minimum fee of three hundred dollars ($300) and a maximum fee of three thousand dollars ($3,000). Notwithstanding this subsection (d), if the LLC is prohibited by its articles from doing business in Tennessee, the filing fee shall be three hundred dollars ($300) regardless of the number of members in existence on the date of filing.
In addition to the other filing requirements of chapters 201-248 of this title, a copy of all documents specified in subdivisions (a)(1), (12), (13), (14), (15), (16), (18), (19) and (20) shall also be filed in the office of the register of deeds in the county wherein an LLC has its principal office, if such principal office is in Tennessee, and in the case of a merger, in the county in which the new or surviving LLC shall have its principal office, if such principal office is in Tennessee. The register of deeds may charge five dollars ($5.00) plus fifty cents (50¢) per page in excess of five (5) pages for such filing.

Acts 1994, ch. 868, § 1; 1995, ch. 403, §§ 2, 86; 1997, ch. 421, § 2; 1998, ch. 890, § 3; 2000, ch. 568, § 3; 2010, ch. 742, § 5.

Law Reviews.

Key Tax Aspects of the Tennessee Limited Liability Company Act (Andrhe Sophia Blumstein), 30 Tenn. B.J. 14 (1994).

48-247-104. Correcting filed document.

A domestic or foreign LLC may correct a document filed with the office of the secretary of state if the document:
1. Contains an incorrect statement; or
2. Was defectively executed, attested, sealed, certified, or acknowledged.
A document is corrected:
1. By preparing articles of correction that:
  1. Describe the document (including its filing date) or attach a copy of it to the articles;
  2. Specify the incorrect statement and the reason it is incorrect or the manner in which the execution was defective; and
  3. Correct the incorrect statement or defective execution; and
2. By delivering the articles of correction to the office of the secretary of state for filing.
Articles of correction are effective on the effective time and date of the document they correct except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 88.

48-247-105. Filing duty of secretary of state.

If the form and filing of a document delivered to the office of the secretary of state for filing satisfies the requirements of § 48-247-101, and of all other applicable sections or rules that add to these requirements, then the secretary of state must file it.
The secretary of state files a document by stamping or otherwise endorsing “Filed”, together with the secretary of state's name and official title and the date and time of receipt, on the document. After filing a document, except for filings pursuant to §§ 48-208-103, and 48-228-203, the secretary of state shall deliver the document, with the filing fee receipt, or acknowledgment of receipt if no fee is required, attached, to the domestic or foreign LLC or its representative in due course. A domestic or foreign LLC or its representative may present to the office of the secretary of state an exact or conformed copy of the document presented for filing together with the document, and, in that event, the secretary of state shall stamp or otherwise endorse the exact or conformed copy “Filed”, together with the secretary of state's name and official title and the date and time of receipt, and immediately return the exact or conformed copy to the party filing the original of the document.
If the secretary of state refuses to file a document, then the secretary of state must return it to the domestic or foreign LLC or its representative immediately after the document was received for filing, together with a brief, written explanation of the reason for the refusal.
The secretary of state's duty to file documents under this section is ministerial. The secretary of state's filing or refusing to file a document does not:
1. Affect the validity or invalidity of the document in whole or in part;
2. Relate to the correctness or incorrectness of information contained in the document;
3. Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect; or
4. Establish that a document purporting to be an exact or conformed copy is in fact an exact or conformed copy.
Any LLC document that meets the requirements of chapters 201-248 of this title and all applicable rules for filing and recording must be received, filed, and recorded by the appropriate office, upon payment of the appropriate fee and taxes, if any, notwithstanding any contrary requirements found in any other laws of this state.

Acts 1994, ch. 868, § 1; 2020, ch. 719, § 17.

Amendments. The 2020 amendment rewrote (a), which read: “If a document delivered to the office of the secretary of state for filing satisfies the requirements of § 48-247-101, the secretary of state shall file it.”; in (b), substituted “the document” for “such document” three times, and made capitalization and punctuation changes; in (c), substituted “then the secretary of state must” for “the secretary of state shall” near the beginning and substituted “the refusal” for “such refusal” at the end; and, in (e), substituted “that meets” for “which meets”, inserted “and all applicable rules”, substituted “must be” for “shall be”, and deleted “provisions of the” preceding “laws” near the end.

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

Cross-References. Filing duty, §§ 48-11-306, 48-51-306.

48-247-106. Appeal from secretary of state's refusal to file document.

If the secretary of state refuses to file a document delivered to the office of the secretary of state for filing, the domestic or foreign LLC may appeal the refusal to the chancery court of Davidson County. The appeal is commenced by petitioning the court to compel filing the document and by attaching to the petition the document and the secretary of state's explanation of the refusal to file.
The court may summarily order the secretary of state to file the document or take other action the court considers appropriate.
The court's final decision may be appealed as in other civil proceedings.
Any judicial review of the secretary of state's refusal to file a document shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 1994, ch. 868, § 1.

48-247-107. Evidentiary effect of copy of filed document.

A certificate attached or certification affixed to a copy of a document filed by the secretary of state, bearing the secretary of state's signature (which may be in facsimile) and the seal of this state, is conclusive evidence that the original document is on file with the secretary of state.

Acts 1994, ch. 868, § 1.

48-247-108. Penalty for signing false document.

A person commits a Class B misdemeanor, punishable by a fine not to exceed five hundred dollars ($500), if the person signs a document, knowing it to be false in any material respect, with intent that the document be delivered to the office of the secretary of state or other required office for filing.
The offense created by this section is in addition to any other offense created by law for the same conduct.

Acts 1994, ch. 868, § 1.

Cross-References. Penalty for Class B misdemeanor, § 40-35-111.

48-247-109. Effective time and date of document.

Effective Date. Except as provided in subsection (b), §§ 48-203-102 and 48-247-104(c), a document accepted for filing is effective:
1. At the time of filing on the date it is filed by the secretary of state, as evidenced by the office of the secretary of state's date and time endorsement on the original document; and
2. At the time specified in the document as its effective time on the date it is filed.
Delayed Effective Date. A document may specify a delayed effective time and date, and if it does so the document becomes effective at the time and date specified. If a delayed effective date but no time is specified, the document is effective at the close of business on that date. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed with the office of the secretary of state.
Requirement of Registered Agent. The office of the secretary of state shall not file any articles or application for a certificate of authority unless that document designates the registered agent and registered office of such domestic or foreign LLC in accordance with § 48-208-101. The office of the secretary of state shall not file any other document presented by the LLC for filing under chapters 201-248 of this title if at the time of filing the domestic or foreign LLC does not have a registered agent and registered office designated at such time, unless at the time such document is received for filing the office of the secretary of state also receives for filing a statement designating such registered agent or registered office or both.

Acts 1994, ch. 868, § 1.

48-247-110. Penalty for transacting business in Tennessee in violation of articles.

In the event that the LLC is prohibited from transacting business in Tennessee by its articles but actually transacts business in Tennessee and but for § 48-247-103(d) it would have paid a larger filing fee, the LLC shall be fined an amount equal to three (3) times the annual filing fee, less the amount actually paid, for each year or part thereof in which it actually does business in Tennessee.

Acts 1995, ch. 403, § 87.

48-247-111. Certificate of existence.

Any person may apply to the secretary of state to furnish a certificate of existence for a domestic LLC or a certificate of authorization for a foreign LLC authorized to transact business in this state.
A certificate of existence or authorization sets forth:
1. The domestic LLC's name or the foreign LLC's name used in this state;
2. That:
  1. The domestic LLC is a limited liability company formed under the laws of this state, the effective date of its initial filing, and the period of its duration if less than perpetual; or
  2. The foreign LLC is authorized to transact business in this state;
3. That all fees, taxes and penalties owed to this state have been paid, if:
  1. Payment is reflected in the records of the secretary of state or the department of revenue; and
  2. Nonpayment allows:
    1. Administrative dissolution of a domestic LLC; or
    2. Administrative revocation of the certificate of authority of a foreign LLC;
4. That its most recent annual report required by § 48-228-203 has been filed with the secretary of state;
5. 1. For a domestic LLC:
    1. That articles of termination have not been filed and a decree of termination has not been filed; and
    2. Whether or not a notice of dissolution, certificate of dissolution or decree of dissolution has been filed and remains effective;
  2. For a foreign LLC:
    1. That a certificate of cancellation of certificate of authority has not been filed; and
    2. Whether or not a certificate of revocation of certificate of authority has been filed and remains effective;
6. That the certificate of existence or authorization is effective as of the date of the issuance of the certificate; and
7. Other facts of record in the office of the secretary of state that may be requested by the applicant.
Subject to any qualifications stated in the certificate, a certificate of existence or authorization issued by the secretary of state may be relied upon as conclusive evidence that the domestic or foreign LLC is in existence or is authorized to transact business in this state and is in good standing.

Acts 2010, ch. 742, § 4.

Part 2
Secretary of State

48-247-201. Powers.

The secretary of state has the power reasonably necessary to perform the duties required of the secretary of state by chapters 201-248 of this title, including, without limitation, the power to promulgate necessary and appropriate rules and regulations consistent with chapters 201-248 of this title, and the power to destroy any records in the secretary of state's office concerning a domestic or foreign LLC ten (10) years after such LLC has dissolved, withdrawn from the state, or has had its certificate of authority revoked.

Acts 1994, ch. 868, § 1.

48-247-202. Deputies of secretary of state.

An act of a duly authorized deputy of the secretary of state in the secretary of state's behalf under chapters 201-248 of this title is the equivalent of the act of the secretary of state; provided, that the deputy signs the name of the secretary of state by such deputy as deputy.

Acts 1994, ch. 868, § 1.

Chapter 248
Professional Limited Liability Companies

Part 1
General

48-248-101. Applicability.

Chapters 201-248 of this title apply to professional limited liability companies, both domestic and foreign, to the extent not inconsistent with this chapter.

Acts 1994, ch. 868, § 1.

48-248-102. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

“Disqualified person” means an individual or entity that for any reason is or becomes ineligible under this chapter to be a member of a PLLC;
“Domestic professional LLC” means a professional LLC formed under chapters 201-248 of this title;
“Foreign professional LLC” means a foreign LLC formed for the purpose of rendering professional services under a law other than the law of this state;
“Law” includes rules promulgated in accordance with § 48-248-603;
“Licensing authority” means the officer, board, agency, court or other authority in this state empowered to license or otherwise authorize the rendition of a professional service;
“Professional LLC” or “PLLC” means an LLC, other than a foreign professional LLC, which has elected to become subject to this chapter;
“Professional service” means a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in this state to render the service and that may not be lawfully rendered by a corporation under the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title or by an LLC under chapters 201-248 of this title; and
“Qualified person” means an individual, general partnership, professional corporation, professional association or PLLC that is eligible under § 48-248-401 to be a member of a PLLC.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 89.

Law Reviews.

Punitive Damages and Business Organizations: A Pathetic Fallacy, 67 Tenn. L. Rev. 971 (2000).

48-248-103. Formation.

One (1) or more persons acting as organizers may form a PLLC by delivering to the secretary of state for filing articles that also state it is a PLLC; its purpose is to render specified professional services; and a statement that the PLLC has one (1) or more qualified persons as members and no disqualified persons as members.
An LLC organized under a general law of this state whose articles have not been repealed by chapters 201-248 of this title may elect professional LLC status by amending its articles to comply with subsection (a) and § 48-248-301.

Acts 1994, ch. 868, § 1; 2000, ch. 587, § 1.

48-248-104. Purposes.

Except to the extent authorized by subsection (b), an LLC may elect professional LLC status under § 48-248-103 solely for the purpose of rendering professional services (including services ancillary to them) and solely within a single profession.
An LLC may elect professional LLC status under § 48-248-103(b) for the purpose of rendering professional services within two (2) or more professions, and for the purpose of engaging in any lawful business authorized by chapters 201-248 of this title, only if the combination of professional purposes or of professional and business purposes is specifically authorized by the licensing law of this state applicable to each profession in the combination.
Notwithstanding subsections (a) and (b), if an LLC is formed to provide professional services in states other than Tennessee, such LLC may elect professional LLC status under § 48-248-103 for the purpose of rendering professional service or services as permitted by the licensing boards of the states in which it will operate. Such PLLC shall, nevertheless, be required to file reports and other information as may be required by the applicable licensing boards of Tennessee to establish or confirm that the PLLC is not providing professional services in Tennessee.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 90.

Part 2
Powers

48-248-201. Powers.

Except as provided in subsection (b) or otherwise limited by this chapter, a PLLC has the powers enumerated in § 48-212-101.
A PLLC may be a promoter, general partner, member, associate or manager of a partnership, joint venture, trust or other entity only if the entity is engaged solely in rendering professional services or in carrying on business authorized by the PLLC's articles.

Acts 1994, ch. 868, § 1.

48-248-202. Rendering of professional services.

A domestic or foreign LLC may render professional services in this state only through individuals licensed or otherwise authorized in this state to render the services.
Subsection (a) does not:
1. Require an individual employed by a PLLC to be licensed to perform services for the PLLC if a license is not otherwise required;
2. Prohibit a licensed individual from rendering professional services in the individual's individual capacity, although the individual is a member, manager, employee or agent of a domestic or foreign PLLC; or
3. Prohibit an individual licensed in another state from rendering professional services for a domestic or foreign PLLC in this state, if not prohibited by the licensing authority.

Acts 1994, ch. 868, § 1.

48-248-203. Professions and other business allowed to be rendered.

A PLLC may not render any professional service or engage in any business other than the professional service and business authorized by its articles.
Subsection (a) does not prohibit a PLLC from investing its funds in real estate, mortgages, securities or any other type of investment.

Acts 1994, ch. 868, § 1.

Part 3
Name

48-248-301. Name.

The name of a domestic PLLC and of a foreign PLLC registered in this state, in addition to satisfying the requirements of chapters 207 and 246 of this title (except the requirement that the name include the words “limited liability company” or “LLC”):
1. Must contain the words “professional limited company,” “professional limited liability company” or “professional LLC,” “limited liability professional company” or the abbreviations “P.L.C.,” “P.L.L.C.,” or such abbreviations without punctuation, or “L.L.P.C.” except in the case of a foreign PLLC, the name may contain, subject to subdivision (a)(2), and in lieu of the foregoing, the designations allowed by the jurisdiction in which the PLLC was formed or organized;
2. Must not contain the word “corporation” or “incorporated” or an abbreviation of either or both of these words;
3. May not contain language stating or implying that it is organized for a purpose other than that authorized by § 48-248-104 and its articles.
Chapters 207 and 246 of this title do not prevent the use of a name otherwise prohibited by those sections if it is the personal name of a member or former member of the domestic or foreign PLLC or the name of an individual who was associated with a predecessor of the PLLC.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 91.

Part 4
Eligible Members, Transfers, Etc

48-248-401. Eligible members.

A PLLC may have persons not licensed to practice a profession described in the PLLC's articles in Tennessee as members only if the licensing authority which licenses the professionals forming such PLLCs specifically so authorizes. If permitted by the authority which licenses such professionals and if such professionals form PLLCs, such PLLCs may have as members only the following:
1. Individuals who are authorized by law in this or another state to render a professional service described in the PLLC's articles;
2. General partnerships in which all the partners are qualified persons with respect to the PLLC and in which at least one (1) partner is authorized by law in this state to render a professional service described in the PLLC's articles;
3. Professional corporations, domestic or foreign, authorized by law in this state to render a professional service described in the PLLC's articles; and/or
4. PLLCs, domestic or foreign, authorized by law in this state to render a professional service described in the PLLC's articles.
If a licensing authority with jurisdiction over a profession considers it necessary to prevent violation of the ethical standards of the profession, the authority may by rule restrict or condition, or revoke in part, the authority of PLLCs subject to its jurisdiction to have the members described in subsection (a). A rule promulgated under this section does not, of itself, make a member of a PLLC at the time the rule becomes effective a disqualified person.
The membership interest purported to be held by a person in violation of this section or a rule promulgated under this section is void.
1. Notwithstanding any other provision of this chapter, the following health care professionals shall have a right to form and become members of the same professional limited liability company formed pursuant to this chapter:
  1. Optometrists licensed under title 63, chapter 8, and ophthalmologists licensed under title 63, chapter 6 or 9;
  2. Podiatrists licensed under title 63, chapter 3, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, or anesthesiologists;
  3. Doctors of chiropractic licensed under title 63, chapter 4, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, and anesthesiologists; and
  4. Physician assistants licensed under title 63, chapter 19, part 1, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, and anesthesiologists.
2. The services rendered by these health care professionals are considered related and complementary to each other; provided, that nothing in this chapter shall be construed to alter the lawful scope of practice of a professional forming a professional limited liability company pursuant to this subsection (d); and further provided that nothing in this chapter shall be construed to allow any professional forming a professional limited liability company pursuant to this subsection (d) to conduct the professional's practice in a manner contrary to the standards of ethics applicable to the profession. Such individual shall accurately state the individual's professional credentials on any advertisement to the public.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 92; 2002, ch. 742, § 2; 2003, ch. 45, § 2; 2005, ch. 59, § 2.

48-248-402. Transfers.

Subject to §§ 48-218-101 and 48-218-102, a member of a PLLC may transfer, assign or pledge such member's financial rights, governance rights, or membership interest in the PLLC only to individuals, general partnerships, professional corporations, and other PLLCs qualified under § 48-248-401; provided, that nothing in this section shall be construed as prohibiting such a member from pledging the financial rights of that member's membership interest to a financial institution as collateral for a loan.
A transfer, assignment or pledge of the financial rights, governance rights or membership interests made in violation of subsection (a), except one made by operation of law or court judgment, is void.

Acts 1994, ch. 868, § 1.

48-248-403. Disqualification of members.

If any member of a PLLC becomes disqualified to render those professional services for which it was formed within the state, such member shall be deemed to have resigned and wrongfully withdrawn from the PLLC and shall have no further interests as a member in the PLLC other than the right to receive any distribution to which such member may be entitled under the articles or an operating agreement or § 48-216-101(d). If any member, manager, agent or employee of a PLLC organized under this chapter who has been rendering professional service to the public becomes legally disqualified to render those professional services within this state, that member, manager, agent or employee shall immediately sever all professional employment and professional relationships with, and financial interests in, that PLLC. A PLLC's failure to require compliance with this provision shall constitute a ground for the forfeiture of its articles and its dissolution by the secretary of state or, in the case of a foreign professional PLLC, for the revocation of its certificate of authority in this state.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 93.

48-248-404. Managers.

If persons other than qualified persons are permitted by the licensing authority to serve as governors, if any, or managers of a PLLC, not less than one half (½) of the governors, if any, and all managers except the secretary and treasurer, if any, of a PLLC shall be qualified persons with respect to the PLLC.

Acts 1994, ch. 868, § 1.

48-248-405. Privilege.

A privilege applicable to communications between an individual rendering professional services and the person receiving the services recognized under the statutes or common law of this state is not affected by this chapter. The privilege applies to a domestic or foreign PLLC and to its members and employees in all situations in which it applies to communications between an individual rendering professional services on behalf of the PLLC and the person receiving the services.

Acts 1994, ch. 868, § 1.

48-248-406. Liability.

Each individual who renders professional services as a member, holder of financial interest, governor, manager, employee or other agent of a domestic or foreign PLLC is liable for such person's own negligent or wrongful acts or omissions to the same extent as if the person rendered the services as a sole practitioner. A member, holder of financial interest, governor, manager, employee or other agent of a domestic or foreign PLLC is not liable, however, for the conduct of other members, holders of financial interests, governors, managers, employees or agents of the PLLC unless such person is also at fault.
A domestic or foreign PLLC whose members, governors, managers, employees or other agents perform professional services within the scope of their employment or of their apparent authority to act for the PLLC is liable to the same extent as such members, governors, managers, employees or other agents.
Except as otherwise provided by this chapter, the personal liability of a member, holder of financial interests, governor, manager, employee or other agent of a domestic or foreign PLLC is no greater in any respect than the liability of a member, holder of financial interests, governor, manager, employee or other agent of an LLC organized under chapters 201-248 of this title.

Acts 1994, ch. 868, § 1.

Law Reviews.

Punitive Damages and Business Organizations: A Pathetic Fallacy,67 Tenn. L. Rev. 971 (2000).

48-248-407. Mergers.

A PLLC may merge with or into any other business entity permitted to render the professional services of the PLLC in this state in the same manner and to the same extent as LLCs under chapter 244, part 1 of this title.
If the surviving business entity is an LLC and is to render professional services in this state, it must comply with this chapter.

Acts 1994, ch. 868, § 1.

48-248-408. Cessation of professional services.

If a PLLC ceases to render professional services, it must amend or restate its articles to delete references to rendering professional services and to conform its name to the requirements of chapters 207 and 246 of this title. After the amendment becomes effective, the PLLC may continue in existence as an LLC under chapters 201-248 of this title and it is no longer subject to this chapter.

Acts 1994, ch. 868, § 1.

48-248-409. Dissolution.

The attorney general and reporter may commence a proceeding under § 48-245-902 to dissolve a PLLC if:

The secretary of state or a licensing authority with jurisdiction over a professional service described in the PLLC's articles serves written notice on the PLLC in accordance with § 48-208-104, that it has violated or is violating a provision of this chapter;
The PLLC does not correct each alleged violation, or demonstrate to the reasonable satisfaction of the secretary of state or licensing authority that it did not occur, within sixty (60) days after service of the notice in accordance with § 48-208-104; and
The secretary of state or licensing authority certifies to the attorney general and reporter a description of the violation, that it properly notified the PLLC of the violation, and that the PLLC did not correct it, or demonstrate that it did not occur, within sixty (60) days after service of the notice, in accordance with § 48-208-104.

Acts 1994, ch. 868, § 1.

Part 5
Foreign Professional Limited Liability Companies

48-248-501. Foreign professional limited liability companies.

Except as provided in subsection (c), a foreign PLLC may not transact business in this state until it obtains a certificate of authority from the secretary of state.
A foreign PLLC may not register unless:
1. Its name satisfies the requirements of § 48-248-301;
2. It is organized for one (1) or more of the purposes referenced in and satisfies the requirements of § 48-248-104; and
3. All of its members, all of its governors (or their equivalent), if any, and all managers (or their equivalent) are licensed in one (1) or more states to render a professional service described in its articles; provided, that if the licensing authority of this state permits persons other than qualified persons to serve as governors, if any, or managers of a PLLC, not less than one half (½) of its governors, if any, and all managers except the secretary and treasurer, if any, of a PLLC shall be qualified persons with respect to the PLLC.
A foreign PLLC is not required to obtain a certificate of authority in this state unless it maintains or intends to maintain an office in this state for conduct of business or professional practice.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 94.

48-248-502. Application for a certificate of authority.

The application of a foreign PLLC for a certificate of authority in this state shall contain the information required in § 48-246-301; state it is a PLLC; state its purpose is to render specified professional services; and include a statement that the requirements of § 48-248-501(b)(3) are satisfied.

Acts 1994, ch. 868, § 1; 1995, ch. 403, § 95.

48-248-503. Revocation.

The secretary of state may administratively revoke the certificate of authority of a foreign PLLC authorized to transact business in this state if a licensing authority with jurisdiction over a professional service described in the PLLC's articles certifies to the secretary of state that the PLLC has violated or is violating a provision of this chapter and describes the violation in the certification.

Acts 1994, ch. 868, § 1.

48-248-504. Offense — Penalty.

A person commits a Class B misdemeanor, punishable by a fine of not more than five hundred dollars ($500), if such person signs a document such person knows is false in any material respect with intent that the document be delivered to the licensing authority for filing.
The offense created by this section is in addition to any other offense created by law for the same conduct.

Acts 1994, ch. 868, § 1.

Cross-References. Penalty for Class B misdemeanor, § 40-35-111.

Part 6
Delivery of Articles

48-248-601. Delivery of articles to licensing authority.

A domestic or foreign PLLC may not render professional services in this state until it delivers a certified copy of its articles (or equivalent) and, if a foreign PLLC, a certified copy of its certificate of authority to transact business in this state to each licensing authority with jurisdiction over a professional service described in the articles.

Acts 1994, ch. 868, § 1.

48-248-602. Annual statement.

If required by a rule promulgated by the licensing authority having authority over professional services rendered by employees and/or members of the PLLC, each domestic PLLC, and each foreign PLLC registered in this state, shall deliver for filing to each licensing authority having jurisdiction over a professional service described in the PLLC's articles an annual statement of qualification setting forth:
1. The names and usual business addresses of its members, managers and governors (or their equivalent), if any; and
2. Information required by rule promulgated by the licensing authority to determine compliance with this chapter and other rules promulgated under it.
The first qualification statement required under this section must be delivered to the licensing authority between January 1 and April 1 of the year following the adoption of a rule requiring such statements and the calendar year in which a domestic LLC became a PLLC, or a foreign PLLC was authorized to transact business in this state. Subsequent qualification statements must be delivered to the licensing authority between January 1 and April 1 of the following calendar years.

Acts 1994, ch. 868, § 1.

48-248-603. Rules.

Each licensing authority is empowered to promulgate rules expressly authorized by this chapter if the rules are consistent with the public interest or required by the public health or welfare or by generally recognized standards of professional conduct.

Acts 1994, ch. 868, § 1.

48-248-604. Jurisdiction of licensing authority.

This chapter does not restrict the jurisdiction of a licensing authority over individuals rendering a professional service within the jurisdiction of the licensing authority, nor does it affect the interpretation or application of any law pertaining to standards of professional conduct except, notwithstanding any other provision of chapters 201-248 of this title, this chapter expressly provides that persons engaged in a professional service are expressly authorized to form a PLLC in which to conduct their business and limit their liability for the acts of others.

Acts 1994, ch. 868, § 1.

48-248-605. Amendment of existing laws and right to practice profession in other forms.

Notwithstanding any other provision of chapters 201-248 of this title, the laws of this state relating to the regulation of professional services are hereby amended and superseded to the extent such laws are inconsistent as to form of organization with the provision of chapters 201-248 of this title, and are deemed amended to permit the provision of professional services within this state by PLLCs. This chapter does not affect an existing or future right or privilege to render professional services through the use of any other form of business entity.

Acts 1994, ch. 868, § 1.

48-248-606. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of this chapter at any time and all domestic and foreign professional limited liability companies subject to this chapter are governed by the amendment or repeal.

Acts 1994, ch. 868, § 1.

Chapter 249
Tennessee Revised Limited Liability Company Act

Part 1
General Provisions

48-249-101. Short title.

This chapter shall be known and may be cited as the “Tennessee Revised Limited Liability Company Act.”

Acts 2005, ch. 286, § 1.

Law Reviews.

Tennessee's New Limited Liability Company Act: New Ways of Doing Business (Eric Reagan), 73 Tenn. L. Rev. 267 (2006).

48-249-102. Chapter definitions.

As used in this chapter, unless the context otherwise requires:

“Annual report” means the form required by § 48-249-1017;
“Articles” or “articles of organization” means, in the case of an LLC, articles of organization or, to the extent applicable with respect to an LLC initially formed under and governed by the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title, articles of conversion, taken together with all of the following, to the extent they modify, correct, restate or otherwise affect the articles of organization or articles of conversion: articles of amendment, articles of correction, certificates of merger and all documents required to be filed with any of the articles of amendment, articles of correction and certificates of merger, as part of the formation and continuation of an LLC. In the case of a foreign LLC, “articles” or “articles of organization” means all documents serving a similar function required to be filed with the secretary of state or other state office of the foreign LLC's jurisdiction of formation;
“Business” means every trade, occupation, profession, investment activity, and other lawful purpose for gain or the preservation of assets, whether or not carried on for profit;
“Code” means the Internal Revenue Code of 1986 (26 U.S.C.), including all successor provisions to the sections referenced in this chapter;
“Confirmation of good standing” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that at the time such confirmation is issued an LLC or a foreign LLC is current on all taxes and penalties to the satisfaction of the commissioner;
“Director” means an individual who is vested with authority as a director under § 48-249-401(c);
“Director-managed LLC” means an LLC that is so designated in its articles;
“Distribution” means a direct or indirect transfer of money or other property by an LLC, except for the issuance of its own membership interests or financial rights, with or without consideration, or an incurrence or issuance of indebtedness, whether directly or indirectly, including through a guaranty, to or for the benefit of any of its members or holders of financial rights, as applicable, in respect of membership interests or financial rights. A distribution may be in the form of an interim distribution under § 48-249-305 or a liquidation distribution under § 48-249-620; of a purchase, redemption, or other acquisition of its membership interests or financial rights; of a distribution of indebtedness, which includes the incurrence of indebtedness, whether directly or indirectly, including through a guaranty, for the benefit of the LLC's members or holders of financial rights, as applicable; or of any other transaction. “Distribution” does not mean amounts paid to or for the benefit of members, or holders of financial rights as compensation or benefits for services rendered by them in their capacities as members, holders, officers, managers, directors or agents;
“Entity” means, whether foreign or domestic and whether for profit or not-for-profit, limited liability companies, corporations, unincorporated associations, real estate investment trusts, statutory or business trusts or associations, estates, general partnerships, limited partnerships, registered or unregistered limited liability partnerships, limited liability limited partnerships or similar organizations, trusts, joint ventures, two (2) or more persons having a joint or common economic interest, and local, municipal, state, United States and foreign governments;
1. “Family LLC” means an LLC in which, at the relevant time, members of the same family hold, in the aggregate, whether as members or holders of financial rights, at least fifty percent (50%) of the financial rights in the LLC. “Members of the same family,” as used in this subdivision (10) means two (2) or more individuals as to one (1) of whom, referred to as the “common relative,” each of the others bears one (1) of the following relationships:
  1. A spouse or former spouse of the common relative;
  2. An ancestor or lineal descendant of the common relative;
  3. An ancestor of the spouse or former spouse of the common relative;
  4. A brother or sister of the common relative;
  5. A lineal descendant of any individual described in subdivision (10)(A)(iv);
  6. A spouse or former spouse of any individual described in subdivisions (10)(A)(ii)-(v);
  7. A lineal descendant of any individual described in subdivision (10)(A)(vi);
2. 1. For the purpose of determining “members of the same family”:

Relationship by adoption shall be treated the same as relationship by blood;
Financial rights held by any entity that is related, within the meaning of §§ 267(b) and 707(b) of the Code (26 U.S.C. §§ 267(b) and 707(b)), respectively, to any individual shall be deemed to be held by such individual;
The common relative need not be a member of or holder of financial rights in the LLC; and
The common relative need not be living, but, if deceased, may not be more than four (4) generations removed from the youngest generation of individuals who would, but for this subdivision (10)(B)(i), be members of the same family;

For purposes of the proviso in subdivision (10)(B)(i)(d ), a spouse, or former spouse, shall be treated as being of the same generation as the individual to whom such spouse is, or was, married;

For purposes of this subdivision (10), the word “fiduciary,” as used in § 267(b) of the Code, shall be treated as a trust and an entity;

“Financial rights” means a member's or holder's rights to:

Share in profits and losses, as provided in § 48-249-304;

Share in and receive distributions, as provided in § 48-249-305;

Receive liquidation distributions, as provided in § 48-249-620; and

Transfer the financial rights described in subdivisions (11)(A)-(C), as provided in § 48-249-507;

“Foreign LLC,” or an LLC that is designated as “foreign,” means a limited liability company that is formed under the laws of a jurisdiction other than this state;

“Governance rights” means a member's right to vote on one (1) or more matters, all of a member's other rights as a member in the LLC under the LLC documents or this chapter, other than financial rights, and the right to transfer the voting and other rights described in this subdivision (13);

“Holder of financial rights” or “holder” means a person, other than a member, owning any financial rights in an LLC. A holder of financial rights may acquire its financial rights, either by transfer of ownership from a member or other holder, or directly from the LLC;

“LLC,” sometimes referred to as a “domestic LLC” or an LLC that is designated as “domestic,” means a limited liability company formed under this chapter, or a limited liability company formed under the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title, that has elected to be governed by this chapter, or, where expressly indicated, a limited liability company formed under and governed by the Tennessee Limited Liability Company Act;

“LLC documents” means either, or both:

An LLC's articles; and

If the LLC has an operating agreement, whether written or oral, its operating agreement;

“Majority vote” means, with respect to a vote of the members, managers, or directors, as applicable:

If voting on a per capita basis, a majority in number of the members, managers or directors, as applicable, entitled to vote on a specific matter; or

If voting is determined otherwise under the LLC documents, a majority in voting interest of the members, managers or directors, as applicable, entitled to vote on a specific matter, as determined under the LLC documents;

“Manager” means a person who is vested with authority as a manager under § 48-249-401(b);

“Manager-managed LLC” means an LLC that is so designated in its articles;

“Member” means a person that has been admitted to an LLC as a member, as provided in § 48-249-501. With respect to a foreign LLC, “member” means a person recognized as a member of the foreign LLC, under the laws of the jurisdiction of formation of the foreign LLC;

“Member-managed LLC” means an LLC that is so designated in its articles;

“Membership interest” means a member's interest in an LLC, which shall consist of the member's financial rights and governance rights;

“Officer” means an individual, who is vested with authority as an officer under § 48-249-401(e);

“Operating agreement” means an agreement described in § 48-249-203(a);

“Person” means an individual or an entity;

“Personal representative” means, as to an individual, the executor, administrator, guardian, conservator, trustee or other legal representative of the individual, and, as to an entity, the legal representative or successor of the entity;

“Principal executive office” means the office, in or out of this state, that is designated as the principal executive office of a domestic or foreign LLC in its articles or in an application for a certificate of authority, as applicable, as thereafter changed from time to time in accordance with this chapter;

“Proceeding” means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal;

“Professional limited liability company,” “professional LLC” or “PLLC” has the meaning set forth in § 48-249-1102;

“Record” means information that is inscribed in a tangible medium, or that is stored in an electronic or other medium, and is retrievable in perceivable form;

“Registered agent” means the person designated as the registered agent of a domestic or foreign LLC in its articles or in an application for a certificate of authority, as applicable, as thereafter changed from time to time in accordance with this chapter;

“Registered office” means the office in this state that is designated as the registered office of a domestic or foreign LLC in its articles or in an application for a certificate of authority, as applicable, as thereafter changed from time to time in accordance with this chapter;

“Representative” means, as to a foreign LLC, a director, manager, officer, employee or other agent of a foreign LLC;

“Secretary of state” means the individual who holds the office of secretary of state of this state;

“State,” when referring to a part of the United States other than this state, means a state, a commonwealth, the District of Columbia and a territory and insular possession of the United States, and their respective agencies and governmental subdivisions;

“Tax clearance for termination or withdrawal” means confirmation by the commissioner of revenue issued through electronic communication to the secretary of state or a certificate of tax clearance that an LLC or a foreign LLC has filed all applicable reports, including, but not limited to, a final report, and has paid all fees, penalties, and taxes as required by the revenue laws of this state; and

“Transfer” means an assignment, conveyance, deed, bill of sale, lease, mortgage, security interest, encumbrance, gift and transfer by operation of law.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 11–15; 2010, ch. 741, § 37; 2011, ch. 99, §§ 11-13.

48-249-103. Notice.

General; Methods of notice. Notice under this chapter or under the LLC documents, to an LLC or to a foreign LLC authorized to transact business in this state, or by an LLC to its managers, directors, officers, employees, agents, members and holders of financial rights, as applicable, shall be in writing, except that oral notice is effective, if it is reasonable under the circumstances. Such notice may be communicated to or by an LLC, or to a foreign LLC, in person; by telephone, telegraph, teletype, electronic mail or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by publication in a newspaper of general circulation, or by radio, television or other form of public broadcast communication, published or broadcast in the county where the principal executive office of the LLC is or was last located, or in such other geographic areas as may be required under the LLC documents.
Effectiveness of notice. Written notice by a domestic LLC to its managers, directors, officers, employees, agents, members and holders of financial rights, as applicable, if in a comprehensible form, is effective when mailed, if mailed postpaid and correctly addressed to the recipient's address shown in the LLC's current records.
Notice to LLC. Written notice to a domestic LLC, or a foreign LLC authorized to transact business in this state, may be addressed to its registered agent at its registered office or to the domestic or foreign LLC or its secretary, if any, at its principal executive office (or to a designated mailing address such as a post office box if the United States postal service does not deliver to the principal executive office).
General effectiveness of written notice. Except as provided in subsection (b), written notice, if in a comprehensible form, is effective at the earliest of the following:
1. When received;
2. Five (5) days after its deposit in the United States mail, if mailed correctly addressed and with first class postage affixed;
3. On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or
4. Twenty (20) days after its deposit in the United States mail, as evidenced by the postmark if mailed correctly addressed, and with other than first class, registered or certified postage affixed.
Oral notice. Oral notice is effective when communicated, if communicated in a comprehensible manner.
Notice by publication or broadcast. Notice by publication or public broadcast, as provided in subsection (a), is effective upon publication or broadcast, as applicable.
Governing requirements. Notwithstanding this section, if another provision of this chapter prescribes notice requirements for particular circumstances, those requirements shall govern.

Acts 2005, ch. 286, § 1; 2014, ch. 783, § 12.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-249-104. Purposes and powers.

Any lawful purpose. Every LLC has the purpose of engaging in any lawful business, unless a more limited purpose is set forth in its LLC documents.
Regulation by another statute. An LLC engaging in a business that is subject to regulation under another statute of this state may form under or elect to be governed by this chapter, only to the extent not prohibited by, and subject to any limitations of, the other statute.
General powers. An LLC has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs, including, without limitation, power to:
1. Sue and be sued, complain and defend in the LLC's name;
2. Make and amend an operating agreement with its members, not inconsistent with its articles or with the laws of this state, for managing the business and regulating the affairs of the LLC;
3. Purchase, receive, lease or otherwise acquire, own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;
4. Sell, convey, mortgage, pledge, lease, exchange and otherwise dispose of, or grant a security interest in, all or any part of its property;
5. Purchase, receive, subscribe for, or otherwise acquire, own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of, or grant a security interest in, and deal in and with shares or other interests in, or obligations of, any other entity;
6. Make contracts, including without limitation, contracts of guaranty and suretyship, incur liabilities, borrow money, issue its notes, bonds, and other obligations, which may be convertible into or include the option to purchase other rights or securities of, or other interests in, the LLC, and secure any of its obligations or those of any other person by mortgage, pledge of, or security interest in, any of its property;
7. Lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment;
8. Be a promoter, partner, member, shareholder, associate, trustee or manager of any partnership, joint venture, trust or other entity;
9. Conduct its business, locate offices and exercise the powers granted by this chapter, within or without this state;
10. Elect or appoint directors, managers, officers, employees, and agents of the LLC, as applicable, define their duties, fix their compensation, lend them money and credit, and guarantee debt, or act as surety on their behalf;
11. Pay pensions and establish pension plans, pension trusts, profit-sharing plans and retirement or welfare benefit or incentive plans, for any or all of the current or former members, directors, managers, officers, employees and agents of the LLC, or any of its affiliates;
12. Make donations for the public welfare or for charitable, scientific or educational purposes;
13. Make payments or donations, or do any other act not inconsistent with law, that furthers the business and affairs of the LLC;
14. Procure, for its benefit, insurance on the life of any of its existing members, holders, directors, managers, officers or employees or other agents for any lawful purpose, including, without limitation, for the purpose of acquiring, at a member's or holder's death, the membership interest or financial rights owned by such member or holder of financial rights, as applicable, and to continue any such insurance after the LLC's relationship with the insured terminates;
15. Accept gifts, devises and bequests, subject to any conditions or limitations contained in such gift, devise or bequest, so long as such conditions or limitations are not contrary to any provisions of this chapter, or the purposes for which the LLC is formed;
16. Accept contributions under § 48-249-301; and
17. Have and exercise all other powers necessary or convenient to effect any or all of the purposes for which the LLC is formed.

Acts 2005, ch. 286, § 1.

48-249-105. Ultra vires actions.

Limit on power to challenge. Except as provided in subsection (b), the validity of an LLC's action may not be challenged on the ground that the LLC lacks or lacked the power to act.
Challenge of power. An LLC's power to act may be challenged in a proceeding by:
1. A member against the LLC to enjoin the act;
2. The LLC, directly, derivatively or through a receiver, trustee or other personal representative, against an incumbent or former director, manager, employee, agent or member of the LLC, as applicable; or
3. The attorney general and reporter under § 48-249-617.
Derivative action. In a member's proceeding, under subdivision (b)(1), to enjoin an unauthorized LLC act, the court may enjoin or set aside the act, if equitable, and if all affected persons are parties to the proceeding, and may award damages for loss suffered by the LLC or another party because of enjoining the unauthorized act.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Applicability.

Because a closely-held professional limited liability company (LLC) had the power to hire an attorney if its member acted with proper authorization from the LLC, the statute was not applicable. Morristown Heart Consultants, PLLC v. Patel, — S.W.3d —, 2019 Tenn. App. LEXIS 362 (Tenn. Ct. App. July 24, 2019).

48-249-106. LLC name.

Name requirements. An LLC name and, to the extent required by this section and § 48-249-903, a foreign LLC name:
1. Shall contain the words “limited liability company,” the abbreviation “L.L.C.” or “LLC,” or words or abbreviations of like import in another language; provided, that they are written in roman characters or letters; and provided, further, that, in the case of a foreign LLC, the name may contain, in lieu of the provisions of this subdivision (a)(1), the designations allowed by the jurisdiction in which the foreign LLC was formed. A PLLC formed under part 11 of this chapter shall contain the words or the abbreviation as required by § 48-249-1108. Notwithstanding this subdivision (a)(1), the name of an LLC or foreign LLC shall not contain the word “corporation” or “incorporated,” or an abbreviation of either or both of these words; and
2. May not contain language stating or implying that the domestic or foreign LLC:
  1. Transacts or has the power to transact any business for which authorization, in whatever form and however denominated, is required under the laws of this state, unless the appropriate commission or official has granted such authorization and certifies that fact to the secretary of state in writing;
  2. Is formed as, affiliated with or sponsored by, any fraternal, veterans', service, religious, charitable or professional organization, unless the formation, affiliation or sponsorship is certified in writing to the secretary of state by the body authorizing the formation or the organization with which affiliation or sponsorship is claimed, as applicable;
  3. Is an agency or instrumentality of, affiliated with or sponsored by the United States or any state, subdivision or agency of the United States, unless such fact is certified in writing to the secretary of state by the appropriate official of the United States or the state, subdivision or agency, as applicable; or
  4. Is formed for a purpose other than that permitted by § 48-249-104 and its LLC documents, or, in the case of a foreign LLC, its similar formation and operating documents.
Name shall be distinguishable. Except as authorized by subsection (c), the name of a domestic LLC, and the name of a foreign LLC that is authorized to transact business in this state or is applying for a certificate of authority to transact business in this state, shall be distinguishable upon the records of the secretary of state from the respective names of or for every other entity, whether true, assumed, reserved or registered, to the extent the use or reservation of such names is evidenced by a filing with the secretary of state under applicable law.
Indistinguishable name of entity under common control. A domestic or foreign LLC, or person acting on behalf of an LLC not yet formed, may apply to the secretary of state for authorization to use a name that is not distinguishable upon the secretary of state's records from one (1) or more of the names described in subsection (b). The secretary of state shall authorize use of the indistinguishable name applied for, if:
1. The person holding the right to use the previously filed name described in subsection (b) consents to the use in writing and submits an undertaking, in a form satisfactory to the secretary of state, to cancel its reservation of such name or change such name to a name that is distinguishable upon the records of the secretary of state from the name of the applicant;
2. The applicant delivers to the secretary of state a certified copy of the final judgment of a court of competent jurisdiction establishing the applicant's right to use the name applied for in this state; or
3. The person holding the right to use the previously filed name described in subsection (b) consents in writing to the use of such name by the applicant, and both the other person and the applicant consent in a form satisfactory to the secretary of state to use the same registered agent.
Assumed name.
1. A domestic LLC, or a foreign LLC authorized to transact business or applying for a certificate of authority to transact business in this state, may elect to adopt an assumed name that complies with the requirements of subsections (a)-(c), except that the assumed name need not contain the designations contained in subdivision (a)(1).
2. As used in this chapter, the “assumed name” of a domestic or foreign LLC means any name used by the LLC, other than the LLC's true name, except that the following shall not constitute the use of an assumed name:
  1. The identification by a domestic or foreign LLC of its business with a trademark or service mark of which it is the owner or licensed user; and
  2. The use of a name of a division, not separately formed and not containing the words “limited liability company” or an abbreviation of such words; provided, that the domestic or foreign LLC's name is also clearly disclosed with the division name.
3. Before transacting any business in this state under an assumed name or names, the domestic or foreign LLC shall, for each assumed name, execute and file, in accordance with §§ 48-249-1005 and 48-249-1007 an application setting forth:
  1. The true name of the applicant;
  2. The jurisdiction in which the applicant is formed;
  3. The applicant's intention to transact business under an assumed name; and
  4. The assumed name that the applicant proposes to use.
4. The right to use an assumed name shall be effective for five (5) years from the date of filing with the secretary of state.
5. A domestic or foreign LLC may renew the right to use its assumed name or names, if any, for successive five-year periods, by filing an application to renew the assumed name or names and paying the renewal fee as prescribed by § 48-249-1007(a), within the two (2) months preceding the expiration of the then current period.
Cancellation or change of assumed name. Any domestic or foreign LLC may change or cancel any or all of its assumed names, by filing, in accordance with §§ 48-249-1005 and 48-249-1007, an application setting forth:
1. The true name of the applicant;
2. The jurisdiction in which the applicant is formed;
3. The applicant's intention to cease transacting business in this state under the specified assumed name, by changing or canceling the assumed name;
4. The assumed name to be changed or cancelled; and
5. If the assumed name is to be changed, the new assumed name that the applicant proposes to use.
Use of changed name. Upon the filing of an application to change an assumed name, the applicant shall have the right to use the new assumed name for a new five-year period, subject to the same renewal procedures authorized by subsection (d).
Cancellation of assumed name by secretary of state. The right of a domestic or foreign LLC to use an assumed name shall be cancelled by the secretary of state, if:
1. The domestic or foreign LLC fails to renew its right to use the assumed name before the right expires;
2. The domestic or foreign LLC has filed an application to change the assumed name, or to cancel its right to use the assumed name;
3. In the case of a domestic LLC, the LLC has been dissolved; or
4. In the case of a foreign LLC, the foreign LLC has had its certificate of authority to transact business in this state revoked.
Unfair competition. Nothing in this section, or in §§ 48-249-107 or 48-249-108, shall abrogate or limit the law as to unfair competition or unfair trade practice, or derogate from the common law, the principles of equity or the statutes of this state, or of the United States, with respect to the right to acquire and protect trade names, trademarks and service marks.
Limited liability. A domestic or foreign LLC acting under an assumed name or registered name shall be deemed to have given notice to all third parties that it is a domestic or foreign LLC, as applicable, and its members, managers, directors, officers and agents shall have the same limitations on liability as if the domestic or foreign LLC operated under its true name.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 16.

NOTES TO DECISIONS

1. Agent Liability.

48-249-107. Reserved name.

Reserving a name. A person may reserve the exclusive right to use a name for a domestic or foreign LLC, including an assumed name, by filing an application with the secretary of state. The application shall set forth the name and address of the applicant and the name proposed to be reserved. If the secretary of state finds that the name applied for meets the requirements of § 48-249-106 and is available, the secretary of state shall reserve the name for the applicant's exclusive use for a four-month period. Upon the expiration of the four-month period, the same party, or any other party, may apply to reserve the same name.
Transfer of reserved name. The person holding the right to use a name reserved under this section, including an assumed name, may transfer the reservation to another person by filing a notice of the transfer with the secretary of state, signed by the person holding the right to use the reserved name, that states the reserved name being transferred and the name and address of the transferee.
Cancellation of reserved name. The reservation of a specific name may be cancelled by filing a notice with the secretary of state, executed by the person holding the right to use the reserved name, specifying the reserved name being cancelled and the name and address of the person holding the right to use the reserved name.

Acts 2005, ch. 286, § 1.

48-249-108. Registered name.

Name registration. A foreign LLC may register its name, an assumed name under which it transacts business, or its name with any addition under § 48-249-106(a), if the name is distinguishable upon the records of the secretary of state, as required by § 48-249-106(b).
Process for name registration. A foreign LLC may register its name, its assumed name, or its name with any addition under § 48-249-106(a), by filing an application with the secretary of state:
1. Setting forth the applicant's name, its assumed name, or its name with any addition under § 48-249-106(a) and the jurisdiction of its formation; and
2. Accompanied by a certificate of existence, or a document of similar import, from the jurisdiction of formation, bearing a date that is not more than one (1) month prior to the date the application is filed with the secretary of state.
Effective date of registration. The name is registered for the applicant's exclusive use upon the effective date of the application, and until the end of the calendar year in which the registration occurs.
Renewal of registered name. A foreign LLC for which a name registration is effective may renew the registered name for successive years, by filing a renewal application with the secretary of state that complies with the requirements of subsection (b), between October 1 and December 31 of the year prior to the year for which the renewal will be effective.
Use of registered name. A foreign LLC for which a name registration is effective may apply for authority to transact business in this state as a foreign LLC under that name, or consent in writing to the use of that name by a domestic LLC, or another foreign LLC authorized or applying for authority to transact business in this state. The registration terminates when the foreign LLC becomes authorized to transact business in this state, or when the consent to the use of the registered name becomes effective.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 17, 18.

48-249-109. Registered office and registered agent.

Registered office and agent. Each domestic and foreign LLC shall continuously maintain in this state:
1. A registered office, which may be the same as any of its places of business; and
2. A registered agent, who may be an individual who resides in this state, a domestic corporation, a not-for-profit domestic corporation, a domestic LLC or a domestic registered limited liability partnership; or a foreign corporation, a not-for-profit foreign corporation, a foreign LLC or a foreign registered limited liability partnership, in each case authorized to transact business in this state. The registered agent shall maintain a business office at the same street address as the registered office.
New registered agent required. If a registered agent resigns or is unable to perform the required duties, the affected domestic or foreign LLC shall promptly designate another registered agent, to the end that each domestic LLC and each foreign LLC authorized to transact business in this state shall at all times have a registered agent in this state.

Acts 2005, ch. 286, § 1.

48-249-110. Change of registered office or registered agent.

Change in registered office or agent by LLC. A domestic or foreign LLC may change its registered office or registered agent by filing a statement of change with the secretary of state that sets forth:
1. The name of the domestic or foreign LLC;
2. If the current registered office is to be changed, the street address of the new registered office, including the zip code, and the county in which the office is located;
3. If the current registered agent is to be changed, the name of the new registered agent; and
4. A statement that, after the change or changes are made, the street addresses of the registered office and the business office of its registered agent will be identical.
Change in registered office by registered agent. If a registered agent changes the street address of such registered agent's business office, the registered agent may change the street address of the registered office of any domestic or foreign LLC for which the registered agent is the registered agent, by notifying the affected domestic or foreign LLC in writing of the change, and by signing, either manually or by facsimile, and by filing a statement with the secretary of state that complies with the requirements of subsection (a), and that recites that the affected domestic or foreign LLC has been notified of the change.

Acts 2005, ch. 286, § 1.

48-249-111. Resignation of registered agent.

Resignation of registered agent. A registered agent of a domestic or foreign LLC may resign the appointment, by filing a statement of resignation with the secretary of state, signed by the registered agent, that includes a certification that the agent has mailed a copy of the statement of resignation to the principal executive office of the affected domestic or foreign LLC by certified mail. The statement may indicate that the registered office is also discontinued.
Effective date of resignation. The agency appointment is terminated, and the registered office discontinued, if so provided, on the date on which the statement described in subsection (a) is filed with the secretary of state.

Acts 2005, ch. 286, § 1.

48-249-112. Service on LLC.

Agent for service of process. A domestic or foreign LLC's registered agent is the agent for the domestic or foreign LLC for service of process, notice or demand, required or permitted by law to be served on the domestic or foreign LLC.
Secretary of state is default agent. Whenever a domestic or foreign LLC authorized to transact business in this state fails to appoint or maintain a registered agent in this state, whenever the registered agent of a domestic or foreign LLC cannot be found with reasonable diligence, whenever a foreign LLC transacts business or conducts affairs in this state without first obtaining a certificate of authority from the secretary of state, or whenever the certificate of authority of a foreign LLC has been cancelled or revoked, then the secretary of state shall be an agent of such LLC upon whom any process, notice or demand may be served.
Special agent for workers' compensation. Whenever a domestic or foreign LLC authorized to transact business in this state is an employer, within the meaning of the Workers' Compensation Law, compiled in title 50, chapter 6, and the domestic or foreign LLC is, for the purpose of the Workers' Compensation Law, self-insured or a part of a self-insurance pool as provided in title 50, chapter 6, part 4, the domestic or foreign LLC shall, for workers' compensation actions only, be required to appoint the commissioner of commerce and insurance and such commissioner's chief deputy, or their successors, as its true and lawful attorneys upon either of whom all lawful process in any workers' compensation action or legal proceeding against it may be served, as is required of insurance companies by § 56-2-103.
Not exclusive means of service. This section does not prescribe the only means, or necessarily the required means, of service on a domestic or foreign LLC.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 19.

48-249-113. Procedure for service on domestic or foreign LLC by service on secretary of state.

Service on secretary of state. When the secretary of state is an agent for a domestic or foreign LLC, as provided in § 48-249-112(b), service on the secretary of state of any process, notice or demand shall be made by delivering the original and one (1) copy of such process, notice or demand to the office of the secretary of state, duly certified by the appropriate official, together with the proper fee. A statement that identifies which of the grounds, as listed in § 48-249-112(b), for service on the secretary of state is applicable shall be included. The office of the secretary of state shall endorse the time of receipt upon the original and copy, and shall immediately send the copy, along with a written notice that service of the original also was made, by registered or certified mail, with return receipt requested, addressed to the domestic or foreign LLC at its registered office or principal office (or designated alternative mailing address) as shown in the records on file in the secretary of state's office, or as shown in the official registry of the state or country in which the foreign LLC is formed. The secretary of state may require the person seeking to serve the process, notice or demand, or the person's attorney, if any, to furnish the latter address.
Refusal of service ineffective. The refusal or failure of the domestic or foreign LLC to accept delivery of the registered or certified mail provided for in subsection (a), or the refusal or failure to sign the return receipt, shall not affect the validity of the service. Any domestic or foreign LLC refusing or failing to accept delivery of such registered or certified mail shall be charged with knowledge of the contents of any process, notice or demand contained in the registered or certified mail.
Receipt received by secretary of state. When the registered or certified mail return receipt is received by the office of the secretary of state, or when a domestic or foreign LLC refuses or fails to accept delivery of the registered or certified mail, and it is returned to the office of the secretary of state, the office of the secretary of state shall forward the receipt or such refused or undelivered mail to the clerk of the court in which the proceeding is pending, or other appropriate official or person, together with the original process, notice or demand, a copy of the notice the secretary of state sent to the defendant LLC and the secretary of state's affidavit setting forth the secretary of state's compliance with this section. Service made under this section shall have the same legal force and validity as if the service had been made personally in this state.
Subsequent pleadings. Subsequent pleadings or papers permitted or required to be served on a domestic or foreign LLC may be served on the secretary of state as agent for the domestic or foreign LLC in the same manner, at the same cost and with the same effect, as process, notice or demand is served on the secretary of state as agent for the domestic or foreign LLC under this section.
Minimum time for appearance. No appearance shall be required in the proceeding by the domestic or foreign LLC on which service is completed under this section, nor shall any judgment be taken against such domestic LLC in less than one (1) month after the date service is completed under this section.
Record retained. The secretary of state shall keep a record of all processes, notices, demands and subsequent pleadings or papers served upon the secretary of state under this section, which record shall include the time of each service and the secretary of state's action with reference to the service.

Acts 2005, ch. 286, § 1; 2014, ch. 783, § 13.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-249-114. Personal liability.

Limited liability rule.
1. Except as provided in subsections (d) and (f):
  1. The debts, obligations and liabilities of an LLC, whether arising in contract, tort or otherwise, are solely the debts, obligations and liabilities of the LLC;
  2. A member, holder, director, manager, officer, employee or other agent of an LLC does not have any personal obligation, and is not otherwise personally liable, for the acts, debts, liabilities or obligations of the LLC; and
  3. A member, holder, director, manager, officer, employee or other agent of an LLC does not have any personal obligation, and is not otherwise personally liable, for the acts or omissions of any other member, holder, manager, officer, director, employee or other agent of the LLC.
2. Notwithstanding subdivisions (a)(1)(B) and (C), a member, holder of financial rights, director, manager, officer, employee or other agent may be personally liable by reason of such person's own acts or omissions.
Limited liability after dissolution. The limitation on liability described in subsection (a) continues in full force, regardless of any dissolution, winding up or termination of an LLC.
Member not a proper party to proceeding. A member, holder, director, manager, officer, employee or other agent of an LLC is not a proper party to a proceeding by or against an LLC, except:
1. Where the object of the proceeding is to enforce such person's right against, or liability to, the LLC;
2. In a derivative proceeding brought under this chapter or the LLC documents; or
3. Where the proceeding asserts personal liability of such person, as described in subsection (a).
Sales tax liability. Notwithstanding any other provision of this chapter to the contrary, each member, manager, director, officer, employee, agent or other person required to collect, truthfully account for and pay over to the department of revenue any tax collected from the customers of a domestic or foreign LLC shall be personally liable for those taxes, in the same manner as responsible persons of a corporation under § 67-1-1443.
Failure to follow formalities not to generate personal liability. The failure of a domestic or foreign LLC to observe the usual entity formalities or requirements relating to the exercise of its powers or management of its business is not a ground for imposing personal liability on the members, holders, managers, directors, officers, employees or other agents of the domestic or foreign LLC.
Voluntary unlimited liability.
1. Notwithstanding anything to the contrary in this section, the articles may provide that one (1) or more specifically identified members, as named in the articles, will be personally liable for all of the debts, obligations and liabilities of the LLC. If that provision is made, each such specifically identified member shall be liable to the same extent as a general partner in a general partnership; provided, that:
  1. In order to be effective, each member so identified shall sign the articles or an amendment to the articles containing this provision; and
  2. Each member identified in the articles shall continue to be personally liable for debts, obligations and liabilities of the LLC until the articles are amended to delete the member's name, but, except as provided in subdivision (f)(2), the amendment shall be signed by a person authorized to bind the LLC under § 48-249-402, and by any remaining members who continue to be identified in the articles as being personally liable for the debts, obligations and liabilities of the LLC.
2. A member who is identified in the articles as being personally liable has the power, but not necessarily the right, to file an amendment to the articles, stating that such member will not be liable for any future debts, obligations and liabilities of the LLC, except with respect to persons that have reasonably relied upon the articles.
3. 1. An amendment to the articles filed under subdivisions (f)(1) and (2) shall be effective immediately, except that such an amendment is not effective against persons reasonably relying upon the articles naming the member as individually liable for the debts, obligations and liabilities of the LLC, until the passage of ninety (90) days from the filing of the amendment to the articles.
  2. Notwithstanding subdivision (f)(3)(A), such member shall continue to be liable for all debts and obligations of the LLC incurred by the LLC during the time that the member was identified in the articles as being personally liable.

Acts 2005, ch. 286, § 1; 2020, ch. 604, § 4.

Amendments. The 2020 amendment deleted “this” following “Notwithstanding” in (f)(3)(B).

Effective Dates. Acts 2020, ch. 604, § 5. March 20, 2020.

NOTES TO DECISIONS

1. Member Liability.

Pursuant to T.R.A.P. 13(d), in parties' employment dispute, the evidence did not support the trial court's piercing of the veil of the employer in order to hold the president personally liable for an employee's unpaid compensation under T.C.A. §§ 48-217-101(a)(1) and 48-249-114(a)(1)(B), as the assurances of payment by the president were made on behalf of the employer-limited liability company rather than by him personally; his assurances were qualified that the employee would receive compensation when the employer had the money to pay it. Edmunds v. Delta Partners, L.L.C., 403 S.W.3d 812, 2012 Tenn. App. LEXIS 884 (Tenn. Ct. App. Dec. 18, 2012), rehearing denied, — S.W.3d —, 2013 Tenn. App. LEXIS 28 (Tenn. Ct. App. Jan. 9, 2013), appeal denied, Edmunds v. Delta Partners, LLC, — S.W.3d —, 2013 Tenn. LEXIS 457 (Tenn. May 9, 2013).

2. Pleading.

Defendants had not pleaded the statute as an affirmative defense, which it had to be, and they did not argue that the ruling that they were individually liable was in error, and the ruling was affirmed. Philp v. Southeast Enters., LLC, — S.W.3d —, 2018 Tenn. App. LEXIS 73 (Tenn. Ct. App. Feb. 9, 2018), appeal denied, Philp v. Southeast Enters., LLC, — S.W.3d —, 2018 Tenn. LEXIS 329 (Tenn. June 7, 2018).

48-249-115. Indemnification.

Definitions. As used in this section, unless the context otherwise requires:
1. “Expenses” means, without limitation, counsel fees;
2. “Liability” means the obligation to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding;
3. “LLC” includes any domestic LLC and any domestic or foreign predecessor of an LLC in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction;
4. 1. “Official capacity” means:
    1. With respect to a director in a director-managed LLC, the position of director;
    2. With respect to a manager in a manager-managed LLC, the position of manager;
    3. With respect to a member in a member-managed LLC, a member who took an action of management as a member; and
    4. With respect to a person in a capacity not described in subdivision (a)(4)(A)(i), (a)(4)(A)(ii) or (a)(4)(A)(iii), the elective or appointive office or position held by an officer, member of a committee of the board of directors or member of a committee of the managers or members or the employment or agency relationship undertaken by an employee or agent on behalf of the LLC; and
  2. “Official capacity” does not mean service for any other foreign or domestic entity;
5. “Party” means an individual who was, is or is threatened to be made a named defendant or respondent in a proceeding;
6. “Responsible person” means an individual who is or was a director of a director-managed LLC, a manager of a manager-managed LLC or a member of a member-managed LLC, or an individual who, while a director of a director-managed LLC, a manager of a manager-managed LLC, or a member of a member-managed LLC, is or was serving at the LLC's request as a director, manager, officer, partner, trustee, employee or agent of an employee benefit plan or any other foreign or domestic entity. For purposes of this subdivision (a)(6), a director of a director-managed LLC, a manager of a manager-managed LLC or a member of a member-managed LLC is considered to be serving an employee benefit plan at the LLC's request, if the director's, manager's or member's duties to the LLC also impose duties on, or otherwise involve services by, the director, manager or member to the plan or to participants in or beneficiaries of the plan. “Responsible person” includes, unless the context requires otherwise, the estate or personal representative of a responsible person; and
7. “Special legal counsel” means counsel who has not represented the LLC or a related LLC, or a member, director, manager, member of a committee of the board of directors, member of a committee of the managers, member of a committee of the members, officer, agent or employee, whose indemnification is in issue.
Authority to indemnify.
1. Except as provided in subsection (d), an LLC may indemnify an individual made a party to a proceeding, because such individual is or was a responsible person against liability incurred in the proceeding, if the individual:
  1. Acted in good faith;
  2. Reasonably believed:
    1. In the case of conduct in such individual's official capacity with the LLC, that such individual's conduct was in the LLC's best interest; and
    2. In all other cases, that such individual's conduct was at least not opposed to the LLC's best interests; and
  3. In the case of any criminal proceeding, had no reasonable cause to believe such individual's conduct was unlawful.
2. A responsible person's conduct, with respect to an employee benefit plan for a purpose such person reasonably believed to be in the best interests of the participants in and beneficiaries of the plan, is conduct that satisfies the requirement of subdivision (b)(1)(B).
3. The termination of a proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere, or its equivalent, is not, of itself, determinative that the responsible person did not meet the standard of conduct described in this section.
4. Except as provided in subsection (e), an LLC may not indemnify a responsible person under this section:
  1. In connection with a proceeding by, or in the right of, the LLC in which the responsible person was adjudged liable to the LLC; or
  2. In connection with any other proceeding charging improper personal benefit to such responsible person, whether or not involving action in such person's official capacity, in which such person was adjudged liable on the basis that personal benefit was improperly received by such person.
Mandatory indemnification. An LLC shall indemnify a responsible person who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party, because the person is or was a responsible person, against reasonable expenses incurred by the person in connection with the proceeding.
Advances for expenses.
1. An LLC may pay for or reimburse the reasonable expenses incurred by a responsible person who is a party to a proceeding, in advance of final disposition of the proceeding, if:
  1. The responsible person furnishes the LLC a written affirmation of good faith belief that such responsible person has met the standard of conduct described in subsection (b);
  2. The responsible person furnishes the LLC a written undertaking, executed personally or on such responsible person's behalf, to repay the advance, if it is ultimately determined that the responsible person is not entitled to indemnification; and
  3. A determination is made that the facts then known to those making the determination would not preclude indemnification under this section.
2. The undertaking required by subdivision (d)(1)(B) shall be an unlimited general obligation of the responsible person, but need not be secured, and may be accepted without reference to financial ability to make repayment.
3. Determinations and authorizations of payments under this section shall be made in the manner specified in subsection (f).
Court ordered indemnification. A responsible person who is a party to a proceeding may apply for indemnification to the court conducting the proceeding, or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification, if it determines:
1. The responsible person is entitled to mandatory indemnification under subsection (c), in which case the court shall also order the LLC to pay the responsible person's reasonable expenses incurred to obtain court ordered indemnification; or
2. The responsible person is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the responsible person met the standard of conduct set forth in subdivision (b)(1), or was adjudged liable as described in subdivision (b)(4). If the responsible person was adjudged so liable, the responsible person's indemnification is limited to reasonable expenses incurred.
Determination and authorization of indemnification.
1. Except as provided in subsection (e), an LLC may not indemnify a responsible person under subsection (b), unless authorized in the specific case, after a determination has been made that indemnification of the responsible person is permissible in the circumstances, because the responsible person has met the standard of conduct set forth in subdivision (b)(1).
2. Such determination shall be made:
  1. By the board of directors of a director-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, as applicable, by majority vote of a quorum consisting of directors, managers or members, as applicable, not at the time parties to the proceeding;
  2. If a quorum cannot be obtained under subdivision (f)(2)(A), by majority vote of a committee duly designated by the board of directors of a board-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, as applicable, in which designation directors, managers or members, as applicable, who are parties may participate, consisting solely of two (2) or more directors, managers or members, as applicable, who are not at the time parties to the proceeding;
  3. By special legal counsel:
    1. Selected by the board of directors of a director-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, as applicable, or by a committee in the manner prescribed in subdivision (f)(2)(A) or (f)(2)(B); or
    2. If a quorum of the board of directors of a director-managed LLC, the managers of a manager-managed LLC, or the members of a member-managed LLC, as applicable, cannot be obtained under subdivision (f)(2)(A) and a committee cannot be designated under subdivision (f)(2)(B), selected by majority vote of the full board of directors of a director-managed LLC, by the managers of a manager-managed LLC, or by the members of a member-managed LLC, in which selection directors, managers or members, as applicable, who are parties to the proceeding may participate; or
  4. By a majority vote of the members of a director-managed LLC or a manager-managed LLC, but voting rights owned or controlled by members who are at the time parties to the proceeding may not be voted on the determination.
3. Authorization of indemnification, and evaluation as to reasonableness of expenses, shall be made in the same manner as the determination that indemnification is permissible, except that, if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subdivision (f)(2)(C) to select counsel.
Indemnification of officers, employees and agents.
1. An officer of the LLC who is not a responsible person is entitled to mandatory indemnification under subsection (c), and is entitled to apply for court-ordered indemnification under subsection (e), in each case, to the same extent as a responsible person.
2. The LLC may indemnify and advance expenses to an officer, employee, independent contractor or agent of the LLC who is not a responsible person, to the same extent as a responsible person.
3. An LLC may also indemnify and advance expenses to an officer, employee, independent contractor or agent who is not a responsible person, to the extent, consistent with public policy, that may be provided by its LLC documents, by general or specific action of the board of directors of a director-managed LLC, by the managers of a manager-managed LLC, by the members of a member-managed LLC, or by contract.
Insurance. An LLC may purchase and maintain insurance on behalf of a person who is or was a responsible person, officer, employee, independent contractor or agent of the LLC, or who, while a responsible person, officer, employee, independent contractor or agent of the LLC, is or was serving at the request of the LLC as a responsible person, officer, partner, trustee, employee, independent contractor or agent of an employee benefit plan or any other domestic or foreign entity, against liability asserted against or incurred by such person acting in that capacity, or arising from the person's status as a responsible person, officer, employee, independent contractor or agent, whether or not the LLC would have power to indemnify the person against the same liability under subsection (b), (c) or (g).
Nonexclusivity.
1. The indemnification and advancement of expenses, granted under or provided by this section, shall not be deemed exclusive of any other rights to which a responsible person seeking indemnification or advancement of expenses may be entitled, whether contained in this section, the LLC documents, or, when authorized by such LLC documents, action of the members, directors or managers or an agreement providing for such indemnification; provided, that no indemnification may be made to or on behalf of any responsible person, if a judgment, or other final adjudication adverse to the responsible person or officer, establishes such person's liability:
  1. For any breach of the duty of loyalty to the LLC or its members;
  2. For acts or omissions not in good faith, or that involve intentional misconduct or a knowing violation of law; or
  3. Under § 48-249-307.
2. Nothing contained in this section shall affect any rights to indemnification to which the LLC's personnel, other than responsible persons, may be entitled by contract or otherwise under law. If the LLC documents limit indemnification or advances for expenses, indemnification and advances for expenses are valid only to the extent consistent with the LLC documents.
3. This section does not limit an LLC's power to pay or reimburse expenses incurred by a responsible person, officer, employee, independent contractor or agent, in connection with such person's appearance as a witness in a proceeding, at a time when such person has not been made a named defendant or respondent to the proceeding.

Acts 2005, ch. 286, § 1.

48-249-116. LLC as legal entity.

An LLC is a legal entity distinct from its members.

Acts 2005, ch. 286, § 1.

Part 2
Formation, Articles of Organization and Operating Agreement

48-249-201. Formation.

Formation. One (1) or more persons acting as organizers may form an LLC by filing articles for the LLC with the secretary of state that contain the information required by § 48-249-202. Unless a delayed effective date, or an occurrence of a future event, is specified in the articles, the LLC is formed and its existence begins when the articles are filed with the secretary of state. Subject to subsection (c), if a delayed effective date, or an occurrence of a future event, is specified in the manner permitted by § 48-249-202(a)(7), the LLC is formed and its existence begins at the future date specified in the articles, or on the occurrence of the future event specified in the articles, neither of which may be or may occur more than ninety (90) days from the initial filing of the articles.
Conclusive proof of formation. If the date of formation is the date of filing of the articles, or a later date specified in the articles at the time of filing, filing of the articles with the secretary of state is conclusive proof that the organizers satisfied all conditions precedent to formation as of the date of filing, or the specified later date, except in a proceeding by the state to cancel or revoke the formation or existence of the LLC, or to dissolve the LLC involuntarily.
Certificate of formation. If the date of formation of the LLC is to be the date of a future event specified in the articles, the organizers or any member may, within thirty (30) days after the date the future event occurs, file a certificate of formation that states that the LLC was formed and that sets forth the date of formation. The filing of the certificate of formation with the secretary of state is conclusive proof that the organizers satisfied all conditions precedent to formation, except in a proceeding by the state to cancel or revoke the formation or existence of the LLC, or to dissolve the LLC involuntarily. If a certificate of formation is not filed within one hundred twenty (120) days from the date of initial filing of the articles, the effective date of the formation, and the conclusive effect of the filing, pursuant to this subsection (c), shall be presumed to have occurred on the ninetieth day following the date of filing of the articles. Such presumption, however, may be rebutted.

Acts 2005, ch. 286, § 1.

48-249-202. Articles of organization.

Mandatory contents. The articles shall set forth:
1. A name for the LLC that satisfies the requirements of § 48-249-106;
2. The street address and zip code of the initial registered office of the LLC, the county in which the office is located, and the name of its initial registered agent at that office;
3. The street address and zip code of the principal executive office of the LLC (and a mailing address such as a post office box if the United States postal service does not deliver to the principal executive office), and the county in which the office is located;
4. A statement as to whether the LLC will be member-managed, manager-managed, or director-managed;
5. If the LLC will have more than six (6) members at the date of filing of the articles, a statement of the number of members at the date of the filing of the articles;
6. If, under § 48-249-114(f), one (1) or more members are personally liable for all of the debts, obligations and liabilities of the LLC, the information required in § 48-249-114(f);
7. If the existence of the LLC is to begin upon a future date, or the occurrence of a specific event, the future date or a description of the specific event; except that, in no event may the future date, or the actual occurrence of the specific event, be more than ninety (90) days after the filing of the articles in compliance with § 48-249-201;
8. If the LLC, while being formed under Tennessee law, is not to engage in business in Tennessee, a statement that the LLC is prohibited from engaging in business in Tennessee;
9. If the duration of the LLC is to be limited to a specific period of time or term of years, such limitation and the future date on which dissolution is to occur or the term of years shall be stated in the articles; and
10. Any additional information as required by the secretary of state.
Optional contents.
1. The articles may set forth:
  1. Provisions permitted to be set forth in an operating agreement;
  2. Other provisions not inconsistent with law, relating to the management of the business or the regulation of the affairs of the LLC;
  3. If the LLC is director-managed, a provision eliminating or limiting the personal liability of a director to the LLC or its members for monetary damages for breach of fiduciary duty as a director; provided, that such provision shall not eliminate or limit the liability of a director:
    1. For any breach of the director's duty of loyalty to the LLC or its members;
    2. For acts or omissions not in good faith, or that involve intentional misconduct or a knowing violation of law; or
    3. Under § 48-249-307; and
  4. A statement to the effect that § 48-249-503(b)(2) shall not apply to the LLC, regardless of whether the LLC falls within the definition of a “family LLC” under § 48-249-102(10).
2. No provision included in the articles under subdivision (b)(1)(C) shall eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision becomes effective. All references in subdivision (b)(1)(C) to a “director” are also deemed to refer to a member who, under the operating agreement, has been delegated some or all of the rights of a director in the management and conduct of the LLC's business, as set forth in § 48-249-403(i)(2). If the secretary of state prescribes a form for articles, such form shall contain substantially the following statement: “If the LLC desires that § 48-249-503(b)(2), which restricts withdrawals from a ‘family LLC’, NOT apply to the LLC, regardless of whether the LLC falls within the definition of a ‘family LLC’, place an ‘x’ in the following space: .”
Statement of powers not necessary. It is not necessary to set forth in the articles any of the LLC powers granted by this chapter.
Nonwaivable provisions; conflict with operating agreement. The articles may not contain any provisions prohibited by § 48-249-205(b). As to all other matters, if the articles are inconsistent with any provision of an operating agreement, the articles shall control.

Acts 2005, ch. 286, § 1; 2014, ch. 783, § 14; 2020, ch. 719, § 18.

Amendments. The 2020 amendment added (a)(10).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-249-203. Operating agreement.

General. Except as otherwise provided in § 48-249-205, all members of an LLC may enter into an operating agreement to regulate the affairs of the LLC and the conduct of its business, and to govern relations between or among the members, holders, managers, directors, officers and the LLC, as applicable. Persons other than members, including holders of financial rights, may, but need not, also enter into the operating agreement. The LLC also may be a party to the operating agreement. An operating agreement may be entered into either before, after or at the time of filing of articles of organization, and, whether entered into before, after or at the time of such filing, may be made effective as of the formation of the LLC, or at a later time or date provided in the operating agreement. Except to the extent the articles of organization or a written provision of an operating agreement specifically require otherwise, an operating agreement need not be in writing. The written provisions of an operating agreement need not be set out in a single integrated document.
Judicial remedy. A court of equity may enforce an operating agreement by injunction, or by other equitable relief determined by the court, in its discretion, to be fair and appropriate in the circumstances. As an alternative to injunctive or other equitable relief, when § 48-249-601 is applicable, a court of equity may conduct or continue the dissolution, winding up and termination of the LLC.
Single-member LLC. An LLC with a single member may adopt, and, if so, shall be bound by, an operating agreement between the member and the LLC.
LLC bound. An LLC is bound by an operating agreement, even if the LLC is not a signatory to the agreement.
Binding on subsequent members and holders. The articles or the written provisions of an operating agreement of an LLC adopted under subsection (a) may provide that the written provisions of the LLC's operating agreement shall be binding upon a person who thereafter becomes a member or holder, without executing an existing operating agreement, if the new member or holder otherwise complies with the conditions for becoming a member or holder, as set forth in the LLC documents of such LLC.

Acts 2005, ch. 286, § 1.

48-249-204. Amendment or restatement of articles of organization — Amendment of operating agreement.

Amendment procedure. Articles of organization of an LLC may be amended at any time, by filing articles of amendment with the secretary of state. The articles of amendment shall set forth the:
1. Name of the LLC;
2. Date of each amendment's adoption; and
3. Text of each amendment to the articles.
Restatement. An LLC may restate its articles of organization at any time. Restated articles of organization shall be designated as such in the heading; provided, that, if the restatement also contains one (1) or more amendments to the articles, the restatement shall be designated in the heading as “Amended and Restated Articles of Organization.” An LLC restating its articles shall file the restated articles with the secretary of state, together with a certificate setting forth the name of the LLC and the date of approval by the LLC of the restatement. If the restatement contains any amendments to the articles, such certificate shall also set forth the text of each amendment and the date of its adoption. The restated articles shall contain all the requirements of articles as set out in § 48-249-202. Duly adopted and restated articles supersede the original articles and all prior amendments to the articles. The secretary of state may certify restated articles as the articles currently in effect, without including the certificate information required by this subsection (b).
Approval. Any amendment to an LLC's articles shall be approved by all of the members; provided, however, that amendment of any of the matters set forth in the articles under any of § 48-249-202(a)(1), (a)(2), (a)(3) or (a)(5) only need be approved by a majority vote of the members. A restatement of the articles, to the extent not also involving an amendment of the articles, may be approved by action under § 48-249-401(a)(2), (b)(2) or (c)(2), as applicable. Any amendment to an LLC's operating agreement shall be approved by the method provided in its LLC documents. If the LLC documents do not provide for the method by which an operating agreement may be amended, all of the members shall approve any amendment to the operating agreement.

Acts 2005, ch. 286, § 1.

48-249-205. Waivable and nonwaivable provisions.

Provisions generally waivable. To the extent the LLC documents do not otherwise provide, this chapter governs relations among the members, holders of financial rights, managers, directors, officers and the LLC, as applicable. It is the express intent of the legislature of this state that members of an LLC may modify, alter or waive any provisions of this chapter in the LLC documents, except as otherwise set forth in subsection (b).
Nonwaivable provisions. The LLC documents may not:
1. Vary the requirement under § 48-249-102(6) that a director be an individual or vary the requirement under § 48-249-102(23) that an officer be an individual;
2. Vary the notice requirements under § 48-249-103, or under the other provisions of this chapter, in a manner that is manifestly unreasonable;
3. Vary the requirements with respect to the LLC's name under § 48-249-106;
4. Vary the requirements under § 48-249-112(c), regarding the Workers' Compensation Law, compiled in title 50, chapter 6;
5. Eliminate or vary the potential for personal liability under § 48-249-114(a)(2) or (d);
6. Eliminate or vary the restrictions on indemnification in § 48-249-115(i)(1)(A), (i)(1)(B) or (i)(1)(C);
7. Eliminate or vary any restrictions in § 48-249-202(b)(1)(C)(i), (b)(1)(C)(ii) or (b)(1)(C)(iii), on the elimination or limitation of the personal liability of a director under § 48-249-202(b)(1)(C);
8. Eliminate or vary this section;
9. Eliminate or vary the restrictions on distributions in § 48-249-306;
10. Eliminate or vary the liability for unlawful distributions in § 48-249-307;
11. Authorize a director to appoint a proxy;
12. Unreasonably restrict a right to information or access to records under § 48-249-308;
13. Eliminate the duty of loyalty under § 48-249-403(b)(1) or (b)(2), but the LLC documents may:
  1. Identify specific types or categories of activities that do not violate the duty of loyalty under § 48-249-403(b)(1) or (b)(2), if not manifestly unreasonable; and
  2. Specify the number or percentage of members, disinterested managers or disinterested directors, which may be greater or lesser than the number or percentage required under § 48-249-404, if applicable, that may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty;
14. Unreasonably reduce the duty of care under § 48-249-403(c), (h)(2), (i)(4)(B), (i)(4)(C), (j)(2) or (j)(3);
15. Eliminate the obligation of good faith and fair dealing under § 48-249-403(d), but the LLC documents may determine the standards by which performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
16. Eliminate the obligation of good faith under § 48-249-403(i)(4)(A) or (j)(1), but the LLC documents may determine standards by which the performance of the obligation is to be measured, if the standards are not manifestly unreasonable;
17. Vary the right to expel a member in an event specified in § 48-249-503(a)(6);
18. Vary the requirement to wind up the LLC's business in an event specified in § 48-249-601(a)(5);
19. Eliminate or vary § 48-249-401(f)(7), part 10 or part 11 of this chapter;
20. Vary any requirements relating to documents required to be filed with the secretary of state or any register of deeds, or otherwise vary or restrict any other rights of the secretary of state or any register of deeds; or
21. Otherwise vary or restrict any rights of any other person under this chapter, other than rights of a manager, director, officer, employee, agent, member or holder of financial rights.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 20-22.

NOTES TO DECISIONS

1. Duty of Loyalty.

In a case in which two brothers formed a limited liability company (LLC) to own and lease a commercial property, the operating agreement did not bar the corporate opportunity claims because the LLC's operating agreement did not reference specific types or categories of activities that would be permissible and would not violate the fiduciary duty of loyalty; and, to the extent the older brother argued that the waiver of the fiduciary duty of loyalty extended to business ventures of every nature and description such a blanket waiver would not comply with the Tennessee Revised Limited Liability Company Act as waiver of fiduciary duties had to be clear and specific. Mulloy v. Mulloy, — S.W.3d —, 2019 Tenn. App. LEXIS 504 (Tenn. Ct. App. Oct. 10, 2019).

Part 3
Finance

48-249-301. Contribution and acceptance.

Permissible forms. A contribution to an LLC may consist of tangible or intangible property or other benefit to the LLC, including money, a promissory note, services performed, or an obligation or agreement to contribute money or property, or to perform services.
Signed writing required. A contribution agreement, whether made before or after the formation of the LLC, is not enforceable against the prospective contributor, unless it is in writing and signed by the prospective contributor.
Acceptance required. Neither a purported contribution nor an offer of consideration to make a contribution shall be treated as a contribution to an LLC until:
1. The contribution is accepted by the members, in the case of a member-managed LLC, by both the members and the managers, in the case of a manager-managed LLC, or by both the members and the directors, in the case of a director-managed LLC; and
2. The amount and value of the contribution are recorded in the LLC documents or the records of the LLC.
Required determinations. The amount, the terms and conditions of payment or performance, and the value and adequacy of the consideration to an LLC for each contribution, shall be determined by the members, in the case of a member-managed LLC, by both the members and the managers, in the case of a manager-managed LLC, or by both the members and the directors, in the case of a director-managed LLC. The determination of the amount, value and adequacy of the consideration to an LLC for a contribution is valid and binding, if made in good faith and on the basis of accounting methods or a fair valuation or other method, including agreement as to value by the contributor and the LLC, as provided in this section, reasonable in the circumstances. Inclusion of the amount of a contribution and the value of the consideration for a contribution in the LLC documents or the records of the LLC is evidence of the acceptance of the amount and the value of a contribution.
Required approval. The vote or consent of the members required to accept a contribution shall be the same as the vote or consent required to admit a member under § 48-249-501.

Acts 2005, ch. 286, § 1.

48-249-302. Liability for contributions.

Obligation to perform. A member or other person who has agreed in writing to make a contribution of tangible or intangible property or other benefit to, or to perform services for, an LLC is obligated to make that contribution, even if the member or other person is unable to perform personally because of death, disability or any other reason.
Option to require cash. If a member or other person does not make a required contribution of property or services, then, at the option of the LLC to which the member or other person is obligated, the member or the other person shall be obligated to contribute money equal to the value, as stated in the LLC documents or the records of the LLC, of the portion of the required contribution that has not been made. This option of the LLC is in addition to, and not in lieu of, any other rights and remedies, including the right to specific performance, that the LLC or its members may have against such member or other person, whether under this chapter, under the LLC documents, or otherwise.
Enforcement by creditor. A creditor of an LLC that extends credit or otherwise acts in reliance on an obligation described in subsection (a), and without notice of any compromise under § 48-249-401(f)(3), may enforce the original obligation.
Remedies on default. The LLC documents may provide that the interest of any member or other person who fails to make any contribution that the member or other person is obligated to make to an LLC shall be subject to specified penalties for, or specified consequences of, such failure. Such a penalty or consequence may take the form of:
1. Reducing or eliminating the defaulting member's or person's proportional interest in the LLC;
2. Subordinating the interest of the defaulting member or other person to that of nondefaulting members or other persons;
3. Forcing a sale of the interest of the defaulting member or other person;
4. Causing forfeiture of the interest of the defaulting member or other person;
5. Permitting other members or persons to lend to the LLC the amount necessary to satisfy the obligation of the defaulting member or other person, and charging interest on the borrowed amount, at a rate up to the highest rate allowed by law, with repayments of the loans being made from the distributions allocable to the interest of the defaulting member or other person;
6. Fixing the value of the interest of the defaulting member or other person by appraisal or by formula and redemption, or selling the interest of the defaulting member or other person at that fixed value; or
7. Any other penalty or consequence.

Acts 2005, ch. 286, § 1.

48-249-303. Interests in LLC.

Classification of interests. The LLC documents may provide for classes or groups of directors, managers, members or holders of financial rights, having the relative rights, preferences, limitations, powers and duties provided in the LLC documents, and may make provision for the future creation, in the manner provided in the LLC documents, of additional classes or groups of directors, managers, members or holders of financial rights having the relative rights, powers and duties from time to time established, including financial rights, preferences, limitations, powers and duties that are senior or subordinate to existing classes and groups of directors, managers, members or holders of financial rights. The LLC documents may provide for the taking of an action, including the amendment of the LLC documents, without the vote or approval of any director, manager, member or holder of financial rights or of any class or group of directors, managers, members or holders of financial rights, including an action to create a class or group of directors, managers, members or holders of financial rights under the LLC documents. The LLC documents may denominate membership interests or financial rights as units, shares, percentages, participations, distribution interests, ownership or economic interests, with or without voting rights, and with or without fixed or variable rights to participate in distributions, assets and properties, allocations of profits and losses and fixed or variable obligations to the LLC or any combination of these things.
Voting rights. The LLC documents may grant to all or certain identified directors, managers, members or holders of financial rights, or to one (1) or more specified classes or groups of the directors, managers, members or holders of financial rights, the right to vote separately or to vote with all or any other classes or groups of directors, managers, members or holders of financial rights, on any matter. The voting rights of directors, managers, members and holders of financial rights may be per capita, or by number, unit, share, percentage, participation, economic interest or financial rights, or by one (1) or more classes or groups, or on any other basis. The LLC documents may provide that any director, manager, member or holder of financial rights, or any class or group of directors, managers, members or holders of financial rights, shall have full, partial, limited or no voting rights with respect to any or all matters.
Financial rights nonvoting. Except as otherwise provided in the LLC documents, a holder of financial rights that is not also a member does not have a right to vote by reason of, or with respect to, such financial rights.
Parity of interests. Except as otherwise provided in the LLC documents, all membership interests and financial rights shall be of the same class and group, with the same relative rights, powers and duties, and without preferences, subordinations or limitations.

Acts 2005, ch. 286, § 1.

48-249-304. Sharing of and rights to profits and losses.

LLC documents control. Any profits and losses of an LLC shall be allocated among the members and holders of financial rights in the manner provided in the LLC documents.
LLC documents silent. If the LLC documents do not provide for allocations of profits and losses, profits and losses shall be allocated among the members and holders of financial rights in equal shares.
Record date. The LLC documents may provide for a record date with respect to allocations of profits and losses.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 23.

NOTES TO DECISIONS

1. Return of Capital.

Trial court did not err in finding that distribution of the proceeds of the sale of a limited liability company (LLC) solely to the chief manager of the LLC was legal because the manager made the sole capital contribution to the LLC; there was absolutely no documentary evidence in the record to show that a member of the LLC made a capital contribution to the LLC. Huggins v. McKee, 500 S.W.3d 360, 2016 Tenn. App. LEXIS 354 (Tenn. Ct. App. May 31, 2016), appeal denied, — S.W.3d —, 2016 Tenn. LEXIS 697 (Tenn. Sept. 22, 2016).

48-249-305. Sharing of and rights to distributions.

LLC documents control. Any distributions by an LLC shall be allocated and distributed among the members and holders of financial rights in the manner provided in the LLC documents.
LLC documents silent. If the LLC documents do not provide for the allocations of distributions, then distributions, including distributions on termination of the LLC, except as provided in § 48-249-620, shall be allocated among the members and holders of financial rights in equal shares.
Record date. The LLC documents may provide for a record date with respect to distributions.
In kind distributions. Neither a member nor a holder has a right to demand or receive a distribution in kind, regardless of the contribution of the member or holder. Neither a member nor a holder may be compelled to accept a distribution of any asset in kind from an LLC, to the extent that the percentage of the asset distributed to the member or holder exceeds a percentage of that asset that is equal to the percentage in which the member or holder shares in distributions from the LLC.
Status of recipient. If a member or holder of financial rights becomes entitled to receive a distribution, the member or holder of financial rights has the status of, and is entitled to all remedies available to, a general, unsecured creditor of the LLC with respect to the distribution.
Entitlement to receive distributions. A member or holder of financial rights is entitled to receive distributions before dissolution, only as provided by the LLC documents or by a majority vote of the members of a member-managed LLC, the managers of a manager-managed LLC, or the directors of a director-managed LLC, as applicable.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 24.

NOTES TO DECISIONS

1. Return of Capital.

48-249-306. Limitations on distributions.

Restriction on distributions. No distribution may be made by an LLC, if, after giving effect to the distribution:
1. The LLC would not be able to pay its debts as they become due in the ordinary course of business; or
2. The LLC's total assets would be less than the sum of its total liabilities, other than liabilities for which the recourse of creditors is limited to specified property, plus the amount that would be needed, if the LLC were to be dissolved, wound up and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up and termination of members and holders of financial rights, whose preferential rights are superior to those receiving the distribution; provided, however, that the value of property that is subject to a liability for which the recourse of creditors is limited shall be included in the total assets of the LLC, only to the extent that the value of the property exceeds such liability.
Basis for determination. An LLC may base a determination that a distribution is not prohibited under subsection (a) on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances, or on a fair valuation or other method that is reasonable in the circumstances.
Timing of determination. Except as otherwise provided in subsection (f), the effect of a distribution under subsection (a) is measured:
1. In the case of distribution by purchase, redemption or other acquisition of a membership interest or financial rights in an LLC, as of the date money or other property is transferred or debt incurred by the LLC; and
2. In all other cases, as of the date the:
  1. Distribution is authorized, if the payment occurs within four (4) months after the date of authorization; or
  2. Payment is made, if it occurs more than four (4) months after the date of authorization.
Parity of indebtedness. Indebtedness of an LLC to a member or holder of financial rights, or indebtedness incurred by reason of a distribution made in accordance with this section, is at parity with the LLC's indebtedness to its general, unsecured creditors, except to the extent such indebtedness is subordinated by agreement, or, in the event of dissolution and liquidation, to the extent otherwise provided in § 48-249-620.
Status as liability. Indebtedness of an LLC, including indebtedness issued in connection with, or as part of, a distribution, is not considered a liability for purposes of determinations under subsection (a), if its terms provide that payment of principal and interest are made only if, and to the extent that, payment of a distribution to members and holders of financial rights could then be made under this section.
Treatment of payments. If the indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made.

Acts 2005, ch. 286, § 1.

48-249-307. Liability for unlawful distributions.

Personal liability for approving. A member, manager or director of an LLC who votes for or consents to a distribution made in violation of § 48-249-306 or the LLC documents is personally liable to the LLC for the amount of the distribution that exceeds the amount that could have been distributed without violating § 48-249-306 or the LLC documents, if such member, manager or director did not comply with the applicable standards of conduct for such member, manager or director, as set forth in § 48-249-403.
Personal liability for receiving. A member or holder of financial rights who receives a distribution, and who knows the distribution was made in violation of § 48-249-306 or the LLC documents, is personally liable to the LLC, but only to the extent that the distribution received by the member or holder of financial rights exceeded the amount that could have been properly distributed under § 48-249-306 or the LLC documents.
Permitted impleader. A member, holder of financial rights, manager or director against whom an action is brought under this section may implead in the action all:
1. Other members, holders of financial rights, managers and directors who voted for or consented to the distribution in violation of subsection (a), and may compel contribution from them; and
2. Members and holders of financial rights who received a distribution in violation of subsection (b), and may compel contribution from the members or holders of financial rights in the amount received in violation of subsection (b).
Time limitation. A member or holder of financial rights who receives a distribution from an LLC or a member, manager or director who votes for or consents to the distribution shall have no liability under this section or other applicable law for the amount of the distribution after the expiration of three (3) years from the date of the distribution.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 25, 26.

48-249-308. Right to information.

General. An LLC shall provide members, and their agents and attorneys, access to its records at the LLC's principal executive office or other reasonable location specified in the LLC documents. An LLC shall provide former members, and their agents and attorneys, access to records for proper purposes pertaining to the periods during which they were members. The right of access provides the opportunity to inspect or copy records during ordinary business hours, if the member, or its agent or attorney, gives the LLC written notice of such demand at least five (5) business days before the date on which the member, or its agent or attorney, wishes to inspect or copy. An LLC may impose a reasonable charge, limited to the costs of labor and material, for copies of records furnished under this subsection (a), except that copies of the LLC documents and records required to be maintained under § 48-249-406 shall be copied upon demand and at the LLC's expense.
Members. An LLC shall furnish to a member and to the personal representative of a deceased member or member under legal disability:
1. Without demand, information reasonably required to comply with the requirements of either federal or state tax laws concerning the member's financial rights, if any, and information concerning the LLC's business or affairs reasonably required for the proper exercise of the member's rights and performance of the member's duties under the LLC documents or this chapter; and
2. On written demand, other information concerning the LLC's business or affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.
Holders of financial rights. Holders of financial rights, and their agents and attorneys, shall have a limited right of access, in order to obtain information reasonably required to comply with the requirements of either federal or state tax laws concerning their financial rights. The right of access provides the opportunity to inspect or copy records for such purpose during ordinary business hours, if the holder of financial rights, or its agent or attorney, gives the LLC written notice of a demand to inspect or copy the records at least five (5) business days before the date on which the holder of financial rights, or its agent or attorney, wishes to inspect or copy. An LLC may impose a reasonable charge, limited to the costs of labor and material, for copies of records furnished.
Remedies. If an LLC does not allow a member that complies with subsection(a), or a holder of financial rights that complies with subsection (c), as applicable, to inspect or copy any records required by the applicable subsection to be available for inspection, a court in the county in which the principal executive office of the LLC, or, if none in this state, its registered office, is located may summarily order inspection or copying of the records demanded, at the expense of the LLC, on application of such member or holder of financial rights, as applicable. If the court orders inspection or copying of the records demanded, it shall also order the LLC to pay the costs, including reasonable attorneys fees, of the member or holder of financial rights, as applicable, incurred to obtain the order, if the member or holder of financial rights proves that the LLC refused inspection without a reasonable basis for doubt regarding the right of the member or holder of financial rights to inspect the records demanded. If the court orders inspection or copying of the records demanded, it may impose reasonable restrictions on the use or distribution of the records by the demanding member or holder of financial rights, as applicable.

Acts 2005, ch. 286, § 1.

48-249-309. Series of members, holders, managers, directors, membership interests or financial rights.

Establishment of series. The LLC documents may establish, or provide for the establishment of, one (1) or more designated series of members, holders, managers, directors, membership interests or financial rights having separate rights, powers or duties, with respect to specified property or obligations of the LLC, or profits and losses associated with specified property or obligations, and any such series may have a separate business purpose or investment objective.
Separateness of series.
1. Notwithstanding anything to the contrary set forth in this chapter, or under other applicable law, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing, with respect to a particular series established under subsection (a), shall be enforceable against the assets of such series only, and not against the assets of the LLC generally, or any other series of the LLC, and, unless otherwise provided in the LLC documents, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the LLC generally, or any other series of the LLC, shall be enforceable against the assets of such series, in the event that:
  1. The LLC documents establish or provide for the establishment of one (1) or more series;
  2. Separate and distinct records are maintained for any such series, and the assets associated with any such series are reflected and held in such separate and distinct records, directly or indirectly, including through a nominee or otherwise, and accounted for in such separate and distinct records separately from the other assets of the LLC and the assets of any other series of the LLC; and
  3. Notice of the limitation on liabilities of a series, as referenced in this subsection (b) is set forth in the articles of the LLC.
2. Notice in the articles of the limitation on liabilities of a series as provided in this subsection (b) shall be sufficient for all purposes of this chapter, whether or not the LLC has established any series, when such notice is included in the articles, and there shall be no requirement that any specific series of the LLC be referenced in such notice. The fact that articles that contain the notice of the limitation on liabilities of a series is on file with the secretary of state shall constitute notice of such limitation on liabilities of a series.
Voluntary personal liability. Notwithstanding § 48-249-114(a), a member may agree to be liable for all of the debts, liabilities and obligations of one (1) or more specified series of an LLC, by provision in the articles with respect to such specified series in the manner set forth in § 48-249-114(f). Such provision in the articles with respect to one (1) or more specified series of an LLC shall not cause the member to be liable for the debts, liabilities and obligations of any of the other series of the LLC.
Classification of interests and voting rights. The LLC documents may include the provisions authorized under § 48-249-303(a) or (b), or both, as to the directors, members, managers or holders of financial rights associated with a particular series, as if the series were a separate LLC.
Distributions. Sections 48-249-304 — 48-249-306 shall apply to a series of an LLC, as if the series were a separate LLC.
Management duties; admission of members; transfer. Parts 4 and 5 of this chapter shall apply to a series of an LLC, as if the series were a separate LLC.
Termination. A series of an LLC may be terminated and its affairs wound up without causing the dissolution of the LLC or the termination of any other series of the LLC and without affecting the limitation on liability of the terminated series or any other series of the LLC. All provisions of this chapter regarding dissolution or winding up of an LLC, including the rights of members, directors or managers to cause a dissolution of an LLC, shall apply to a series of an LLC, as if the series were a separate LLC.
Events of termination. A series of an LLC shall be terminated and its affairs shall be wound up upon the occurrence of the same events or reasons as are provided in this chapter for an LLC.
Series of foreign LLCs. If a foreign LLC that is applying for a certificate of authority to transact business in this state, or is authorized to transact business in this state, is governed by articles, an operating agreement or similar equivalent documents that establish or provide for the establishment of designated series of members, directors, managers or interests having separate rights, powers or duties with respect to specified property or obligations of the foreign LLC or profits and losses associated with specified property or obligations, that fact shall be so stated in the foreign LLC's application for a certificate of authority to transact business in this state, or an amendment of such certificate of authority. In addition, the foreign LLC shall state in such application or amendment, as applicable, whether the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a particular series, if any, shall be enforceable against the assets of such series only, and not against the assets of the foreign LLC generally or any other series of the foreign LLC, and, unless otherwise provided in such application or amendment, none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the foreign LLC generally, or any other series of the foreign LLC, shall be enforceable against the assets of such series.
Notwithstanding any provision of this chapter to the contrary, a series of an LLC may, in its own name:
1. Contract;
2. Hold title to assets, including real, personal, and intangible property;
3. Grant liens and security interests; and
4. Sue and be sued.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 27; 2018, ch. 759, § 1.

Part 4
Management

48-249-401. Management of LLC.

Member-managed LLC. In a member-managed LLC:
1. Each member has equal rights in the management and conduct of the LLC's business; and
2. Except as otherwise provided in subsection (e) or (f), any matter relating to the business of the LLC shall be decided by a majority vote of the members.
Manager-managed LLC. In a manager-managed LLC:
1. Each manager has equal rights in the management and conduct of the LLC's business;
2. Except as otherwise provided in subsection (e) or (f), any matter relating to the business of the LLC shall be exclusively decided by the manager, or, if there is more than one (1) manager, by a majority vote of the managers; and
3. A manager:
  1. Shall be designated, appointed, elected, removed, or replaced by a majority vote of the members;
  2. Holds office until a successor has been designated, appointed or elected and qualified, unless the manager sooner resigns or is removed; and
  3. Need not be a member of the LLC.
Director-managed LLC. In a director-managed LLC:
1. All LLC powers shall be exercised under the authority of, and the business and affairs of the LLC shall be managed under the direction of, its board of directors;
2. Except as otherwise provided in subsection (e) or (f), any matter relating to the business of the LLC shall be exclusively decided by the director, or, if there is more than one (1) director, by a majority vote of the directors; and
3. A director:
  1. Shall be designated, appointed, elected, removed, or replaced by a majority vote of the members;
  2. Holds office until a successor has been designated, appointed or elected and qualified, unless the director sooner resigns or is removed; and
  3. Need not be a member of the LLC.
President of director-managed LLC. A director-managed LLC shall have a president who is appointed or elected by a majority vote of the directors and is authorized to act as an agent of the LLC under § 48-249-402(d).
Delegation. The LLC documents or the members, managers or directors of an LLC, by a resolution or other writing, may delegate rights and powers to manage and control the business and affairs of the LLC to one (1) or more officers, agents or employees, who need not be members of the LLC; provided, that such delegation is reasonable under the circumstances and made in good faith.
When unanimous consent required. The only matters of an LLC's business requiring the consent of all of the members are:
1. The amendment of an LLC's operating agreement, if the LLC documents do not provide for the method by which the operating agreement may be amended, as provided in § 48-249-204(c);
2. Any amendment of an LLC's articles of organization that requires approval of all the members under § 48-249-204(c);
3. The compromise of an obligation to make a contribution under § 48-249-302(a);
4. The compromise, as among members, of an obligation of a member to make a contribution or return money or other property paid or distributed in violation of this chapter;
5. The admission of a new member, including without limitation by transfer of any of a member's governance rights to any person not a member, as provided in § 48-249-508(b)(3);
6. The use of the LLC's property to redeem an interest subject to a charging order; and
7. An election by an LLC formed prior to January 1, 2006, to be governed by this chapter, as provided in § 48-249-1002(b).
Proxies. A member or manager may appoint a proxy to vote or otherwise act for the member or manager, by signing an appointment instrument.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 28.

NOTES TO DECISIONS

1. Illustrative Cases.

Bankruptcy court granted a motion for relief under Fed. R. Civ. P. 60(b)(3) and Fed. R. Bankr. P. 9024 that was filed by an owner of a Tennessee limited liability company (LLC) and a receiver for the LLC which asked the court to set aside an order it entered that dismissed the LLC's Chapter 11 bankruptcy case, to the extent the order required the LLC's managing member to execute a quitclaim deed in favor of a creditor in lieu of foreclosure. Although the managing member had the power under T.C.A. §§ 48-249-401 and 48-249-402 to place the LLC into bankruptcy, he breached his duty under T.C.A. § 48-249-403 to act in good faith when he disregarded a provision in the LLC's articles of incorporation which required the consent of all the LLC's owners and committed fraud when he told the LLC's attorney that the only other owner knew about the bankruptcy and provided the LLC's attorney with the wrong address for the other owner so he would not learn about the bankruptcy. In re Gibson & Epps, 468 B.R. 279, 2012 Bankr. LEXIS 1199 (Bankr. E.D. Tenn. Mar. 21, 2012).

48-249-402. Agency of members, managers, directors and officers.

Member-managed LLC. Subject to subsections (d) and (e), in a member-managed LLC:
1. Each member is an agent of the LLC for the purpose of its business, and an act of a member, including the signing of an instrument in the LLC's name, that is apparently for carrying on in the ordinary course the LLC's business, or business of the kind carried on by the LLC, binds the LLC, unless the member had no authority to act for the LLC in the particular matter, and the person with whom the member was dealing knew or had notice that the member lacked authority; and
2. An act of a member that is not apparently for carrying on in the ordinary course the LLC's business, or business of the kind carried on by the LLC, binds the LLC only if the act was authorized by the other members.
Manager-managed LLC. Subject to subsections (d) and (e), in a manager-managed LLC:
1. A member is not an agent of the LLC for the purpose of its business solely by reason of being a member. Each manager is an agent of the LLC for the purpose of its business, and an act of a manager, including the signing of an instrument in the LLC's name, that is apparently for carrying on in the ordinary course the LLC's business, or business of the kind carried on by the LLC, binds the LLC, unless the manager had no authority to act for the LLC in the particular matter, and the person with whom the manager was dealing knew or had notice that the manager lacked authority; and
2. An act of a manager that is not apparently for carrying on in the ordinary course the LLC's business, or business of the kind carried on by the LLC, binds the LLC only if the act was authorized under § 48-249-401.
Director-managed LLC. Subject to subsections (d) and (e), in a director-managed LLC, no member or director is an agent of the LLC for the purpose of its business solely by reason of being a member or a director. The president and any other authorized officers of a director-managed LLC shall be agents of the LLC, as described in subsection (d).
Authority of officers. In a director-managed LLC, or any other LLC with a president, the president is an agent of the LLC for the purpose of its business, and an act of the president, including the signing of an instrument in the LLC's name, that is apparently for carrying on in the ordinary course the LLC's business, or business of the kind carried on by the LLC binds the LLC, unless the president had no authority to act for the LLC in the particular matter, and the person with whom the president was dealing knew or had notice that the president lacked authority. If, under § 48-249-401(e), any other officer of the LLC is authorized by the LLC documents or by the members, managers or directors, as applicable, of an LLC, by a resolution or other writing, then the authorized officer is an agent of the LLC for the purpose of its business, and an act of the authorized officer, including the signing of an instrument in the LLC's name, that is apparently for carrying on in the ordinary course the LLC's business, or business of the kind carried on by the LLC, binds the LLC.
Real property authority. The articles may contain a grant of authority to one (1) or more members, managers, directors or officers to execute instruments for the transfer of real property, and any restrictions and conditions with respect to such authority. In the event the articles name one (1) or more persons who are granted authority to execute instruments for the transfer of real property with any restrictions and conditions with respect to such authority so listed, such grant shall be conclusive in favor of a person who gives value, unless the person knew or had notice that such grant of authority had been rescinded by the LLC. However, such designation, unless it expressly states that it is exclusive, shall not override subsection (a), (b), (c) or (d).
Knowledge; notice. For purposes of this section:
1. A person knows a fact if the person has actual knowledge of it;
2. A person has notice of a fact, if:
  1. The person knows the fact;
  2. The person has received a notification of the fact;
  3. The person has reason to know the fact exists from all of the facts known to the person at the time in question; or
  4. The fact is contained in the articles of organization;
3. A person notifies or gives a notification of a fact to another, by taking steps reasonably required to inform the other person in ordinary course, whether or not the other person knows the fact;
4. A person receives a notification of a fact when the notification:
  1. Comes to the person's attention; or
  2. Is duly delivered at the person's place of business, or at any other place held out by the person as a place for receiving communications; and
5. An entity knows, has notice, or receives a notification of a fact for purposes of a particular transaction, when the individual conducting the transaction for the entity knows, has notice or receives a notification of the fact, or, in any event, when the fact would have been brought to the individual's attention had the entity exercised reasonable diligence. An entity exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the individual conducting the transaction for the entity, and there is reasonable compliance with the routines. Reasonable diligence does not require an individual acting for the entity to communicate information unless the communication is part of the individual's regular duties, or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Illustrative Cases.

Summary judgment in favor of appellee was reversed under the theory of actual authority pursuant to the Operating Agreement or the theory of statutory authority pursuant to the statute, a genuine issue of material fact exists as to whether a party possessed the authority as president to act on behalf of appellee when attempting to orally rescind the lease. Tenn. Traders Landing, LLC v. Jenkins & Stiles, LLC, — S.W.3d —, 2018 Tenn. App. LEXIS 397 (Tenn. Ct. App. July 9, 2018).

Trial court properly ordered the disclosure of the representation file an attorney maintained during his representation of a closely-held professional limited liability company (LLC) to a member because the LLC waived its attorney-client privilege and could not enforce it against the member; the LLC had not properly authorized the hiring of the attorney to represent it in a potential action against the member because the hiring was not in the ordinary course of business. Morristown Heart Consultants, PLLC v. Patel, — S.W.3d —, 2019 Tenn. App. LEXIS 362 (Tenn. Ct. App. July 24, 2019).

48-249-403. General standards of conduct for members, managers, directors and officers.

Member-managed LLC. The only fiduciary duties a member owes to a member-managed LLC and the LLC's other members and holders are the duty of loyalty and the duty of care imposed by subsections (b) and (c). A holder of financial rights owes no duties to the LLC, or to the other members or holders, solely by reason of being a holder of financial rights.
Duty of loyalty. A member's duty of loyalty to a member-managed LLC and the LLC's other members and holders of financial rights is limited to the following:
1. To account to the LLC and to hold as trustee for it any property, profit or benefit derived by the member in the conduct or winding up of the LLC's business, or derived from a use by the member of the LLC's property, including the appropriation of any opportunity of the LLC;
2. Subject to § 48-249-404, to refrain from dealing with the LLC in the conduct or winding up of the LLC's business as, or on behalf of, a person having an interest adverse to the LLC; and
3. To refrain from competing with the LLC in the conduct of the LLC's business before the termination of the LLC.
Duty of care. A member's duty of care to a member-managed LLC, and the LLC's other members and holders of financial rights in the conduct of and winding up of the LLC's business, is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law.
Good faith and fair dealing. A member shall discharge the member's duties to a member-managed LLC and its other members and holders of financial rights under this chapter or under the LLC documents, and shall exercise any rights with respect to the LLC consistently with the obligation of good faith and fair dealing.
Furtherance of member's own interest. A member of a member-managed LLC does not violate a duty or obligation under this chapter or under the LLC documents, merely because the member's conduct also furthers the member's own interest.
Dealings with LLC. A member of a member-managed LLC may lend money to and transact other business with the LLC. As to each loan or transaction, the rights and obligations of the member are the same as those of a person who is not a member, subject to other applicable law.
Representative of surviving member. This section applies to a person winding up the LLC's business as the personal representative of the last surviving member, as if the person were a member.
Manager-managed LLC. In a manager-managed LLC:
1. A member owes no duties to the LLC, or to the other members or holders of financial rights, solely by reason of being a member;
2. A manager is held to the same standards of conduct prescribed for members in subsections (b)-(f);
3. A member that, under the LLC documents, exercises some or all of the rights of a manager in the management and conduct of the LLC's business is held to the standards of conduct prescribed for a member in subsections (b)-(f) to the extent that the member exercises the managerial authority vested in a manager by this chapter; and
4. A manager is relieved of liability imposed by law for violation of the standards prescribed by subsections (b)-(f) to the extent of the managerial authority delegated to the members by the LLC documents.
Director-managed LLC. In a director-managed LLC:
1. A member owes no duties to the LLC, or to the other members or holders of financial rights, solely by reason of being a member;
2. A member that, under the LLC documents, exercises some or all of the rights of a director in the management and conduct of the LLC's business is held to the standards of conduct prescribed for a director in this subsection (i), to the extent that the member exercises the managerial authority vested in a director by this chapter;
3. A director is relieved of liability imposed by law for violation of the standards prescribed by this subsection (i), to the extent of the managerial authority of the director delegated to the members by the LLC documents; and
4. A director shall discharge all duties as a director, including duties as a member of a committee of the board of directors of the LLC:
  1. In good faith;
  2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
  3. In a manner the director reasonably believes to be in the best interests of the LLC.
Officers. An officer of an LLC shall discharge all duties as an officer:
1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the officer reasonably believes to be in the best interests of the LLC.
Reliance on others. In discharging the duties described in this section, a member, manager, director or officer is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by:
1. One (1) or more officers or employees of the LLC whom the member, manager, director or officer reasonably believes to be reliable and competent in the matters presented;
2. Legal counsel, public accountants or other persons as to matters the member, manager, director or officer reasonably believes are within the person's professional or expert competence; or
3. In the case of a director only, a committee of the board of directors of which the director is not a member, if the director reasonably believes the committee merits confidence.
Unwarranted reliance. A member, manager, director or officer is not acting in good faith, if the member, manager, director or officer has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (k) unwarranted.
Limitation on liability. A member, manager, director or officer is not liable for any action taken as a member, manager, director or officer, or any failure to take any action, if the member, manager, director or officer performs its duties in compliance with this section.
Effect of delegation. Any officer, agent or employee who exercises some or all of the rights of a member, manager, or director, pursuant to a delegation of rights and power under § 48-249-401(e) is held to the same standards of conduct set forth in this section, for members, managers or directors, as applicable, to the extent that such officer, agent or employee exercises the delegated rights and powers. A member, manager or director is relieved of liability imposed by law for the standards prescribed in this section to the extent that such person's managerial authority is vested in an officer, agent or employee, pursuant to a delegation of rights and power under § 48-249-401(e).

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Illustrative Cases.

Trial court properly found that neither of a limited liability company's officers violated any statutory duty in connection with a sale because the company was member-managed, they only had ministerial duties under the operating agreement, and there was no evidence that their conduct was grossly negligent, reckless, or intentional misconduct. Rock Ivy Holding, LLC v. RC Props., LLC, 464 S.W.3d 623, 2014 Tenn. App. LEXIS 45 (Tenn. Ct. App. Jan. 30, 2014), review or rehearing denied, — S.W.3d —, 2014 Tenn. LEXIS 494 (Tenn. June 20, 2014).

48-249-404. Conflict of interest transactions.

Definition. A conflict of interest transaction is a transaction with the LLC in which a member, manager, director or officer, as applicable, of the LLC has a direct or indirect interest. A conflict of interest transaction is not void and is not voidable by the LLC, and does not violate the duty of loyalty in § 48-249-403(b)(2), solely because of the interest of a member, manager, director or officer in the transaction, if any one (1) of the following is true:
1. The material facts of the transaction and the interest of the member, manager, director or officer, as applicable, were disclosed or known to the managers or board of directors, as applicable, and the managers or board of directors, as applicable, authorized, approved or ratified the transaction;
2. The material facts of the transaction and the interest of the member, manager, director or officer, as applicable, were disclosed or known either to:
  1. The members entitled to vote and they authorized, approved or ratified the transaction; or
  2. All the members and all the members authorized, approved or ratified the transaction, even if one (1) or more, or all, the members have a conflict of interest;
3. The transaction was fair to the LLC; or
4. The transaction was of such a nature that the conflict of interest is waived by the LLC documents. Such waiver shall be upheld, unless manifestly unreasonable under the circumstances.
Indirect interest. For purposes of this section, a member, manager, director or officer of the LLC has an indirect interest in a transaction, if, but not only if:
1. Another entity in which the member, manager, director or officer has a material financial interest, or in which the member, manager, director or officer, as applicable, is a general partner, is a party to the transaction; or
2. Another entity for which the member, manager, director, or officer is a member, governor, director, manager, officer or trustee is a party to the transaction, and the transaction is, or should be, considered by the members, managers or directors, as applicable, of the LLC.
Approval by managers or directors. For purposes of subdivision (a)(1), a conflict of interest transaction is authorized, approved or ratified, if it receives the affirmative majority vote of the managers or of the directors on the board of directors, as applicable, who have no direct or indirect interest in the transaction, and a transaction may be authorized, approved or ratified under this section by a single manager or director, as applicable. If a majority of the managers or the directors, as applicable, 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 manager or director, as applicable, 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 subdivision (a)(1).
Approval by members. For purposes of subdivision (a)(2)(A), a conflict of interest transaction is authorized, approved or ratified, if it receives a majority vote of the membership interests entitled to be counted under this subsection (d). Membership interests owned by or voted under the control of a member, director 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)(A). The vote of those membership interests, however, shall be counted in determining whether the transaction is approved under other provisions of this chapter.
Approval by sole member of single-member LLC. For purposes of subdivision (a)(2)(B), a conflict of interest transaction may be authorized, approved or ratified by the sole member of a single-member LLC.

Acts 2005, ch. 286, § 1.

48-249-405. Voting and meetings.

Voting power. Each member, manager or director, as applicable, of an LLC shall have equal voting power per capita with each other member, manager or director.
Procedures. The LLC documents may set forth provisions relating to notice of the time, place or purpose of any meeting at which any matter is to be voted on, consented to or approved by any members, managers or directors, as applicable, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy, in the case of members or managers, or any other matter with respect to the exercise of any such right to vote.
Action on written consent.
1. On any matter that, under this chapter or under the LLC documents, is to be voted on, consented to or approved by members, managers or directors, as applicable, the members, managers or directors, as applicable, may take such action without a meeting, without prior notice and without a vote, if consent or consents in writing, setting forth the action so taken is signed:
  1. In the case of the members or managers, by the members or managers, as applicable, having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all members or managers, as applicable, entitled to vote on the matter were present and voted; or
  2. In the case of the directors, by all directors entitled to vote on the matter.
2. A consent transmitted by electronic transmission by a member, manager or director, or by a person or persons authorized to act for the member or manager, as applicable, shall be deemed to be written and signed for purposes of this subsection (c). For purposes of this subsection (c), the term “electronic transmission” means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient of the communication, and that may be directly reproduced in paper form by such a recipient through an automated process. Prompt notice of the taking of LLC action without a meeting by less than unanimous written consent of the members or managers, as applicable, shall be given to any member or manager, as applicable, entitled to vote on the matter that did not sign such written consent; provided, however, that the failure to give such notice shall not affect the validity of the action taken.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Attorney-client Privilege.

48-249-406. Required records.

An LLC shall keep, at its principal executive office or at another place or places within the United States determined by the members of a member-managed LLC, the managers of a manager-managed LLC, or the directors of a director-managed LLC:

A current list of the full name and last known business, residence or mailing address of each member, each manager or director, as applicable, and each officer, if any, of the LLC, together with the taxpayer identification number of each member of the LLC;
A current list of the full name and last known business, residence or mailing address of each holder of financial rights of the LLC, and a description of the financial rights held, together with the taxpayer identification number of each holder of financial rights of the LLC;
A copy of the articles of the LLC and all amendments to the articles;
A copy of any currently effective written operating agreement of the LLC;
Copies of the LLC's federal, state and local income tax returns and reports, if any, for the three (3) most recent years;
Financial information sufficient to provide true and full information regarding the status of the business and financial condition of the LLC for the three (3) most recent fiscal years;
Records of all proceedings of the members and of the holders, if any, of the LLC;
Any written consents obtained from the members or from the holders, if any, of the LLC;
Records of all proceedings of the managers or board of directors, as applicable, of the LLC for the last three (3) years;
A statement of all contributions accepted by the LLC under § 48-249-301, the identity of the contributor and the agreed value of each contribution;
A copy of all contribution agreements created under § 48-249-301 to which the LLC is bound; and
A copy of the LLC's most recent annual report filed with the secretary of state under § 48-249-1017.

Acts 2005, ch. 286, § 1.

48-249-407. Limitation on actions for breach of fiduciary duties.

Any action alleging breach of fiduciary duties by members, managers, directors or officers, including alleged violations of the standards established in § 48-249-403 or § 48-249-404, must be brought within one (1) year from the date of the breach or violation; provided, that in the event the alleged breach or violation is not discovered nor reasonably should have been discovered within the one-year period, the period of limitation shall be one (1) year from the date the alleged breach or violation was discovered or reasonably should have been discovered. In no event shall any such action be brought more than three (3) years after the date on which the breach or violation occurred, except where there is fraudulent concealment on the part of the defendant, in which case the action shall be commenced within one (1) year after the alleged breach or violation is, or should have been, discovered.

Acts 2006, ch. 620, § 29.

Part 5
Admission of Members — Membership Interests — Transferees and Creditors of Members

48-249-501. Admission of members.

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.
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.
Single member LLCs. An LLC may have one (1) or more members.

Acts 2005, ch. 286, § 1.

48-249-502. Nature of membership interest and statement of interest owned.

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.
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.

NOTES TO DECISIONS

1. Marital Property.

When a husband's interest in a limited liability company (LLC) was acquired during the marriage, because the trial court treated the contractual claim which the LLC was pursuing against the United States Government as an asset of the husband, separate from the value of the marital interest in the LLC, the value of the LLC and the net martial business interests were not accurately computed. Barton v. Barton, — S.W.3d —, 2020 Tenn. App. LEXIS 502 (Tenn. Ct. App. Nov. 10, 2020).

2. Lien.

48-249-503. Termination of membership interest.

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:
  1. It is unlawful to carry on the business of the LLC with the member;
  2. 1. The member is a corporation or an LLC;
    2. 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
    3. 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
  3. 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:
  1. Engaged in wrongful conduct that adversely and materially affected the LLC's business;
  2. 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
  3. 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:
  1. Files a petition as a debtor in bankruptcy;
  2. Executes an assignment for the benefit of creditors;
  3. 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
  4. 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:
  1. The member dies;
  2. A personal representative is appointed for the member; or
  3. 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.
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.

48-249-504. Termination of membership interest in contravention of LLC documents.

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.
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.

48-249-505. Effect of termination of membership interest.

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.
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.
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.
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.

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:

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:
1. A statement of the LLC's assets and liabilities as of the date of termination;
2. The LLC's latest available balance sheet and income statement, if any; and
3. An explanation of how the determination of fair value was made;
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
Judicial determination of fair value.
1. 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
2. In a proceeding brought to determine the fair value of a membership interest in an LLC, the court:
  1. 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);
  2. 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;
  3. 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;
  4. 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;
  5. 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
  6. 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.

48-249-507. Transfer of financial rights.

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.
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.
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.
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.

48-249-508. Transfer of a membership interest or governance rights.

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.
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.
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.
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).
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.
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.

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.

Part 6
Dissolution and Winding Up of the LLC

48-249-601. Dissolution.

Events causing dissolution. An LLC is dissolved upon the first to occur of the following:
1. If a period is fixed in the articles for the duration of the LLC, upon the expiration of that period, except that, in the case of an LLC that is administratively dissolved pursuant to § 48-249-604 by reason of the expiration of that period of duration, the LLC may be reinstated pursuant to § 48-249-606;
2. The occurrence of an event specified in the LLC documents;
3. An action of the members in accordance with § 48-249-603;
4. An action of the organizers under § 48-249-602;
5. An order of a court under § 48-249-616 or 48-249-617;
6. An action of the secretary of state under § 48-249-605; or
7. At any time there are no members if:
  1. The LLC files a notice of dissolution as provided in § 48-249-609, within ninety (90) days after the occurrence of the event that terminated the membership interest of the last remaining member, which notice of dissolution may be signed on behalf of the LLC by the personal representative of the last remaining member; and
  2. The LLC documents specify that the termination of the membership interest of the last remaining member dissolves the LLC; provided, that if such notice of dissolution is not filed or the LLC documents do not provide for dissolution in that event, the LLC is not dissolved and is not required to be wound up and the personal representative of the last remaining member is automatically substituted as a member for the last remaining member, effective as of the occurrence of the event that terminated the membership interest of the last remaining member. Notwithstanding this subdivision (a)(7)(B), the LLC documents may specify that any person may be substituted as a member for the last remaining member, effective as of the date of the event that causes the termination of membership interest of the last remaining member.
Events not causing dissolution. The termination, dissociation, death, incapacity, withdrawal, retirement, resignation, expulsion, bankruptcy or dissolution of any member, or the occurrence of any other event that terminates the membership interest of any member, shall not cause the LLC to be dissolved or its affairs to be wound up, and upon the occurrence of any such event, the LLC shall be continued without dissolution.
Effect of dissolution. An LLC dissolved by any of the dissolution events specified in subsection (a) shall be wound up, and its existence shall be terminated as provided in this part.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 34; 2016, ch. 688, § 9.

NOTES TO DECISIONS

1. Assets to Members.

Assets of a limited liability company (LLC) can be distributed to its members upon dissolution and winding up; when, as here, an LLC is administratively dissolved by the secretary of state, the LLC shall be wound up, and its existence shall be terminated as provided in T.C.A. § 48-249-601(a)(6), (c). Bowers v. Estate of Estate of Mounger, 542 S.W.3d 470, 2017 Tenn. App. LEXIS 432 (Tenn. Ct. App. June 29, 2017), appeal denied, Bowers v. Estate of Mounger, — S.W.3d —, 2017 Tenn. LEXIS 756 (Tenn. Nov. 16, 2017).

Based upon the express language of T.C.A. §§ 48-249-601, 48-249-605, 48-249-608, 48-249-610, the trial court erred in determining that the Revised Limited Liability Company Act prohibited assignment of the property of the limited liability company (LLC); the sole member of the LLC assigned its rights to himself, and such is expressly permitted, and as the Act does not prohibit the sole member of an LLC from assigning LLC property to himself, the trial court erred in finding otherwise. Bowers v. Estate of Estate of Mounger, 542 S.W.3d 470, 2017 Tenn. App. LEXIS 432 (Tenn. Ct. App. June 29, 2017), appeal denied, Bowers v. Estate of Mounger, — S.W.3d —, 2017 Tenn. LEXIS 756 (Tenn. Nov. 16, 2017).

48-249-602. Nonjudicial termination by organizers.

Articles of termination. An LLC that has not accepted contributions may be dissolved and its existence terminated by the organizers, if a majority of the organizers sign and file articles of termination with the secretary of state containing:
1. The name of the LLC;
2. The date of formation of the LLC;
3. A statement that contributions have not been accepted by the LLC; and
4. A statement that no debts of the LLC remain unpaid.
The secretary of state shall file the articles of termination of the LLC if the secretary of state finds that the articles:
1. Comply with subsection (a); and
2. Are accompanied by a tax clearance for termination or withdrawal relative to such LLC.
When the articles of termination have been filed in accordance with subsection (b), the existence of the LLC is terminated.

Acts 2005, ch. 286, § 1; 2009, ch. 349, §§ 5, 6; 2010, ch. 741, § 38.

48-249-603. Nonjudicial dissolution by members.

Manner of dissolution. An LLC may be dissolved by the members:
1. Upon any event of dissolution set forth in the LLC documents or this chapter requiring member action;
2. By any procedures set forth in the LLC documents; or
3. By the members, when authorized in the manner set forth in this section.
Approval.
1. The proposed dissolution of the LLC shall be submitted for approval at a meeting of members. Notice, in accordance with this chapter and the LLC documents, shall be given to each member, whether or not entitled to vote at a meeting of members, and whether the meeting is a regular or a special meeting. Such notice shall state that a purpose of the meeting is to consider dissolving the LLC, and that dissolution shall be followed by the winding up and termination of the LLC.
2. If the proposed dissolution of the LLC is approved at a meeting of the members by a majority vote, or such other vote as may be provided for in the LLC documents, the LLC shall be dissolved and notice of dissolution shall be filed with the office of the secretary of state under § 48-249-609.

Acts 2005, ch. 286, § 1.

48-249-604. Grounds for administrative dissolution.

The secretary of state may commence a proceeding under § 48-249-605, to administratively dissolve the LLC, if:

The LLC does not deliver its properly completed annual report to the secretary of state within two (2) months after it is due;
The LLC is without a registered agent or registered office in this state for two (2) months or more;
The name of an LLC contained in a document filed under this chapter fails to comply with § 48-249-106;
The LLC does not notify the secretary of state within two (2) months that its registered agent or registered office has been changed, that its registered agent has resigned, or that its registered office has been discontinued;
The LLC submits to the secretary of state's office a check, bank draft, money order or other such instrument, for payment of any fee and it is dishonored upon presentation for payment;
A director, officer, manager, member or other representative of an LLC signed a document such person knew was false in any material respect, with the intent that the document be filed with the secretary of state; or
A period is fixed in the articles of organization for the duration of the LLC, upon the expiration of that period, but if no such period is set forth in the articles, then the LLC shall have a perpetual existence.

Acts 2005, ch. 286, § 1; 2016, ch. 688, § 10.

48-249-605. Procedure for and effect of administrative dissolution.

Notice of grounds. If the secretary of state determines that one (1) or more grounds exist under § 48-249-604 for dissolving an LLC, the secretary of state shall serve the LLC with written communication of the secretary of state's determination, in accordance with § 48-249-113(a), except that determination may be sent by first class mail.
Dissolution after notice. If the LLC does not correct each ground for administrative dissolution or demonstrate, to the reasonable satisfaction of the secretary of state, that each ground determined by the secretary of state does not exist, within two (2) months after the secretary of state's service of the communication of the determination in the same manner as is permitted under subsection (a), the secretary of state shall administratively dissolve the LLC, by signing a certificate of dissolution that recites the ground or grounds for dissolution and its effective date. The secretary of state shall file the original of the certificate and serve a copy on the LLC, in the same manner as is permitted under subsection (a).
Effect of administrative dissolution. An LLC that has been administratively dissolved continues its existence, but may not carry on any business except that necessary to wind up and liquidate its business and affairs under § 48-249-601 and notify claimants under § 48-249-611.
Effect on registered agent and registered office. The administrative dissolution of an LLC does not terminate the designation or authority of its registered agent or registered office.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Assets to Members.

48-249-606. Reinstatement following administrative dissolution.

Application for reinstatement. An LLC administratively dissolved under § 48-249-605 may apply to the secretary of state for reinstatement following administrative dissolution. The application shall:
1. Be accompanied by a confirmation of good standing relative to such LLC;
2. State the name of the LLC at its date of administrative dissolution;
3. State that the ground or grounds for dissolution either did not exist or have been eliminated; and
4. State a name for the LLC that satisfies the requirements of § 48-249-106.
Certificate of reinstatement.
1. If the secretary of state determines that the application is accompanied by the confirmation of good standing and contains the information required by subsection (a), and that such information is correct, then the secretary of state shall cancel the certificate of dissolution and prepare a certificate of reinstatement that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the LLC in accordance with § 48-249-113(a), except that the copy of the certificate may be sent by first class mail.
2. If the LLC name in subdivision (a)(4) is different than the LLC name in subdivision (a)(2), the application for reinstatement shall constitute an amendment to the articles of the LLC insofar as it pertains to the LLC's name.
Relation back of reinstatement. When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution, and the LLC resumes carrying on its business as if the administrative dissolution had never occurred.

Acts 2005, ch. 286, § 1; 2010, ch. 741, §§ 39, 40; 2011, ch. 99, §§ 14-16.

48-249-607. Appeal from denial of reinstatement.

Notice of denial. If the secretary of state denies an LLC's application for reinstatement following administrative dissolution, the secretary of state shall serve the LLC, in accordance with § 48-249-113(a) with a written notice that explains the reason or reasons for denial.
Appeal procedure. The LLC may appeal the denial of reinstatement to the chancery court of Davidson County within thirty (30) days after service of the notice of denial. The LLC shall appeal by petitioning the court to set aside the dissolution and attaching to the petition copies of the secretary of state's certificate of dissolution, the LLC's application for reinstatement, and the secretary of state's notice of denial.
Order of reinstatement. The court may summarily order the secretary of state to reinstate the dissolved LLC, or may take other action the court considers appropriate.
Appeal of court decision. The court's final decision may be appealed as in other civil proceedings.

Acts 2005, ch. 286, § 1.

48-249-608. Articles of termination following administrative dissolution.

Submission of articles of termination. When an LLC that has been administratively dissolved wishes to terminate its existence, it may do so without first being reinstated, by delivering articles of termination to the secretary of state for filing following administrative dissolution, setting forth:
1. The name of the LLC;
2. The date that termination of the LLC existence was authorized;
3. That the resolution authorizing termination was duly adopted by the members;
4. A copy of the resolution or the written consent authorizing the termination; and
5. That all the assets of the LLC have been distributed to its creditors, members and holders.
1. The secretary of state shall file the articles of termination following administrative dissolution if the secretary of state finds that the articles:
  1. Comply with subsection (a); and
  2. Are accompanied by a tax clearance for termination or withdrawal relative to such LLC.
2. Upon such filing, the existence of the LLC shall cease, except that the termination of LLC existence shall not take away or impair any remedy to or against the LLC or its members, directors, managers or officers for any right or claim existing or any liability incurred, prior to such termination. Any such action or proceeding by or against the LLC may be prosecuted or defended by the LLC in its LLC name. The members, directors, managers or officers shall have the power to take such LLC or other action, as may be appropriate, to protect such remedy, right or claim.

Acts 2005, ch. 286, § 1; 2010, ch. 741, § 41.

NOTES TO DECISIONS

1. Assets to Members.

48-249-609. Filing notice of dissolution and effect.

Notice of dissolution. If dissolution of the LLC is approved under § 48-249-603, or if it occurs under § 48-249-601(a)(2) or (a)(7), the LLC shall file a notice of dissolution with the secretary of state. The notice shall contain:
1. The name of the LLC; and
2. 1. If the dissolution is approved under § 48-249-603(b), a statement that the requisite vote of the members was received, or that members validly took action without a meeting; or
  2. If the dissolution occurs under § 48-249-601(a)(2) or (a)(7), a brief statement of the event that caused the dissolution and the date of that event.
Effect of dissolution. When the notice of dissolution has been filed with the secretary of state, the LLC shall cease to carry on its business, except to the extent necessary or appropriate for the winding up and termination of the business and affairs of the LLC. The members shall retain the right to revoke the dissolution in accordance with § 48-249-613, and the right to remove or appoint directors, managers or officers. The LLC's existence shall continue to the extent necessary to wind up the affairs of the LLC, until the dissolution is revoked or articles of termination are filed with the secretary of state.
Merger of dissolved LLC. As part of winding up, the LLC may participate in a merger under part 7 of this chapter, but the dissolved LLC shall not be the surviving entity.
Remedies preserved. The filing of a notice of dissolution with the secretary of state does not affect any remedy in favor of the LLC, or any remedy against it or its members, directors, managers or officers in those capacities, except as provided in § 48-249-611.

Acts 2005, ch. 286, § 1; 2016, ch. 688, § 11.

48-249-610. Procedure in winding up.

Winding up by merger. If the business of the LLC is wound up and terminated by the merger of the dissolved LLC into a surviving entity:
1. The procedures stated in § 48-249-702 shall be followed; and
2. Sections 48-249-609, 48-249-611, 48-249-612, 48-249-613 and 48-249-620 do not apply.
Winding up other than by merger. If the business of the LLC is to be wound up and terminated, other than by the merger of the dissolved LLC into a surviving entity, the procedures stated in subsections (c)-(e) shall be followed.
Debts of dissolved LLC. When a notice of dissolution has been filed with the secretary of state, the members of a member-managed LLC, the managers of a manager-managed LLC, or the board of directors of a director-managed LLC, as applicable, shall proceed as soon as possible to:
1. Collect, or make provision for the collection of, all known debts due or owing to the LLC, including unperformed contribution agreements; and
2. Except as provided in § 48-249-611, pay, or make provision for the payment of, all known debts, obligations, and liabilities of the LLC, according to their priorities under § 48-249-620.
Sale of assets. Notwithstanding § 48-249-705, when a notice of dissolution has been filed with the secretary of state, the managers of a manager-managed LLC or the board of directors of a director-managed LLC may sell, lease, transfer or otherwise dispose of all, or substantially all, of the property and assets of a dissolved LLC, without a vote of the members.
Distribution of remaining assets. All tangible or intangible property, including money, remaining after the discharge of the debts, obligations, and liabilities of the LLC shall be distributed to the members and holders of financial rights, in accordance with § 48-249-620, subject to § 48-249-305(d).

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 35.

NOTES TO DECISIONS

1. Assets to Members.

48-249-611. Known and unknown claims against LLC.

Notice to creditors. When a notice of dissolution has been filed with the secretary of state, and the business of the LLC is to be wound up and terminated by other than merger of the dissolved LLC into a successor entity under § 48-249-610(a), then the LLC may give notice of the filing to each creditor of, and claimant against, the LLC, known or unknown, present or future, and contingent or noncontingent, in accordance with subsections (b) and (c).
Disposition of known claims.
1. An LLC may dispose of the known claims against it by following the procedure described in this subsection (b).
2. The dissolved LLC shall notify its known claimants in writing of the dissolution, at any time after the effective date of the dissolution. The written notice shall:
  1. Describe information that is required to be included in a claim;
  2. State whether the claim is admitted or not admitted, and, if admitted:
    1. The amount that is admitted, which may be as of a given date; and
    2. Any interest obligation, if fixed by an instrument of indebtedness;
  3. Provide a mailing address where a claim may be sent;
  4. State the deadline, which may not be fewer than four (4) months from the effective date of the written notice, by which the dissolved LLC shall receive the claim; and
  5. State that, except to the extent that any claim is admitted, the claim will be barred, if written notice of the claim is not received by the deadline.
3. A claim against the dissolved LLC is barred, to the extent that it is not admitted:
  1. If the dissolved LLC delivered written notice to the claimant in accordance with subdivision (b)(2), and the claimant does not deliver a written notice of the claim to the dissolved LLC by the deadline; or
  2. If the dissolved LLC delivered written notice to the claimant that the claimant's claim is rejected, in whole or in part, and the claimant does not commence a proceeding to enforce the claim within three (3) months from the effective date of the rejection notice.
4. For purposes of this subsection (b), “claim” does not include a contingent liability, or a claim based on an event occurring after the effective date of dissolution.
5. For purposes of this subsection (b), written notice is effective at the earliest of the following:
  1. When received;
  2. Five (5) days after its deposit in the United States mail, if mailed correctly addressed and with first class postage affixed;
  3. On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or
  4. Twenty (20) days after deposit in the United States mail, as evidenced by the postmark, if mailed correctly addressed, and with other than first class, registered or certified postage affixed.
Notice by publication.
1. A dissolved LLC may also publish notice of its dissolution and request that persons with claims against the LLC present them in accordance with the notice.
2. The notice shall:
  1. Be published one (1) time in a newspaper of general circulation in the county where the dissolved LLC's principal executive office is or was last located;
  2. Describe the information that is required to be included in a claim and provide a mailing address where the claim may be sent; and
  3. State that a claim against the LLC will be barred, unless a proceeding to enforce the claim is commenced within two (2) years after the publication of the notice.
3. If the dissolved LLC publishes a newspaper notice as provided in this subsection (c), the claim of each of the following claimants is barred, unless the claimant commences a proceeding to enforce the claim against the dissolved LLC within two (2) years after the publication date of the newspaper notice:
  1. A claimant who did not receive written notice under subsection (b);
  2. A claimant whose claim was timely sent to the dissolved LLC, but not acted on; or
  3. A claimant whose claim is contingent, or based on an event occurring after the effective date of dissolution.
4. A claim may be enforced under this subsection (c):
  1. Against the dissolved LLC, to the extent of its undistributed assets; or
  2. If the assets have been distributed in liquidation, against a member or holder of financial rights of the dissolved LLC, to the extent of the member's or holder's pro rata share of the claim or the LLC assets distributed to the member or holder in liquidation, whichever is less, but a member's or holder's total liability for all claims under this subsection (c) may not exceed the total amount of assets distributed to the member or holder.
Effect of noncompliance. If the dissolved LLC does not comply with subsection (b) or (c), then claimants against the LLC not barred by this section may enforce their claims:
1. Against the dissolved LLC, to the extent of its undistributed assets; or
2. If the assets have been distributed in liquidation, against a member or holder of financial rights of the dissolved LLC to the extent of the member's or holder's pro rata share of the claim, or the LLC assets distributed to the member or holder in liquidation, whichever is less, but a member's or holder's total liability for all claims under this section may not exceed the total amount of assets distributed to the member or holder; provided, that a claim may not be enforced against a member or holder of a dissolved LLC who received a distribution in liquidation after three (3) years from the date of the filing of articles of termination.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 36.

Cross-References. Certified mail in lieu of registered mail, § 1-3-111.

48-249-612. Articles of termination.

When filed. Articles of termination shall be filed with the secretary of state upon the dissolution and the completion of winding up of the LLC.
Contents. Articles of termination shall set forth:
1. The name of the LLC;
2. The date of filing of its articles of organization;
3. The reason for the filing of the articles of termination;
4. Whether known and potential creditors and claimants have been notified of the dissolution under § 48-249-611; and
5. Any other information that the person filing the articles of termination determines necessary or desirable to include.
The secretary of state shall file the articles of termination if the secretary of state finds that the articles of termination:
1. Comply with subsection (b); and
2. Are accompanied by a tax clearance for termination or withdrawal relative to such LLC.

Acts 2005, ch. 286, § 1; 2010, ch. 741, § 42.

48-249-613. Revocation of dissolution.

When revocation permitted. In the case of dissolution by the members, as provided in § 48-249-601(a)(3), an LLC may revoke its dissolution at any time prior to the filing of the articles of termination with the secretary of state, except as provided in subsection (d).
Approval. Revocation of dissolution shall be authorized by the same vote of the members required to approve the dissolution, unless the authorization for dissolution permitted revocation by action by the board of directors or managers alone, as applicable, in which event the board of directors or managers, as applicable, may revoke the dissolution without member action.
Articles of revocation. After the revocation of dissolution is authorized, the LLC may revoke the dissolution, by filing articles of revocation of dissolution with the secretary of state, that set forth:
1. The name of the LLC;
2. The effective date of the dissolution that was revoked;
3. The date that the revocation of dissolution was authorized;
4. If the directors of a director-managed LLC or the managers of a manager-managed LLC revoked a dissolution authorized by the members, a statement that revocation was permitted by action by the board of directors or managers alone, as applicable, pursuant to that authorization; and
5. If member action was required to revoke the dissolution, a statement that the resolution was duly adopted by the members, and a copy of the resolution or the written consent authorizing the revocation of dissolution.
Revocation where LLC winding up by merger. If a dissolved LLC is being wound up and terminated by being merged into a successor entity under § 48-249-610(a), under an agreement or plan of merger under § 48-249-702, then the dissolution may be revoked under this section, only if the merger has been properly abandoned, as expressly provided for under § 48-249-702(k).

Acts 2005, ch. 286, § 1.

48-249-614. Effective date and effect of articles of termination.

When the articles of termination have been filed with the secretary of state, the existence of the LLC is terminated, except that the termination of the LLC existence shall not take away or impair any remedy of or against the LLC or its members, directors, managers or officers for any right or claim existing, or any liability incurred, prior to such termination. Any such action or proceeding by or against the LLC may be prosecuted or defended by the LLC in its LLC name. The members, directors, managers or officers, as applicable, shall have the power to take such LLC or other action, as may be appropriate, to protect such remedy, right or claim.

Acts 2005, ch. 286, § 1.

48-249-615. Supervised winding up and termination following a nonjudicial dissolution.

After an event of dissolution has occurred, and before articles of termination have been filed, the LLC or, for good cause shown, a member or creditor, may apply to a court within the county in which the LLC's principal executive office is or was last located to have the dissolution conducted or continued under the supervision of the court as provided in §§ 48-249-616 – 48-249-619.

Acts 2005, ch. 286, § 1.

48-249-616. Judicial intervention.

A court may grant any equitable relief it considers just and reasonable under the circumstances, may dissolve an LLC or may direct that the dissolved LLC be merged into another or new LLC or other entity, or otherwise be terminated, on the terms and conditions the court deems equitable.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Return of Capital.

48-249-617. Judicial dissolution and termination.

Judicial decree. On application by the attorney general and reporter, or by or for a member, the court may decree dissolution, winding up and termination of an LLC whenever it is not reasonably practicable to carry on the business in conformity with the LLC documents.
Effectiveness of dissolution. The dissolution is effective upon the decree of dissolution becoming final and nonappealable. Such decree shall be filed with the secretary of state and shall serve as a notice of dissolution.
Effectiveness of termination. The termination is effective upon a decree of termination becoming final and nonappealable. Such decree shall be filed with the secretary of state and shall serve and have the same effect as articles of termination.

Acts 2005, ch. 286, § 1.

48-249-618. Procedure for judicial dissolution and termination.

Venue. Venue for a proceeding by the attorney general and reporter to dissolve, wind up and terminate an LLC lies in Davidson County. Venue for a proceeding brought by any other person lies in the county where the LLC's principal executive office is or was last located.
Members not necessary parties. It is not necessary to make members parties to a proceeding to dissolve, wind up and terminate the existence of an LLC, unless relief is sought against them individually.
Remedies. A court, in a proceeding brought to dissolve, wind up and terminate an LLC, may issue injunctions, appoint a receiver or custodian pendente lite with all powers and duties the court directs, as provided in § 48-249-619, take other action required to preserve the LLC's assets, wherever located, and carry on the business of the LLC until a full hearing can be held.
Bond. In a proceeding for dissolution, winding up and termination of the existence of an LLC by a member, the petitioner shall execute and file a bond in the proceeding, with sufficient surety, to cover the defendant's probable costs, including reasonable attorney fees, in defending the petition. The court shall determine the amount of the bond and may award to any party its reasonable costs, including attorney fees, if it finds for such party in the proceeding.

Acts 2005, ch. 286, § 1.

48-249-619. Receivership or custodianship.

Judicial appointment. A court having equity jurisdiction in a judicial proceeding brought to dissolve, wind up and terminate the existence of an LLC may appoint one (1) or more receivers to wind up and liquidate, or one (1) or more custodians to manage the business and affairs of the LLC. The court shall hold a hearing, after notifying all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has exclusive jurisdiction over the LLC and all of its property, wherever located.
Eligibility. The court may appoint an individual or a domestic or foreign entity, authorized to transact business in this state, as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.
Powers and Duties. The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:
1. A receiver may:
  1. Dispose of all or any part of the assets of the LLC, wherever located, at a public or private sale, if authorized by the court; and
  2. Sue and defend in the receiver's own name, as receiver of the LLC, in all courts of this state; and
2. A custodian may exercise all of the powers of the LLC, through or in place of its members, board of directors, managers, or officers, as applicable, to the extent necessary to manage the affairs of the LLC in the best interests of its members, holders and creditors.
Combined functions. The court, during a receivership, may redesignate the receiver a custodian, and, during a custodianship, may redesignate the custodian a receiver, if doing so is in the best interests of the LLC and its members, holders and creditors.
Compensation. The court, from time to time during the receivership or custodianship, may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and the receiver's or custodian's counsel from the assets of the LLC or proceeds from the sale of the assets.

Acts 2005, ch. 286, § 1.

48-249-620. Disposition upon liquidation.

Distribution of Assets.
1. Upon the winding up of an LLC, the assets shall be distributed as follows:
  1. First, to creditors, including members and holders of financial rights who are creditors, to the extent otherwise permitted by law, in satisfaction of liabilities of the LLC, whether by payment or the making of reasonable provisions for payment of such liabilities, other than liabilities:
    1. For which reasonable provision for payment has been made; and
    2. For distributions to members and holders of financial rights under § 48-249-305;
  2. Second, to members, former members and holders of financial rights, in satisfaction of liabilities for distributions under § 48-249-305; and
  3. Third, to members and holders of financial rights, first, for the return of their contributions that have not previously been returned, and, second, respecting the membership interests of members and the financial rights of holders of financial rights, as applicable, in the proportions in which the members and holders of financial rights, as applicable, share in distributions under § 48-249-305.
2. Any distributions in any form other than cash shall be subject to § 48-249-305(d).
Provisions for claims. An LLC that has dissolved shall pay, or make reasonable operating provision to pay, all claims and obligations, including all contingent, conditional or unmatured claims and obligations, known to the LLC, regardless of whether the identity of the claimant is known. If there are sufficient assets, such claims and obligations shall be paid in full, and any such provision for payment made shall be made in full. If there are insufficient assets, such claims and obligations shall be paid or provided for according to their priority, and, among claims and obligations of equal priority, ratably, to the extent of assets available for payment. Any remaining assets shall be distributed as provided in this chapter. Any receiver or custodian winding up an LLC's affairs who has complied with this section shall not be personally liable to the claimants of the dissolved LLC by reason of the receiver's or custodian's actions in winding up the LLC.
Debts incurred during winding up. All known contractual debts, obligations, and liabilities incurred in the course of winding up and terminating the LLC's affairs shall be paid or provided for by the LLC before the distribution of assets to a member or holder of financial rights. A person to whom this kind of debt, obligation, or liability is owed but not paid may pursue any remedy, before the expiration of the applicable statute of limitations, against the members, directors, managers or officers of the LLC, as applicable, who are responsible for, but who fail to cause, the LLC to pay or make provision for payment of the debts, obligations, and liabilities, or against members or holders of financial rights to the extent permitted under § 48-249-307. This subsection (c) does not apply to dissolution, winding up or termination of the existence of the LLC under the supervision or order of a court.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Dissolution.

Even though T.C.A. § 48-249-620 provides for the distribution of assets following the dissolution of an LLC, with assets distributed first to its creditors, there is no indication in the Tennessee Revised Limited Liability Company Act of an intent to create an express or technical trust relationship between a limited liability company and its creditors, of an intent to create a trust res in the dissolved company's assets, or of an intent to impose fiduciary obligations on any party. Hulsing Hotels Tenn., Inc. v. Steffner (In re Steffner), 479 B.R. 746, 2012 Bankr. LEXIS 3805 (Bankr. E.D. Tenn. Aug. 17, 2012).

48-249-621. Omitted assets.

Title to assets remaining after payment of all debts, obligations, and liabilities, and after distributions to members and holders of financial rights, may be transferred by a court in this state.

Acts 2005, ch. 286, § 1.

48-249-622. Right to sue or defend after termination.

After the existence of an LLC has been terminated, any of its former managers, directors, officers or members may assert or defend, in the name of the LLC, any claim by or against the LLC.

Acts 2005, ch. 286, § 1.

48-249-623. Reinstatement within certain amount of time — Amendment of charter — Application for reinstatement.

A LLC that has been administratively dissolved by the expiration of its period of duration may reinstate within one (1) year of the expiration of the period of duration by:

Amending its articles of organization to extend its period of duration or set the period of duration to perpetual; and
Filing an application for reinstatement following administrative dissolution pursuant to § 48-249-606.

Acts 2016, ch. 688, § 12.

Part 7
Merger, Conversion and Transfer of Assets

48-249-701. Part definitions.

As used in this part, unless the context otherwise requires:

“Domestic entity” means any entity formed under the laws of this state;
“Foreign entity” means any entity formed under the laws of any state of the United States other than this state, the laws of the United States or the laws of any foreign country or other foreign jurisdiction; and
“Other entity” and “another entity” mean any domestic entity, other than a domestic LLC, or foreign entity, whether formed under the laws of this state, the laws of any other state, the laws of the United States or the laws of any foreign country or other foreign jurisdiction.

Acts 2005, ch. 286, § 1.

48-249-702. Merger.

General. One (1) or more domestic LLCs may, under an agreement or plan of merger, merge with or into one (1) or more domestic LLCs or other entities by complying with this section. Any constituent party to the merger may be the surviving entity, as the agreement or plan of merger shall provide.
Compliance with other applicable law. If any constituent party to a merger is a foreign entity, the merger shall be permitted under the laws of the jurisdiction of the foreign entity, and the foreign entity shall comply with such laws. If any constituent party to a merger is a domestic entity, the merger shall be permitted under the other laws of this state that apply to the domestic entity, and the domestic entity shall comply with such laws. Notwithstanding the absence of any express provision in the Revised Uniform Partnership Act, compiled in title 61, chapter 1, permitting or authorizing a partnership formed under that act to merge with or into an LLC, a partnership formed under the Revised Uniform Partnership Act is authorized to merge with or into one (1) or more LLCs, upon the approval by all of the partners of the partnership or by the number or percentage of partners specified for merger in the partnership agreement of the partnership.
Approval.
1. The agreement or plan of merger shall be approved on behalf of any domestic LLC that is a constituent party to the merger, by:
  1. A majority vote of the managers, if the LLC is a manager-managed LLC, or a majority vote of the directors, if the LLC is a director-managed LLC; and
  2. A majority vote of the members, whether the LLC is a member-managed LLC, a manager-managed LLC or a director-managed LLC.
2. In the event a domestic LLC merges with or into a domestic or foreign partnership or limited partnership and the partnership or limited partnership is the surviving entity, the agreement or plan of merger shall be subject to the approval of any member or holder of the domestic LLC who, at the effective date or time of the merger, becomes a partner of the domestic or foreign partnership or a general partner of the domestic or foreign limited partnership, as applicable.
Merger consideration. In connection with a merger under this section, rights or securities of, or other equity interests in, a domestic LLC or other entity that is a constituent party to the merger may be exchanged for or converted into cash, property, rights or securities of, or interests in, the surviving domestic LLC or other entity, or, in addition to or in lieu of that merger consideration, may be exchanged for or converted into cash, property, rights or securities of or interests in a domestic LLC or other entity that is not the surviving domestic LLC or other surviving entity in the merger.
Certificate of merger. A domestic LLC merging under this section shall file a certificate of merger with the secretary of state. The certificate of merger shall state the following:
1. The name and jurisdiction of each constituent party to the merger;
2. That an agreement or plan of merger has been approved and executed by each constituent party to the merger;
3. The name of the surviving constituent party;
4. In the case of a merger in which a domestic LLC is the surviving entity, such amendments, if any, to the articles of organization of the surviving domestic LLC as are desired to be effected by the merger;
5. The future effective date or time of the merger, if it is not to be effective upon the filing of the certificate of merger;
6. That the agreement or plan of merger is on file at a place of business of the surviving constituent party, and the address of that place of business;
7. That a copy of the agreement or plan of merger shall be furnished by the surviving constituent party, on request and without cost, to any person holding an interest in a constituent party to the merger; and
8. If the surviving entity is a foreign entity, a statement that the surviving foreign entity agrees that it may be served with process in this state in any proceeding for the enforcement of any obligation of any domestic LLC that is a constituent party to the merger, irrevocably appointing the secretary of state as its agent to accept service of process in any such proceeding, and specifying the address to which a copy of such process shall be mailed to it by the secretary of state. In the event of service under this subdivision (e)(8) upon the secretary of state, the procedures set forth in § 48-249-113 shall be applicable, except that the plaintiff in any such proceeding shall furnish the secretary of state with the address specified in the certificate of merger provided for in this subdivision (e)(8), and any other address that the plaintiff may elect to furnish, together with copies of the process as required by the secretary of state, and the secretary of state shall notify the surviving other entity at all the addresses furnished by the plaintiff, in accordance with the procedures set forth in § 48-249-113.
Effective time. Unless a future effective date or time is provided in a certificate of merger, in which event a merger shall be effective at that future effective date or time, a merger shall be effective upon filing a certificate of merger with the secretary of state.
Effect on nonsurviving domestic LLC. A certificate of merger, as filed with the secretary of state, shall act as notice of dissolution and articles of termination for a domestic LLC that is not the surviving entity in the merger. A merger of a domestic LLC, including a domestic LLC that is not the surviving entity in the merger, shall not require the domestic LLC to wind up its affairs under § 48-249-610, or to pay its liabilities and distribute its assets under § 48-249-620.
Amendment of articles of organization. A certificate of merger that sets forth any amendment, in accordance with subdivision (e)(4), shall be deemed to be an amendment to the articles of organization of the surviving domestic LLC, and the surviving domestic LLC shall not be required to take any further action to amend its articles of organization under § 48-249-204, with respect to the amendments set forth in the certificate of merger.
Amendment of operating agreement. An agreement or plan of merger approved in accordance with subsection (c) may effect any amendment to the operating agreement of the surviving LLC in the merger, or the adoption of a new operating agreement for the surviving LLC in the merger; provided, that the amendment or new operating agreement receives the approval required for amendment of the operating agreement under § 48-249-204(c). Any amendment to an operating agreement or adoption of a new operating agreement made pursuant to this subsection (i) shall be effective at the effective date and time of the merger.
Effect of merger. When any merger has become effective under this section, for all purposes of the laws of this state:
1. All of the rights, privileges and powers of each constituent party to the merger and all property, real, personal and mixed, of, and all debts due to, any constituent party to the merger, as well as all other things and causes of action belonging to each constituent party to the merger, shall be vested in the surviving constituent party, and thereafter shall be the property of the surviving constituent party as they were of each constituent party to the merger prior to the merger;
2. The title to any real property vested, by deed or otherwise, in any constituent party to the merger shall not revert or be in any way impaired by reason of this section;
3. All rights of creditors, and all liens upon any property of any constituent party to the merger, shall be preserved unimpaired;
4. All debts, liabilities and obligations of each of the constituent parties that have merged shall thenceforth attach to the surviving constituent party and may be enforced against it to the same extent as if the debts, liabilities and obligations had been incurred or contracted by it; and
5. A proceeding pending against an entity that is a constituent party to the merger may be continued as if the merger had not occurred, or the surviving entity may be substituted as a party for any entity whose existence ceased in the merger.
Abandonment of merger.
1. After an agreement or plan of merger has been approved as required by this section, and at any time before the merger has become effective, the merger may be abandoned, subject to any contractual rights, by any entity that is a constituent party to the merger, in accordance with the procedures set forth in the agreement or plan of merger, or, if no such procedures are set forth in the agreement or plan of merger by:
  1. Any domestic LLC that is a constituent party to the merger, in a manner determined by the members with respect to a member-managed LLC, by the managers with respect to a manager-managed LLC, or by the directors with respect to a director-managed LLC; and
  2. Another entity that is a constituent party to the merger in accordance with applicable law with respect to the other entity.
2. If the merger is abandoned after the certificate of merger has been filed with the secretary of state, but before the merger has become effective, a statement, executed by each constituent party to the merger, stating that the merger has been abandoned in accordance with the agreement or plan of merger or this section, shall be filed with the secretary of state prior to the effectiveness of the merger.
Nonexclusivity. This section is nonexclusive. A domestic LLC may be merged in any other manner provided by law.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 37-39.

48-249-703. Conversion to LLC.

General. Any other entity may convert to a domestic LLC, by complying with this section and by filing with the secretary of state:
1. A certificate of conversion to a domestic LLC; and
2. Articles of organization that comply with § 48-249-202.
Contents of certificate of conversion. The certificate of conversion to a domestic LLC shall state the following:
1. The jurisdiction, date of formation and type of entity of the converting other entity immediately prior to its conversion to a domestic LLC;
2. The name of the converting other entity immediately prior to the filing of the certificate of conversion to a domestic LLC;
3. The name of the domestic LLC, as set forth in its articles of organization filed in accordance with subsection (a);
4. That all required approvals of the conversion have been obtained by the converting other entity; and
5. The future effective date or time of the conversion to a domestic LLC, if it is not to be effective upon the filing of the certificate of conversion to a domestic LLC and the articles of organization.
Status of converted entity. Upon the filing of the certificate of conversion to a domestic LLC and the articles of organization of the domestic LLC with the secretary of state, or upon the future effective date or time of the certificate of conversion to a domestic LLC and the articles of organization of the domestic LLC, the other entity shall be converted into a domestic LLC, and the domestic LLC shall thereafter be subject to all of this chapter, except that, notwithstanding § 48-249-201, the existence of the domestic LLC shall be deemed to have commenced on the date the other entity commenced its existence in the jurisdiction in which the other entity was first formed.
Result of conversion. The conversion of any other entity into a domestic LLC shall not be deemed to affect any debts, liabilities, and obligations of the other entity incurred prior to its conversion to a domestic LLC, or the personal liability of any person incurred prior to the conversion.
Effects of conversion. When any conversion of another entity to a domestic LLC has become effective under this section, for all purposes of the laws of this state:
1. The domestic LLC shall be deemed to be the same entity as the converting other entity;
2. All of the rights, privileges and powers of the converting other entity and all property, real, personal and mixed, of, and all debts due to, the converting other entity, as well as all other things and causes of action belonging to the converting other entity, shall be and remain vested in the domestic LLC and shall be the property of the domestic LLC;
3. The title to any real property vested by deed, or otherwise, in the converting other entity shall not revert, or be in any way impaired, by reason of this section;
4. All rights of creditors, and all liens upon any property of the converting other entity, shall be preserved unimpaired;
5. All debts, liabilities and obligations of the converting other entity shall remain attached to the domestic LLC, and may be enforced against it to the same extent as if the debts, liabilities and obligations had originally been incurred or contracted by it in its capacity as a domestic LLC;
6. Any proceeding pending against the converting other entity may be continued against the domestic LLC as if the conversion had not occurred; and
7. The rights, privileges, powers and interests in property of the converting other entity, as well as the debts, liabilities and obligations of the converting other entity, shall not be deemed, as a consequence of the conversion, to have been transferred to the domestic LLC for any purpose of the laws of this state.
No dissolution or winding up. The converting other entity shall not be required to wind up its affairs or to pay its liabilities and distribute its assets. The conversion shall not be deemed to constitute a dissolution of the converting other entity, and shall constitute a continuation of the existence of the converting other entity in the form of a domestic LLC.
Compliance with other applicable law. If the converting other entity is a foreign entity, the conversion shall be permitted under the laws of the jurisdiction of the converting other entity, and the converting other entity shall comply with such laws. If the converting other entity is a domestic entity, the conversion shall be permitted under the other laws of this state that apply to the domestic entity, and the domestic entity shall comply with such laws. Notwithstanding the absence of any express provision in the Revised Uniform Partnership Act, compiled in title 61, chapter 1, or the Revised Uniform Limited Partnership Act, compiled in title 61, chapter 2, permitting or authorizing a partnership formed pursuant to the Revised Uniform Partnership Act or a limited partnership formed pursuant to the Revised Uniform Limited Partnership Act to convert to an LLC, each of a partnership formed pursuant to the Revised Uniform Partnership Act and a limited partnership formed pursuant to the Revised Uniform Limited Partnership Act is authorized to convert to an LLC upon the approval by all of the partners of the partnership or limited partnership, as applicable, or by the number or percentage of partners specified for conversion in the partnership agreement of the partnership or the limited partnership agreement of the limited partnership, as applicable.
Approval. Prior to filing a certificate of conversion of another entity to a domestic LLC with the secretary of state:
1. The conversion shall be approved in the manner provided by any document, instrument, agreement or other writing governing the internal affairs of the converting other entity and the conduct of its business, as appropriate, and if:
  1. The converting other entity is a partnership formed pursuant to the Revised Uniform Partnership Act, or a limited partnership formed pursuant to the Revised Uniform Limited Partnership Act, in the manner provided for in subsection (g); or
  2. The converting other entity is other than a partnership formed pursuant to the Revised Uniform Partnership Act, or a limited partnership formed pursuant to the Revised Uniform Limited Partnership Act, in the manner provided by applicable laws of the jurisdiction of the converting other entity; and
2. The articles of organization and operating agreement, as applicable, for the domestic LLC, shall be approved by the same authorization required for the converting other entity to approve the conversion.
Exchange or conversion of interests. In connection with a conversion of another entity to a domestic LLC under this section, rights or securities of or interests in the converting other entity may be exchanged for or converted into cash, property or rights or securities of or interests in the domestic LLC, or, in addition to or in lieu of such exchange or conversion, may be exchanged for or converted into cash, property or rights or securities of or interests in another domestic LLC or other entity, or may be cancelled.
Nonexclusivity. This section is nonexclusive. Any other entity may be converted to a domestic LLC in any other manner provided by law.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 40-42.

48-249-704. Conversion of LLC.

General. Upon compliance with this section, a domestic LLC may convert to another entity, by filing with the secretary of state:
1. A certificate of conversion, pursuant to subsection (f); and
2. If the other entity into which the domestic LLC is to be converted is an entity formed under the laws of this state, the formational document, if any, required to be filed with the secretary of state by other laws of this state in connection with the formation of the other domestic entity, which formational document has been executed in accordance with the applicable law of this state with respect to such formational document.
Compliance with other applicable law. If the domestic LLC is to be converted into a foreign entity, the conversion shall be permitted under the laws of the jurisdiction of the foreign entity, and the foreign entity shall comply with such laws. If the domestic LLC is to be converted into a domestic entity, other than a domestic LLC, the conversion shall be permitted under the other laws of this state that apply to the domestic entity, and the domestic entity shall comply with such laws. Notwithstanding the absence of any express provision in the Tennessee Business Corporation Act, compiled in chapters 11-27 of this title, the Revised Uniform Partnership Act, compiled in title 61, chapter 1, or the Revised Uniform Limited Partnership Act, compiled in title 61, chapter 2, permitting or authorizing an LLC to convert to a corporation formed pursuant to the Tennessee Business Corporation Act, a partnership formed pursuant to the Revised Uniform Partnership Act, or a limited partnership formed pursuant to the Revised Uniform Limited Partnership Act, an LLC is authorized to convert to a corporation formed pursuant to the Business Corporation Act, a partnership formed pursuant to the Revised Uniform Partnership Act, or a limited partnership formed pursuant to the Revised Uniform Limited Partnership Act.
Approval.
1. The conversion of a domestic LLC to another entity shall be approved by:
  1. A majority vote of the managers, if the LLC is a manager-managed LLC, or a majority vote of the directors, if the LLC is a director-managed LLC; and
  2. A majority vote of the members, whether the LLC is a member-managed LLC, a manager-managed LLC or a director-managed LLC.
2. In the event a domestic LLC converts to a domestic or foreign partnership or to a domestic or foreign limited partnership, the conversion shall be subject to the approval of any member or holder of the domestic LLC who, at the effective date or time of the conversion, becomes a partner of the domestic or foreign partnership or a general partner of the domestic or foreign limited partnership, as applicable.
Winding up not required. The conversion of a domestic LLC to another entity, in accordance with this section, shall not require the domestic LLC to wind up its affairs under § 48-249-610, or to pay its liabilities and distribute its assets under § 48-249-620.
Exchange or conversion of interests. In connection with the conversion of a domestic LLC to another entity, in accordance with this section, rights or securities of or interests in the domestic LLC may be exchanged for, or converted into cash, property, rights or securities of or interests in, the other entity into which the domestic LLC is being converted, or, in addition to or in lieu of such exchange or conversion, may be exchanged for or converted into cash, property, rights or securities of or interests in another entity, or may be cancelled.
Contents of certificate of conversion. The certificate of conversion shall state the following:
1. The name of the domestic LLC, and, if it has been changed, the name under which its articles of organization were originally filed;
2. The date of filing of the original articles of organization of the domestic LLC with the secretary of state;
3. The name of the other entity into which the domestic LLC is to be converted, and the jurisdiction and type of entity of the other entity;
4. The future effective date or time of the conversion, if it is not to be effective upon the filing of the certificate of conversion;
5. That all required approvals of the conversion have been obtained by the domestic LLC; and
6. If the domestic LLC is converted to a foreign entity, a statement that the foreign entity agrees that it may be served with process in this state in any proceeding for the enforcement of any obligation of the domestic LLC arising prior to the date of the conversion, irrevocably appointing the secretary of state as its agent to accept service of process in any such proceeding, and specifying the address to which a copy of such process shall be mailed to it by the secretary of state. In the event of service under this subdivision (f)(6) upon the secretary of state, the procedures set forth in § 48-249-113 shall be applicable, except that the plaintiff in any such proceeding shall furnish the secretary of state with the address specified in the certificate of conversion provided for in this subdivision (f)(6), and any other address that the plaintiff may elect to furnish, together with copies of the process as required by the secretary of state, and the secretary of state shall notify the converted entity at all the addresses furnished by the plaintiff in accordance with the procedures set forth in § 48-249-113.
Result of conversion. The conversion of a domestic LLC to another entity in accordance with this section, and the resulting cessation of its existence as a domestic LLC pursuant to a certificate of conversion, shall not be deemed to affect any debts, liabilities and obligations of the domestic LLC incurred prior to the conversion or the personal liability of any person incurred prior to the conversion, nor shall it be deemed to affect the law applicable to the domestic LLC with respect to matters arising prior to the conversion.
Effects of conversion. When any conversion of a domestic LLC to another entity has become effective under this section, for all purposes of the laws of this state:
1. The converted other entity shall be deemed to be the same entity as the domestic LLC;
2. All of the rights, privileges and powers of the domestic LLC and all property, real, personal and mixed, of and all debts due to the domestic LLC, as well as all other things and causes of action belonging to the domestic LLC, shall be and remain vested in the converted other entity, and shall be the property of the converted other entity;
3. The title to any real property vested by deed or otherwise in the domestic LLC shall not revert, or be in any way impaired, by reason of this section;
4. All rights of creditors, and all liens upon any property of the domestic LLC, shall be preserved unimpaired;
5. All debts, liabilities and obligations of the domestic LLC shall remain attached to the converted other entity, and may be enforced against it to the same extent as if the debts, liabilities and obligations had originally been incurred or contracted by it in its capacity as the converted other entity;
6. Any proceeding pending against the domestic LLC may be continued against the converted other entity as if the conversion had not occurred; and
7. The rights, privileges, powers and interests in property of the domestic LLC, as well as the debts, liabilities and obligations of the domestic LLC, shall not be deemed, as a consequence of the conversion, to have been transferred to the converted other entity for any purpose of the laws of this state.
Nonexclusivity. This section is nonexclusive. Any domestic LLC may be converted to another entity in any other manner provided by law.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 43-45.

48-249-705. Transfer of assets not in the ordinary course.

Approval of transfer. The sale, lease, transfer or other disposition by an LLC of all, or substantially all, of its property and assets not in the usual and regular course of business shall be approved by:
1. A majority vote of the managers, if the LLC is a manager-managed LLC, or a majority vote of the directors, if the LLC is a director-managed LLC; and
2. A majority vote of the members, whether the LLC is a member-managed LLC, a manager-managed LLC or a director-managed LLC.
Liability of transferee. The transferee of assets under this section is liable for the debts, obligations and liabilities of the transferor, only to the extent provided in the contract or agreement between the transferee and the transferor, with respect to the transfer of assets or to the extent provided by this chapter or other applicable law.

Acts 2005, ch. 286, § 1.

48-249-706. Contractual appraisal rights.

The LLC documents, or an agreement or plan of merger, may provide that contractual appraisal rights, with respect to a membership interest, financial rights or another interest in the LLC, shall be available for any class or group of members or holders of financial rights in the LLC, in connection with any amendment of the LLC documents, any merger in which the LLC is a constituent party to the merger, any conversion of the LLC to another entity, any sale, lease, transfer or other disposition by the LLC of all or substantially all of its property and assets not in the usual and regular course of business, or any other action or event affecting the LLC.

Acts 2005, ch. 286, § 1.

Part 8
Derivative Proceedings and Equitable Remedies

48-249-801. Right to bring proceeding.

Manager-managed or director-managed LLC. A member or holder of financial rights of a director-managed LLC, or of a manager-managed LLC, may bring a proceeding in the right of an LLC to recover a judgment in its favor, if:
1. The member or holder of financial rights, as applicable, was a member or holder of financial rights of the LLC when the transaction complained of occurred; or
2. The member or holder of financial rights, as applicable, became a member or holder of financial rights through transfer by operation of law, from a person who was a member or holder of financial rights, as applicable, when the transaction complained of occurred.
Member-managed LLC. A member or holder of financial rights of a member-managed LLC may bring a proceeding in the right of an LLC to recover a judgment in its favor, if members or other persons with authority to do so have refused to bring the proceeding, or if an effort to cause those members or other persons to bring the proceeding is not likely to succeed.

Acts 2005, ch. 286, § 1.

48-249-802. Complaint.

A complaint in a proceeding brought in the right of an LLC shall allege with particularity the demand made, if any, to obtain action by the directors, managers, officers, members or other persons with the authority to act, as applicable, and either that the demand was refused or ignored, or why the member or holder of financial rights, as applicable, did not make the demand.

Acts 2005, ch. 286, § 1.

48-249-803. Discontinuance.

A proceeding commenced under this part may not be discontinued or settled without the court's approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the LLC or a class of members or holders of financial rights, the court shall direct that notice be given to the members or holders of financial rights affected. If notice is so directed to be given, the court may determine which one (1) or more parties to the proceeding shall bear the expense of giving the notice, in such proportions as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the proceeding and recoverable in the same manner as other taxable costs.

Acts 2005, ch. 286, § 1.

48-249-804. Award of expenses.

Defendant's expenses. On termination of the proceeding, the court may require the plaintiff to pay any defendant's reasonable expenses, including attorneys' fees, incurred in defending the proceeding, if it finds that the proceeding was commenced without reasonable cause.
Plaintiff's expenses. If a derivative proceeding is successful in whole or in part, or if anything is received by the plaintiff as a result of a judgment, compromise or settlement of any such proceeding, the court may award the plaintiff its reasonable expenses, including reasonable attorneys' fees. If anything is so received by the plaintiff, the court shall make such award of the plaintiff's expenses payable out of those proceeds and direct the plaintiff to remit to the LLC the remainder of anything received, and if those proceeds are insufficient to reimburse the plaintiff's reasonable expenses, the court may direct that any such award of the plaintiff's expenses, or portion of the expenses, be paid by the LLC.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Discretion.

Trial court did not abuse its discretion in awarding attorneys' fees to a limited liability company (LLC) majority member and in denying it to an LLC officer and loan guarantor because it was implicit in the trial court's ruling that a minority member's claim against the LLC was brought without reasonable cause, the officer had conflicts of interest, and the guarantor was not sued as an officer of the LLC. Rock Ivy Holding, LLC v. RC Props., LLC, 464 S.W.3d 623, 2014 Tenn. App. LEXIS 45 (Tenn. Ct. App. Jan. 30, 2014), review or rehearing denied, — S.W.3d —, 2014 Tenn. LEXIS 494 (Tenn. June 20, 2014).

48-249-805. Equitable remedies.

If an LLC, or any officer, manager, director or member, as applicable, of the LLC, or other person with the authority to act for the LLC, violates a provision of this chapter, a court in this state may, in a proceeding brought by a member or holder of financial rights of the LLC, grant any equitable relief it considers just and reasonable in the circumstances, and, award expenses, including attorneys' fees and disbursements, to the member or holder of financial rights, as applicable.

Acts 2005, ch. 286, § 1.

Part 9
Foreign Limited Liability Companies

48-249-901. Governing law.

Subject to the Constitution of Tennessee:

The laws of the jurisdiction under which a foreign LLC is formed govern its formation, internal affairs and dissolution, and the liability of its members and representatives, regardless of whether the foreign LLC procured, or should have procured, a certificate of authority under this part; and
Except as provided in § 48-249-1123, a foreign LLC may not be denied a certificate of authority to transact business in this state by reason of any difference between the laws of the jurisdiction of its formation and the laws of this state.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 46.

48-249-902. Transactions not constituting transacting business.

General. The following activities of a foreign LLC, among others, do not constitute transacting business within the meaning of this part:
1. Maintaining, defending or settling any proceeding, claim or dispute;
2. Holding meetings of its members or representatives, or carrying on any other activities concerning its internal affairs;
3. Maintaining bank accounts;
4. Maintaining offices or agencies for the transfer, exchange and registration of the foreign LLC's own securities, or appointing and maintaining trustees or depositories with respect to those securities;
5. Selling through independent contractors;
6. Soliciting or obtaining orders, whether by mail or through representatives or otherwise, if the orders require acceptance outside this state before they become contracts;
7. Creating or acquiring indebtedness, deeds of trust, mortgages and security interests in real or personal property;
8. Securing or collecting debts or enforcing mortgages, deeds of trust and security interests in property securing the debts;
9. Owning, without more, real or personal property; provided, that, for a reasonable time, the management and rental of real property acquired in connection with enforcing a mortgage or deed of trust shall also not be considered transacting business, if the owner is attempting to liquidate the investment, and if no office or other agency therefor, other than an independent agency, is maintained in this state;
10. Conducting an isolated transaction that is completed within one (1) month and that is not a transaction in the course of repeated transactions of a like nature; or
11. Transacting business in interstate commerce.
Entity not transacting business. An entity formed under the laws of any jurisdiction other than this state shall not be deemed to be transacting business in this state for purposes of obtaining a certificate of authority to transact business, solely by reason of its being or acting in its capacity as a member or manager of a domestic or foreign LLC.
Nonexhaustive enumeration. The enumeration of activities in subsections (a) and (b) is not exhaustive, and is applicable solely to determine whether a foreign LLC is required to procure a certificate of authority and for no other purpose. This section does not apply in determining the contacts or activities that may subject a foreign LLC or its members to service of process or taxation in this state, or to regulation under any other law of this state.

Acts 2005, ch. 286, § 1.

48-249-903. Name.

Foreign LLC name. A foreign LLC's name, to the extent used in this state, shall meet the requirements of § 48-249-106.
Indistinguishable name. A foreign LLC may apply to the secretary of state under § 48-249-106, to utilize an indistinguishable name.
Assumed name. A foreign LLC may elect to adopt an assumed name under § 48-249-106, and to renew the assumed name.
Change or cancellation of assumed name. A foreign LLC may, pursuant to § 48-249-106, change or cancel an assumed name.
Reserved name. A foreign LLC may, pursuant to § 48-249-107, reserve a name and transfer or cancel a reserved name.
Registered name. A foreign LLC may obtain and retain a registered name by complying with § 48-249-108.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 47.

48-249-904. Application for certificate of authority.

Application requirements. Before transacting business in this state, a foreign LLC shall obtain a certificate of authority. A foreign LLC may obtain a certificate of authority by complying with this section and filing with the secretary of state an application for certificate of authority setting forth the following:
1. The name of the foreign LLC;
2. The name of the jurisdiction under the laws of which it is formed and the date of its formation;
3. The street address, including the zip code, of its registered office in this state, and the name of its registered agent at that office;
4. The street address, including the zip code, of the principal executive office of the foreign LLC (and a mailing address such as a post office box if the United States postal service does not deliver to the principal executive office);
5. If § 48-249-309(i) is applicable to the foreign LLC, the information required under § 48-249-309(i);
6. If the foreign LLC has more than six (6) members at the date of the filing of the application for the certificate of authority, the number of members of the LLC at the date of filing the application for the certificate of authority; and
7. Any additional information as required by the secretary of state.
Submission of application. The foreign LLC shall deliver with the completed application a certificate of existence, or document of similar import, duly authenticated by the secretary of state or other official having custody of limited liability company records in the jurisdiction of its formation. The certificate shall not bear a date of more than two (2) months prior to the date the application for the certificate of authority is filed in this state.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 48; 2014, ch. 783, § 15; 2020, ch. 719, § 19.

Amendments. The 2020 amendment added (a)(7).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-249-905. Certificate of authority.

Filing of application. If a document filed with the secretary of state conforms to the requirements of § 48-249-904(a), the secretary of state shall:
1. Endorse on the application the word “Filed” and the date and time of the filing of it;
2. File the original of the application; and
3. Return the original of the application, together with the filing fee receipt, to the person who filed it, and such document shall constitute a certificate of authority issued by the secretary of state.
Effectiveness of application. The certificate of authority is effective from the date the application is filed with the secretary of state, as evidenced by the secretary of state's date and time endorsement on the original document.
If the secretary of state determines upon application that a foreign LLC has been transacting business in this state without a certificate of authority for a period of one (1) year or more, then the secretary of state shall not file the application until the foreign corporation submits a confirmation of good standing relative to such foreign LLC.

Acts 2005, ch. 286, § 1; 2010, ch. 741, § 43.

48-249-906. Amendments to the certificate of authority.

If any statement in the application for a certificate of authority by a foreign LLC was false when made, or if any matter described in the application has changed, making the application inaccurate in any respect, the foreign LLC shall promptly file an application for amendment to the certificate of authority with the secretary of state, correcting the statement; provided, that changes in the registered office or registered agent shall be made in accordance with § 48-249-110. The application for amendment to the certificate of authority shall be processed in the same manner as provided in § 48-249-905 for a certificate of authority.

Acts 2005, ch. 286, § 1.

48-249-907. Cancellation of certificate of authority.

Certificate of cancellation. A foreign LLC may cancel its certificate of authority by filing a certificate of cancellation of certificate of authority with the secretary of state accompanied by a tax clearance for termination or withdrawal relative to such foreign LLC. The certificate of cancellation of certificate of authority shall set forth:
1. The current name of the foreign LLC, and, if different, the name under which it transacts business in this state;
2. The name of the jurisdiction under the laws of which it is formed;
3. That it is not transacting business in this state, and that it surrenders its authority to transact business in this state;
4. That it either continues its registered agent in this state, or revokes the authority of the registered agent to accept service on its behalf, and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
5. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (a)(4); and
6. A commitment to notify the secretary of state in the future of any change in the mailing address set forth under subdivision (a)(5).
Service After Cancellation. After cancellation of the certificate of authority of the foreign LLC, service of process on the secretary of state, or the continued registered agent under this section, is service on the foreign LLC. Upon receipt of process, the secretary of state shall comply with § 48-249-113; provided, however, that the mailing address set forth under subdivision (a)(5), as it may be changed under subdivision (a)(6), shall be deemed to be the principal executive office of the foreign LLC for purposes of the compliance with § 48-249-113 by the secretary of state.

Acts 2005, ch. 286, § 1; 2009, ch. 349, § 7; 2010, ch. 741, § 44; 2011, ch. 99, § 17.

48-249-908. Revocation of certificate of authority.

The secretary of state may commence a proceeding under § 48-249-909, to administratively revoke the certificate of authority of a foreign LLC authorized to transact business in this state, if:

The foreign LLC does not deliver its annual report to the secretary of state within two (2) months after it is due;
The foreign LLC is without a registered agent or registered office in this state for two (2) months or more;
The foreign LLC does not inform the secretary of state, under §§ 48-249-110 or 48-249-111, that its registered agent or registered office has changed, that its registered agent has resigned, or that its registered office has been discontinued, within two (2) months of the change, resignation or discontinuance;
The name of the foreign LLC contained in a document filed pursuant to this chapter fails to comply with § 48-249-903;
A member or representative of the foreign LLC signed a document such person knew was false in any material respect, with the intent that the document be delivered to the secretary of state for filing;
The secretary of state receives a duly authenticated certificate from the secretary of state or other official having custody of the foreign LLC's records in the jurisdiction under the laws of which the foreign LLC is formed, stating that it has been terminated, or has been a constituent party to a merger and was not the surviving entity of the merger;
The foreign LLC is exceeding the authority conferred upon it by this part; or
The foreign LLC submits to the secretary of state a check, bank draft, money order or other such instrument for payment of any fee, and it is dishonored upon presentation for payment.

Acts 2005, ch. 286, § 1.

48-249-909. Procedure for and effect of administrative revocation.

Notice of revocation. If the secretary of state determines that one (1) or more grounds exist under § 48-249-908 for revocation of a certificate of authority, the secretary of state shall serve the foreign LLC with written communication of the secretary of state's determination, except that the determination may be sent by first class mail. If the grounds for revocation are pursuant to § 48-249-908(6), notice need not be sent, and a certificate of revocation may be sent without the two-month waiting period required by subsection (b).
Certificate of revocation. If the foreign LLC does not correct each ground for administrative revocation, or demonstrate to the reasonable satisfaction of the secretary of state that each ground determined by the secretary of state does not exist, within two (2) months after service of the communication of the determination, the secretary of state may revoke the foreign LLC's certificate of authority by signing a certificate of revocation that recites the ground or grounds for revocation and its effective date. The secretary of state shall file the original of the certificate and shall serve a copy on the foreign LLC, except that the copy of the certificate may be sent by first class mail.
Effective date of administrative revocation. The authority of a foreign LLC to transact business in this state ceases on the date shown on the certificate revoking its certificate of authority.
Service of process on secretary of state. The secretary of state's revocation of a foreign LLC's certificate of authority appoints the secretary of state as the foreign LLC's agent for service of process in any proceeding based on a cause of action that arose during the time the foreign LLC was authorized to transact business in this state. Service of process on the secretary of state under this subsection (d) is service on the foreign LLC. Upon receipt of process, the secretary of state shall comply with § 48-249-113.
Effect on registered agent and registered office. The administrative revocation of a foreign LLC's certificate of authority does not terminate the designation or authority of the registered agent or registered office of the LLC.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 49.

48-249-910. Reinstatement following administrative revocation.

Application for reinstatement. A foreign LLC whose certificate of authority is administratively revoked under § 48-249-909 may apply to the secretary of state for reinstatement. The application shall:
1. State the name of the foreign LLC at its date of administrative revocation;
2. State that the ground or grounds for revocation either did not exist or have been eliminated; and
3. State a name for the foreign LLC that satisfies the requirements of § 48-249-903.
Certificate of Reinstatement.
1. If the secretary of state determines that the application:
  1. Is accompanied by a confirmation of good standing relative to such foreign LLC; and
  2. Contains the information required by subsection (a), and that the information is correct;
    then the secretary of state shall reinstate the certificate of authority, prepare a certificate that recites the secretary of state's determination and the effective date of reinstatement, file the original of the certificate, and serve a copy on the foreign LLC, except that the copy of the certificate may be sent by first class mail.
2. If the foreign LLC name in subdivision (a)(3) is different from the foreign LLC name in subdivision (a)(1), the application for reinstatement shall constitute an amendment to the foreign LLC's certificate of authority, insofar as it pertains to the foreign LLC's name.
Relation Back of Reinstatement. When the reinstatement is effective, it relates back to, and takes effect as of, the effective date of the administrative revocation, and the foreign LLC resumes carrying on its business as if the administrative revocation had never occurred.

Acts 2005, ch. 286, § 1; 2010, ch. 741, § 45.

48-249-911. Appeal from denial of foreign LLC's reinstatement.

Notice of denial. If the secretary of state denies a foreign LLC's application for reinstatement following administrative revocation, the secretary of state shall serve the foreign LLC with a writing that explains the reason or reasons for denial.
Appeal of denial. The foreign LLC may appeal the denial of reinstatement to the chancery court of Davidson County, within thirty (30) days after service of the writing, by petitioning the court to set aside the revocation, and by attaching to the petition copies of the secretary of state's certificate of revocation, the foreign LLC's application for reinstatement, and the secretary of state's writing explaining the reason or reasons for denial.
Order of Reinstatement. The court may summarily order the secretary of state to reinstate the certificate of authority of the foreign LLC, or may take other action the court considers appropriate.
Appeal of Court Decision. The court's final decision may be appealed as in other civil proceedings.

Acts 2005, ch. 286, § 1.

48-249-912. Cancellation of certificate of authority following administrative revocation.

Certificate of cancellation. When a foreign LLC that has had its certificate of authority revoked desires to withdraw from this state, it may do so without first being reinstated, by filing with the secretary of state a certificate of cancellation of certificate of authority following administrative revocation of a certificate of authority accompanied by a tax clearance for termination or withdrawal relative to such foreign LLC. The certificate of cancellation of certificate of authority shall set forth:
1. The current name of the foreign LLC and, if different, the name under which it transacts business in this state, the date of revocation of its certificate of authority, and the name of the jurisdiction under the laws of which it is formed;
2. That it is not transacting business in this state and that it surrenders its authority to transact business in this state;
3. That it either continues its registered agent in this state, or revokes the authority of its registered agent to accept service on its behalf and appoints the secretary of state as its agent for service of process in any proceeding based on a cause of action arising during the time it was authorized to transact business in this state;
4. A mailing address to which the secretary of state may mail a copy of any process served on the secretary of state under subdivision (a)(3); and
5. A commitment to notify the secretary of state in the future of any change in the mailing address set forth under subdivision (a)(4).
Service of process after cancellation. After cancellation of the certificate of authority of the foreign LLC, service of process on the secretary of state or the continued registered agent under this section is service on the foreign LLC. Upon receipt of process, the secretary of state shall comply with § 48-249-113; provided, however, that the mailing address set forth under subdivision (a)(4), as it may be changed under subdivision (a)(5), shall be deemed to be the principal executive office of the foreign LLC, for purposes of the compliance with § 48-249-113 by the secretary of state.

Acts 2005, ch. 286, § 1; 2010, ch. 741, § 46; 2011, ch. 99, § 18.

48-249-913. Transaction of business without certificate of authority.

Access to courts. A foreign LLC transacting business in this state without a certificate of authority may not maintain a proceeding in any court in this state until it obtains a certificate of authority.
Successors and transferees. The successor to a foreign LLC that transacted business in this state without a certificate of authority, and the transferee of a cause of action arising out of that business, may not maintain a proceeding on behalf of its predecessor or transferor based on a cause of action of its predecessor or transferor in any court in this state, until the foreign LLC or its successor obtains a certificate of authority.
Stay of proceedings. A court may stay a proceeding commenced by a foreign LLC, its successor or transferee, until it determines whether the foreign LLC or its successor is required to obtain a certificate of authority. If it so determines, the court may further stay the proceeding until the foreign LLC or its successor obtains the certificate of authority.
Fine. A foreign LLC transacting business in this state without first having obtained a certificate of authority shall be fined and shall pay to the secretary of state three (3) times the otherwise required filing fee for each year or part of each year during which the foreign LLC failed to have such certificate of authority.
Payment of fines before filing of application. An application for a certificate of authority by a foreign LLC that has transacted business in this state without a certificate of authority shall not be filed with the secretary of state until all amounts due under subsection (d) have been paid.
Nonimpairment. Notwithstanding subsections (a) and (b), the failure of a foreign LLC to obtain a certificate of authority does not impair:
1. The validity of any contract or act of the foreign LLC;
2. The right of any other party to the contract to maintain any proceeding on the contract; or
3. The foreign LLC from defending any proceeding in any court of this state.
Liability for debts. A member or representative of a foreign LLC is not liable for the debts and obligations of the foreign LLC, solely by reason of the foreign LLC's having transacted business in this state without a valid certificate of authority.

Acts 2005, ch. 286, § 1.

48-249-914. Enjoined from doing business.

The attorney general and reporter shall, upon the attorney general and reporter's own motion, or upon the relation of proper parties, proceed by complaint in the chancery court of Davidson County or in the chancery court of any county in which a foreign LLC is transacting or has transacted business, to enjoin the foreign LLC, or any representative of the foreign LLC, from transacting any business in this state, if the foreign LLC has failed to obtain or maintain a certificate of authority, or if the foreign LLC has secured a certificate of authority from the secretary of state under § 48-249-904 on the basis of false or misleading representations. The reasonable attorney fees and expenses of such proceeding by the attorney general and reporter may be recovered from the foreign LLC, at the discretion of the court, if an injunction is obtained.

Acts 2005, ch. 286, § 1.

Part 10
Miscellaneous

48-249-1001. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of this chapter at any time, and all domestic and foreign LLCs subject to this chapter shall be governed by the amendment or repeal.

Acts 2005, ch. 286, § 1.

48-249-1002. Applicability — Savings clause.

Effective date; Savings clause.
1. This chapter applies to:
  1. Every domestic LLC formed on or after January 1, 2006;
  2. Any domestic LLC that was formed prior to January 1, 2006, and that has elected to be governed by this chapter pursuant to subsection (b); and
  3. The outstanding and future interests in the respective domestic LLCs described in subdivisions (a)(1)(A) and (B).
2. If there are other specific statutory provisions that govern the formation of, impose restrictions or requirements on, confer special powers, privileges or authorities on or fix special procedures or methods for special categories of LLCs, then, to the extent such provisions are inconsistent with or different from this chapter, such provisions shall prevail.
Voluntary election by pre-2006 LLCs. On or after January 1, 2006, a domestic LLC formed prior to January 1, 2006, under the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title, may voluntarily elect to be governed by this chapter by amending its articles of organization to include the statement “This LLC elects to be governed by the Tennessee Revised Limited Liability Company Act,” or a statement of like import. Such election and amendment to the articles of organization shall be approved by consent of all the members of the domestic LLC.
Governance of pre-2006 LLCs. Any domestic LLC that was formed prior to January 1, 2006, under the Tennessee Limited Liability Company Act, and that does not voluntarily elect to be governed by this chapter pursuant to subsection (b), shall continue to be governed by the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title.
Foreign LLCs. This chapter applies to every foreign LLC that first files an application for a certificate of authority on or after January 1, 2006, to every foreign LLC that registers a name in this state on or after January 1, 2006, and to every foreign LLC that has registered a name in this state prior to January 1, 2006, pursuant to the Tennessee Limited Liability Company Act. With respect to each foreign LLC that first filed an application for a certificate of authority prior to January 1, 2006, the Tennessee Limited Liability Company Act shall apply to such foreign LLC until the due date of the first annual report required to be filed by such foreign LLC on or after January 1, 2006, after which due date this chapter shall apply to such foreign LLC, except that such foreign LLC shall not be required to obtain a new certificate of authority.
Pre-2006 proceeding preserved. This chapter does not affect an action or proceeding commenced, or right accrued, under the Tennessee Limited Liability Company Act.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 50, 51.

NOTES TO DECISIONS

1. Generally.

48-249-1003. LLC tax classification.

For purposes of all state and local Tennessee taxes, a domestic or foreign LLC shall be treated as a partnership or an association taxable as a corporation, as such classification is determined for federal income tax purposes. The members, and any other equity owners of a foreign LLC treated as a partnership, are subject to all state and local Tennessee taxes, in the same manner and extent as partners in a foreign partnership. The members and holders of financial rights of a domestic LLC are subject to all state and local Tennessee taxes, in the same manner and extent as partners in a domestic partnership.

Acts 2005, ch. 286, § 1.

48-249-1004. Governing law.

Liability of members and others. The liability of a member, holder of financial rights, director, manager, officer, employee, or agent of an LLC formed and existing under this chapter shall at all times be governed by this chapter and the laws of this state.
Conflict with other law. If a conflict arises between the laws of this state and the laws of any other jurisdiction, with regard to the liability of a member, holder of financial rights, director, manager, officer, employee or agent of an LLC for the debts, obligations and liabilities of the LLC, or for the acts or omissions of another member, holder of financial rights, director, manager, officer, employee or agent of the LLC, this chapter and the laws of this state shall govern in determining such liability.

Acts 2005, ch. 286, § 1.

48-249-1005. Filing requirements.

Eligibility for filing. The form and filing of a document must satisfy the requirements of this section, and of all other applicable sections or rules that add to these requirements, to be entitled to filing by the secretary of state.
Permitted or required. This chapter requires or permits filing the document with the secretary of state.
Required and permissive information. The document must contain the information required by this chapter or by rule. The document may contain other information as well.
Format. The document must be capable of being printed in ink, in a clear and legible fashion, on one (1) side of letter size paper.
English language. The document must be in the English language. An LLC's or other entity's name need not be in English, if it is written in English letters, or Arabic or Roman numerals, and the certificate of existence, or equivalent document of a foreign entity, need not be in English, if it is accompanied by a reasonably authenticated English translation.
Execution. The document must be executed by, or by an authorized representative of, the person submitting the document for filing.
Form of execution. The person executing the document must sign it and state, beneath or opposite the signature, the person's name and the capacity in which the person signs, if other than the person's individual capacity. The document may, but need not, contain:
1. An attestation by the secretary or an assistant secretary of a corporation;
2. An acknowledgment, verification, or proof; or
3. The date the document is signed, except that the date is required for the annual report for the secretary of state.
Mandatory form. If the secretary of state, pursuant to statutory authority, has prescribed a mandatory form for the document, then the document must be in or on the prescribed form.
Delivery to secretary of state. The document must be delivered to the secretary of state for filing in the manner and form prescribed by the secretary of state and must be accompanied by the current filing fee and any tax, license fee, interest, or penalty required by this chapter.
Required statement. The document must contain a statement that makes it clear that the document is being filed pursuant to this chapter.
Power to promulgate rules. The secretary of state may promulgate appropriate rules establishing acceptable methods for execution of any document to be filed with the secretary of state.
Verification by commissioner of revenue. Notwithstanding any other law to the contrary, whenever this chapter requires that an application or other document submitted to the secretary of state for filing be accompanied by a confirmation of good standing, tax clearance for termination, or withdrawal, or other similar communication of taxpayer status by the commissioner of revenue, then the requirement is met, and a paper certificate need not accompany the application or other document, if the commissioner provides to the secretary of state electronic verification of the required information. Upon request of the person seeking certificate information, the commissioner shall provide to the secretary of state electronic verification in lieu of a paper certificate.
Prior law. Any LLC that has not timely filed with the department of revenue such information as required by the commissioner of revenue under prior law, chapter 421, § 1 of the Public Acts of 1997, is subject to administrative dissolution in accordance with the procedures specified in § 48-249-605. The certificate of authority of any foreign LLC that has not timely filed such information with the department is subject to revocation as provided in § 48-249-909. Upon certification by the commissioner of revenue that a domestic LLC or foreign LLC has complied with the information reporting requirements that were required under prior law, the domestic LLC or foreign LLC that has been administratively dissolved, or that has had its certificate of authority revoked for failure to timely file such information, may be reinstated.

Acts 2005, ch. 286, § 1; 2010, ch. 741, § 47; 2011, ch. 99, § 28; 2020, ch. 719, § 20.

Amendments. The 2020 amendment rewrote (a), which read: “Eligibility for filing. A document shall satisfy the requirements of this section, and of any other section of this chapter, that adds to or varies these requirements, in order to be entitled to filing with the secretary of state.”; in the first sentence of (c), substituted “must contain” for “shall contain” and added “or by rule” at the end; substituted “must be capable of being” for “shall be typewritten or” in (d); substituted “must be” for “shall be” near the beginning of (e) and (f); substituted “must sign” for “shall sign” at the beginning of (g); substituted “the date is required” for “such date shall be required” in (g)(3); substituted “then the document must” for “the document shall” near the end of (h); in (i), substituted “must be” for “shall be” and substituted “in the manner and form prescribed by the secretary of state and must” for “and shall”; substituted “must contain” for “shall contain” in (j); substituted “may promulgate appropriate rules” for “has the power to promulgate appropriate rules and regulations” in (k); in the first sentence of (l), deleted “provision of the” preceding “law”, substituted “the requirement is met” for “such requirement shall be met”; and, in (m), substituted “is subject” for “shall be subject” twice and deleted “has been” preceding “required” near the beginning of the first sentence.

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-249-1006. Forms and filing methods for annual report and other documents.

Annual report. The secretary of state may prescribe a form and filing method for the annual report. If the secretary of state prescribes a form or filing method for the annual report, then the use of the prescribed form or filing method for the annual report is mandatory.
Other forms. The secretary of state may prescribe forms and filing methods for other documents that are required or permitted to be filed with the secretary of state by this chapter. If the secretary of state prescribes forms or filing methods for other documents that are required or permitted to be filed with the secretary of state by this chapter, then the secretary of state must furnish access to those forms and filing methods on request.

Acts 2005, ch. 286, § 1; 2020, ch. 719, § 21.

Amendments. The 2020 amendment rewrote this section, which read: “(a) Annual report. The secretary of state may prescribe a form for the annual report. If the secretary of state prescribes a form for the annual report, the use of the prescribed form for the annual report shall be mandatory, and the secretary of state shall furnish the prescribed form for the annual report on request. “(b) Other forms. The secretary of state may prescribe forms for other documents that are required or permitted to be filed with the secretary of state by this chapter. If the secretary of state prescribes forms for other documents that are required or permitted to be filed with the secretary of state by this chapter, the secretary of state shall furnish the prescribed forms for the other documents on request; however, the use of the prescribed forms for the other documents shall not be mandatory.”

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-249-1007. Filing, service and copying fees.

Filing fees. When the documents described in this chapter are filed with the secretary of state, the secretary of state shall collect the respective fees for such documents, as are specified in this subsection (a). For purposes of this chapter, no document is considered to be filed with the secretary of state unless such document is accompanied by the following fee:
Document Fee
1. Articles organization As provided in subsection (d)
2. Certificate of formation $20.00
3. Certificate of conversion $20.00
4. Application for reserved name $20.00
5. Application for use of indistinguishable name $20.00
6. Notice of transfer or cancellation of reserved name $20.00
7. Application for or renewal of registered name $20.00
8. Application for or change, cancellation, or renewal of assumed name $20.00
9. Statement of change of registered agent, registered office, or both by domestic or foreign LLC $20.00
10. Statement of change of registered office by registered agent $5.00 per domestic or foreign LLC, but not less than $20.00
11. Registered agent's statement of resignation $20.00
12. Articles of amendment $20.00
13. Restated or amended and restated articles of organization $20.00
14. Articles of correction $20.00
15. Certificate of merger $100.00
16. Statement of abandonment of merger $20.00
17. Articles of termination by organizers $20.00
18. Notice of dissolution $20.00
19. Articles of revocation of dissolution $20.00
20. Articles of termination $20.00
21. Certificate of administrative dissolution No fee
22. Application for reinstatement following administrative dissolution $70.00
23. Articles of termination following administrative dissolution $100
24. Certificate of reinstatement No fee
25. Decree of judicial dissolution No fee
26. Application for certificate of authority As provided in subsection (d)
27. Application for amendment to certificate of authority $20.00
28. Certificate of cancellation of certificate of authority $20.00
29. Certificate of administrative revocation of certificate of authority No fee
30. Certificate of cancellation of certificate of authority following administrative revocation $100.00
31. Application for reinstatement following administrative revocation $70.00
32. Application for certificate of existence or authorization $20.00
33. Annual report As provided in subsection (d)
34. Any other document required or permitted by this chapter to be filed with the secretary of state $20.00
Fee for Service of Process. The secretary of state shall collect a fee of twenty dollars ($20.00) each time process is served on the secretary of state under this chapter. The party to a proceeding causing service of process is entitled to recover this fee as costs if it prevails in the proceeding.
Fee for copying. The secretary of state shall collect a fee of twenty dollars ($20.00) for copying all filed documents relating to a domestic or foreign LLC. All such copies shall be certified or validated by the secretary of state.
Initial and annual fee. The secretary of state shall collect from each domestic LLC and each foreign LLC that is applying for a certificate of authority or is authorized to transact business in this state, as applicable, an initial filing fee in an amount equal to fifty dollars ($50.00) multiplied by the number of members of the domestic or foreign LLC, as specified in the articles of organization or application for certificate of authority, as applicable, and each year thereafter an annual filing fee in an amount equal to fifty dollars ($50.00) multiplied by the number of members of the domestic or foreign LLC, as specified in the annual report; provided, however, that the amount of each initial filing fee and annual filing fee required under this subsection (d) shall be no less than three hundred dollars ($300), and no more than three thousand dollars ($3,000). Notwithstanding this subsection (d), if the LLC is prohibited by its articles from transacting business in this state, the amount of the initial filing fee or the annual filing fee, as applicable, required under this subsection (d) shall be three hundred dollars ($300) regardless of the number of members of the LLC, as specified in the articles of organization or the annual report; provided, further, that the secretary of state shall collect from each domestic and foreign LLC an additional filing fee of twenty dollars ($20.00), for any annual report that sets forth any change of the registered office or registered agent of the domestic or foreign LLC.
Filing with register of deeds. In addition to the other filing requirements of this chapter, a copy of all documents specified in subdivisions (a)(1) and (12)-(19) shall also be filed in the office of the register of deeds in the county in which an LLC has its principal executive office, if such principal executive office is in this state, and in the case of a merger, in the county in which the surviving LLC or other entity shall have its principal executive office, if such principal executive office is in this state. The register of deeds may charge five dollars ($5.00), plus fifty cents (50¢) per page for each page in excess of five (5) pages, for such filing. Notwithstanding this subsection (e), the failure to file a copy of a document in the office of the register of deeds under this subsection (e) shall not affect the validity or effectiveness of the document.

Acts 2005, ch. 286, § 1; 2010, ch. 742, § 7.

48-249-1008. Correcting filed document.

When permitted. A domestic or foreign LLC, or other person required or permitted by this chapter to file a document, may correct a document filed with the secretary of state, if the document:
1. Contains an incorrect statement; or
2. Was defectively executed, attested, sealed, certified, or acknowledged.
Articles of Correction. A document is corrected:
1. By preparing articles of correction that:
  1. Describe the document, including its filing date, or have attached to the articles of correction a copy of the document;
  2. Specify the incorrect statement and the reason it is incorrect, or the manner in which the execution, attestation, seal, certification or acknowledgment was defective; and
  3. Correct the incorrect statement or defective execution, attestation, seal, certification or acknowledgment; and
2. By filing the articles of correction with the secretary of state.
When effective. Articles of correction are effective on the effective time and date of the document they correct, except as to persons relying on the uncorrected document and adversely affected by the correction. As to those persons, articles of correction are effective when filed.

Acts 2005, ch. 286, § 1.

48-249-1009. Filing duty of secretary of state.

Requirements to complete filing. If the form and filing of a document delivered to the office of the secretary of state for filing satisfies the requirements of § 48-249-1005, and of all other applicable sections or rules that add to these requirements, then the secretary of state must file it.
Procedure. The secretary of state completes the filing of a document by stamping or otherwise endorsing “Filed”, together with the secretary of state's name and official title and the date and time of receipt, on the document. After completing the filing of a document, except for filings pursuant to §§ 48-249-111 and 48-249-1017, the secretary of state shall deliver, in due course, the document, with the filing fee receipt attached, or acknowledgment of receipt if no fee is required, to the domestic or foreign LLC, other person required or permitted by this chapter to file the document, or representative of the domestic or foreign LLC, or other person that delivered the document for filing. A domestic or foreign LLC, other person or representative of the domestic or foreign LLC, or other person may deliver to the office of the secretary of state an exact or conformed copy of the document delivered for filing, together with the document, and, in that event, the secretary of state shall stamp or otherwise endorse the exact or conformed copy “Filed”, together with the secretary of state's name and official title and the date and time of receipt, and immediately return the exact or conformed copy to the person filing the original of the document.
Refusal to file. If the secretary of state refuses to complete the filing of a document, then the secretary of state must return it to the domestic or foreign LLC, other person or representative of the domestic or foreign LLC, or other person that delivered the document for filing immediately after the document was received for filing, together with a brief, written explanation of the reason for the refusal.
Effect of filing or refusal to file. The secretary of state's duty to complete the filing of documents under this section is ministerial. The secretary of state's completing the filing or refusing to complete the filing of a document does not:
1. Affect the validity or invalidity of the document in whole or in part;
2. Relate to the correctness or incorrectness of information contained in the document;
3. Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect; or
4. Establish that a document purporting to be an exact or conformed copy is in fact an exact or conformed copy.
Conflict with other law. Any document that meets the requirements of this chapter and all applicable rules for filing and recording must be received, filed, or recorded by the appropriate office upon payment of the appropriate fee and taxes, if any, notwithstanding any contrary requirements found in any other laws of this state.

Acts 2005, ch. 286, § 1; 2020, ch. 719, § 22.

Amendments. The 2020 amendment rewrote (a) which read: “Requirement to complete filing. If a document that is delivered to the office of the secretary of state for filing satisfies the requirements of § 48-249-1005, and is accompanied by the required filing fee for the document under § 48-249-1007, the secretary of state shall complete the filing of the document as provided in this section.” in (b), substituted “the domestic” for “such domestic” twice and substituted “the document” for “such document” twice; in (c), substituted “then the secretary of state must” for “the secretary of state shall”, substituted “the domestic” for “such domestic” and substituted “the refusal” for “such refusal”; and, in (e), inserted “and all applicable rules”, substituted “must be” for “shall be”, and deleted “provision of the” preceding “laws” near the end.

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-249-1010. Appeal from secretary of state's refusal to complete the filing of a document.

Appeal. If the secretary of state refuses to complete the filing of a document delivered to the office of the secretary of state for filing, the domestic or foreign LLC or other person that delivered the document for filing may appeal the refusal to the chancery court of Davidson County. The appeal is commenced by petitioning the court to compel the filing of the document and by attaching to the petition the document and the secretary of state's explanation of the reason for the refusal to complete the filing of the document.
Court-ordered filing. The court may summarily order the secretary of state to file the document or may take other action the court considers appropriate.
Appeal of court decision. The court's final decision may be appealed as in other civil proceedings.
Standard of review. Any judicial review of the secretary of state's refusal to complete the filing of a document shall be conducted in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.

Acts 2005, ch. 286, § 1.

48-249-1011. Evidentiary effect of copy of filed document.

A certificate attached or certification affixed to a copy of a document filed with the secretary of state, bearing the secretary of state's signature, which may be in facsimile, and the seal of this state, is conclusive evidence that the original document is on file with the secretary of state.

Acts 2005, ch. 286, § 1.

48-249-1012. Penalty for signing false document.

Fine. A person commits a Class B misdemeanor, punishable by a fine, not to exceed five hundred dollars ($500), if the person signs a document, knowing it to be false in any material respect, with intent that the document be delivered to the office of the secretary of state or other required office for filing.
Nonexclusivity. The offense created by this section is in addition to any other offense created by law for the same conduct.

Acts 2005, ch. 286, § 1.

Cross-References. Penalty for Class B misdemeanor, § 40-35-111.

48-249-1013. Effective time and date of document.

General. Except as provided in subsection (b) and §§ 48-101-808, 48-249-201, 48-249-702, 48-249-703, 48-249-704, and 48-249-1008(c), a document accepted for filing is effective:
1. At the time of filing on the date it is filed with the secretary of state, as evidenced by the office of the secretary of state's date and time endorsement on the original document; or
2. At the time specified in the document as its effective time on the date it is filed with the secretary of state.
Delayed effectiveness. A document may specify a delayed effective time or date. If a document specifies a delayed effective time and date, the document becomes effective at the time and date specified. If a document specifies a delayed effective date, but does not specify a delayed effective time, the document is effective at the close of business on the date specified. A delayed effective date for a document may not be later than the ninetieth day after the date it is filed with the secretary of state, except in the case of a certificate of merger filed under § 48-249-702, or a certificate of conversion and the accompanying articles of organization or other formational document, as applicable, filed under §§ 48-101-808, 48-249-703, or 48-249-704. Notwithstanding this subsection (b), documents specified in § 48-249-1007(a)(2), (4), (6), (7), (8), (14), (19), (20), (24), (30) and (33) may not specify a delayed effective time or date.
Requirement for registered agent and office. The secretary of state shall not complete the filing of any articles of organization of a domestic LLC, or application for a certificate of authority of a foreign LLC, unless that document designates the registered agent and registered office of such domestic or foreign LLC in accordance with § 48-249-109. The secretary of state shall not complete the filing of any other document delivered by a domestic or foreign LLC for filing under this chapter if the domestic or foreign LLC does not have a registered agent and registered office designated at the time the document is delivered for filing, unless, at the time the document is received for filing, the secretary of state also receives for filing a statement designating such registered agent or registered office or both, as applicable.

Acts 2005, ch. 286, § 1; 2006, ch. 620, §§ 52, 53.

48-249-1014. Penalty for transacting business in Tennessee in violation of articles.

In the event an LLC is prohibited from transacting business in this state by its articles but actually transacts business in this state, and, but for § 48-249-1007(d), the LLC would have paid a larger initial or annual filing fee under § 48-249-1007(d), the LLC shall be fined an amount equal to three (3) times the initial or annual filing fee, less the amount actually paid, for each year, or part of each year, in which it actually transacts business in this state.

Acts 2005, ch. 286, § 1.

48-249-1015. Powers.

The secretary of state has the power reasonably necessary to perform the duties required of the secretary of state by this chapter, including, but not limited to, the power to promulgate necessary and appropriate rules and regulations consistent with this chapter and the power to destroy any records in the secretary of state's office concerning a domestic or foreign LLC ten (10) years after such domestic or foreign LLC has terminated, withdrawn from this state or had its certificate of authority revoked.

Acts 2005, ch. 286, § 1.

48-249-1016. Deputies of secretary of state.

An act of a duly authorized deputy of the secretary of state in the secretary of state's behalf under this chapter is the equivalent of the act of the secretary of state; provided, that the deputy signs the name of the secretary of state by such deputy as deputy.

Acts 2005, ch. 286, § 1.

48-249-1017. Annual report for secretary of state.

Required contents. Each domestic LLC and each foreign LLC authorized to transact business in this state shall file with the secretary of state an annual report that sets forth the following:
1. The name of the domestic or foreign LLC and the jurisdiction under the laws of which it is formed;
2. The street address and zip code of its registered office and the name of its registered agent at that office in this state;
3. The street address, including the zip code, of its principal executive office (and a mailing address such as a post office box if the United States postal service does not deliver to the principal executive office);
4. If the domestic or foreign LLC is a director-managed LLC or a manager-managed LLC, or its equivalent, the names and business addresses, including the zip code, of its directors or managers, or their equivalents, as applicable;
5. The names and business addresses, including the zip code, of its officers, or their equivalents, if any;
6. The federal employer identification number (FEIN) of the domestic or foreign LLC, or if such number has not been obtained, a representation that it has been applied for; and
7. If the domestic or foreign LLC will have more than six (6) members as of the date the annual report is executed on behalf of the domestic or foreign LLC, the number of members of the domestic or foreign LLC as of the date the annual report is executed on behalf of the domestic or foreign LLC.
Information to be current. Information in the annual report shall be current as of the date the annual report is executed on behalf of the domestic or foreign LLC. An annual report of a domestic LLC that sets forth a change of the principal executive office of the domestic LLC shall be deemed to be an amendment to the articles of organization of the domestic LLC, and the domestic LLC shall not be required to take any further action to amend the articles of organization of the domestic LLC under § 48-249-204(a) with respect to such amendment. An annual report of a foreign LLC that sets forth a change of the principal executive office of the foreign LLC shall be deemed to be an amendment to the certificate of authority of the foreign LLC, and the foreign LLC shall not be required to take any further action to amend the certificate of authority of the foreign LLC under § 48-249-906 with respect to such amendment. An annual report of a domestic or foreign LLC that sets forth a change of the registered office or registered agent of the domestic or foreign LLC shall be deemed to be a statement of change for purposes of § 48-249-110(a), and the domestic or foreign LLC shall not be required to take any further action under § 48-249-110(a) with respect to such change.
Filing date. Each domestic LLC and each foreign LLC authorized to transact business in this state shall file the annual report with the secretary of state on or before the first day of the fourth month following the end of the close of the domestic or foreign LLC's fiscal year or upon a date set by rule by the secretary of state.

Acts 2005, ch. 286, § 1; 2014, ch. 783, § 16; 2020, ch. 719, § 23.

Amendments. The 2020 amendment added “or upon a date set by rule by the secretary of state” at the end of (c).

Effective Dates. Acts 2020, ch. 719, § 35. June 22, 2020.

48-249-1018. Construction.

No strict construction. The rule that statutes in derogation of the common law are to be strictly construed shall have no application to this chapter.

Acts 2005, ch. 286, § 1.

48-249-1019. Certificate of existence.

Any person may apply to the secretary of state to furnish a certificate of existence for a domestic LLC or a certificate of authorization for a foreign LLC authorized to transact business in this state.
A certificate of existence or authorization sets forth:
1. The domestic LLC's name or the foreign LLC's name used in this state;
2. That:
  1. The domestic LLC is a limited liability company formed under the laws of this state, the effective date of its initial filing, and the period of its duration if less than perpetual; or
  2. The foreign LLC is authorized to transact business in this state;
3. That all fees, taxes and penalties owed to this state have been paid, if:
  1. Payment is reflected in the records of the secretary of state or the department of revenue; and
  2. Nonpayment allows:
    1. Administrative dissolution of a domestic LLC; or
    2. Administrative revocation of the certificate of authority of a foreign LLC;
4. That its most recent annual report required by § 48-249-1017 has been filed with the secretary of state;
5. 1. For a domestic LLC:
    1. That articles of termination have not been filed and a decree of termination has not been filed; and
    2. Whether or not a notice of dissolution, certificate of dissolution or decree of dissolution has been filed and remains effective;
  2. For a foreign LLC:
    1. That a certificate of cancellation of certificate of authority has not been filed; and
    2. Whether or not a certificate of revocation of certificate of authority has been filed and remains effective;
6. That the certificate of existence or authorization is effective as of the date of the issuance of the certificate; and
7. Other facts of record in the office of the secretary of state that may be requested by the applicant.
Subject to any qualifications stated in the certificate, a certificate of existence or authorization issued by the secretary of state may be relied upon as conclusive evidence that the domestic or foreign LLC is in existence or is authorized to transact business in this state and is in good standing.

Acts 2010, ch. 742, § 6.

Part 11
Professional Limited Liability Companies

48-249-1101. Applicability.

Parts 1-10 of this chapter apply to domestic and foreign PLLCs to the extent not inconsistent with this part.

Acts 2005, ch. 286, § 1.

48-249-1102. Part definitions.

As used in this part, unless the context otherwise requires:

“Disqualified person” means an individual or entity that for any reason is or becomes ineligible under this part to be a member of a PLLC or holder of financial rights of a PLLC;
“Foreign professional LLC,” “foreign PLLC” or a PLLC that is otherwise designated as “foreign” means a foreign LLC that is formed under a law other than the law of this state for the purpose of rendering professional services under a law other than the law of this state;
“Law” includes rules promulgated in accordance with §§ 48-249-1109 and 48-249-1129;
“Licensing authority” means the officer, board, agency, court or other authority in this state empowered to license or otherwise authorize the rendition of a professional service;
“Professional LLC,” “PLLC,” “domestic professional LLC,” “domestic PLLC” or a professional LLC or PLLC that is otherwise designated as “domestic,” means a professional LLC that is formed under this chapter, an LLC for which professional LLC status has been elected under this part or, where expressly indicated, a professional LLC that is formed under the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title, or an LLC that is formed under the Tennessee Limited Liability Company Act for which professional LLC status has been elected under the Tennessee Limited Liability Company Act;
“Professional service” means a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in this state to render the service; and
“Qualified person” means an individual, general partnership, limited liability partnership, professional corporation, professional association or domestic or foreign PLLC that is eligible to be a member of or holder of financial rights in a PLLC under § 48-249-1109.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 54.

48-249-1103. Formation and election.

Formation. One (1) or more persons may, acting as organizers, form a PLLC, by filing articles of organization with the secretary of state, that comply with the applicable provisions of this chapter, including § 48-249-1108, and that also state that:
1. It is a PLLC;
2. Its purpose is to render specified professional services; and
3. The PLLC has one (1) or more qualified persons as members and no disqualified persons as members or holders.
Election. An LLC may elect professional LLC status by amending its articles to comply with subsection (a).

Acts 2005, ch. 286, § 1.

48-249-1104. Purposes.

Single profession. Except to the extent authorized by subsection (b) and § 48-249-1109, a PLLC may be formed, and professional LLC status of an LLC may be elected, solely for the purpose of rendering professional services, including services ancillary to them, and solely within a single profession.
Multiple professions. A PLLC may be formed, and professional LLC status of an LLC may be elected, for the purpose of rendering professional services within two (2) or more professions and for the purpose of engaging in any lawful business authorized by this chapter, only if the combination of professional purposes or of professional and business purposes is specifically authorized by the licensing law of this state applicable to each profession in the combination.
Other states. Notwithstanding subsections (a) and (b), if a PLLC is formed, or professional LLC status of an LLC is elected, to provide professional services in states other than this state, such PLLC may be formed, or professional LLC status of such LLC may be elected, for the purpose of rendering professional services permitted by the licensing boards of the other states in which it will operate. Such PLLC, or LLC for which professional LLC status has been elected, shall, nevertheless, be required to file reports and other information, as may be required by the applicable licensing authorities of this state, to establish or confirm that such PLLC, or LLC for which professional LLC status has been elected, is not providing unauthorized professional services in this state.

Acts 2005, ch. 286, § 1.

48-249-1105. Power.

General powers. Except as provided in subsection (b), or otherwise limited by this part, a PLLC has the powers enumerated in § 48-249-104.
Other professional entities. A PLLC may be a promoter, general partner, member, holder of financial rights, associate or manager of a PLLC, professional corporation, partnership, joint venture, trust or other entity, only if the other entity is engaged solely in rendering professional services, or in carrying on business authorized by the PLLC's articles.

Acts 2005, ch. 286, § 1.

48-249-1106. Rendering of professional services.

Licensed individuals. A domestic or foreign PLLC may render professional services in this state only through individuals licensed or otherwise authorized in this state to render the services.
Nonapplicability. Subsection (a) does not:
1. Require an individual employed by a PLLC to be licensed to perform services for the PLLC, if a license is not otherwise required;
2. Prohibit a licensed individual from rendering professional services in the individual's individual capacity, although the individual is a member, holder of financial rights, manager, director, officer, employee or agent of a domestic or foreign PLLC; or
3. Prohibit an individual licensed in another state from rendering professional services for a domestic or foreign PLLC in this state, if not prohibited by the licensing authority.

Acts 2005, ch. 286, § 1.

48-249-1107. Professions and other business allowed to be rendered.

Limitation by articles. A PLLC may not render any professional service, or engage in any business, other than the professional service and business authorized by its articles.
Other investments. Subsection (a) does not prohibit a PLLC from investing its funds in real estate, mortgages, securities or any other type of investment.

Acts 2005, ch. 286, § 1.

48-249-1108. Name.

Name requirements. The name of a domestic PLLC and of a foreign PLLC that is applying for a certificate of authority or is authorized to transact business in this state, in addition to satisfying the requirements of §§ 48-249-106 and 48-249-903, except the requirement that the name include the words “limited liability company” or “LLC”:
1. Shall contain the words “professional limited company,” “professional limited liability company,” “professional LLC,” “limited liability professional company” or the abbreviations “P.L.C.,” “P.L.L.C.” or “L.L.P.C.,” or such abbreviations without punctuation; provided, however, that, in the case of a foreign PLLC, the name may contain, subject to subdivision (a)(2), and in lieu of the words or abbreviations provided for in this subdivision (a)(1), the designations allowed by the jurisdiction in which the foreign PLLC was formed;
2. Shall not contain the word “corporation” or “incorporated,” or an abbreviation of either or both of these words; and
3. May not contain language stating or implying that the domestic or foreign PLLC is formed or has elected professional LLC status for a purpose other than a purpose authorized by § 48-249-1104 and its articles.
Personal Name. Sections 48-249-106 and 48-249-903 do not prevent the use of a name otherwise prohibited by those sections, if it is the personal name of a member or former member of the domestic or foreign PLLC, or the name of an individual who was associated with a predecessor of the domestic or foreign PLLC.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 55.

48-249-1109. Eligible members and holders.

Members and holders. A PLLC may have both members and holders of financial rights, and may issue both membership interests to members and financial rights to holders.
General eligibility. A PLLC may have persons who are not licensed to practice a profession described in the PLLC's articles in this state as members or holders of financial rights, only if the licensing authority that licenses the professionals who are members or holders of such a PLLC specifically so authorizes. Otherwise, a PLLC may have as members and holders of financial rights only the following:
1. Individuals who are authorized by law in this or another state to render a professional service described in the PLLC's articles;
2. General partnerships in which all the partners are qualified persons with respect to the PLLC and in which at least one (1) partner is authorized by law in this state to render a professional service described in the PLLC's articles;
3. Professional corporations and professional associations, whether domestic or foreign, authorized by law in this state to render a professional service described in the PLLC's articles; and/or
4. PLLCs, whether domestic or foreign, authorized by law in this state to render a professional service described in the PLLC's articles.
Licensing authority eligibility rules. If a licensing authority with jurisdiction over a profession considers it necessary to prevent violation of the ethical standards of the profession, the licensing authority may, by rule, restrict or condition, or revoke in part, the authority of PLLCs subject to its jurisdiction to have the members or holders of financial rights described in subsection (b). A rule promulgated under this section does not, of itself, make a member or holder of financial rights of a PLLC, at the time the rule becomes effective, a disqualified person.
Void interests. Any membership interest, governance rights or financial rights purported to be held by a person in violation of this section, or a rule promulgated under this section, is void.
Specified health care professionals.
1. Notwithstanding any other provision of this part, the following health care professionals shall have a right to be members or holders of financial rights of the same PLLC:
  1. Optometrists licensed under title 63, chapter 8, and ophthalmologists licensed under title 63, chapter 6 or 9;
  2. Podiatrists licensed under title 63, chapter 3, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists and anesthesiologists;
  3. Doctors of chiropractic licensed under title 63, chapter 4, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists and anesthesiologists;
  4. Physician assistants licensed under title 63, chapter 19, part 1, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists, and anesthesiologists; and
  5. Advance practice nurses licensed under title 63, chapter 7, part 1, and physicians licensed under title 63, chapter 6 or 9, except radiologists, pathologists and anesthesiologists.
2. The services rendered by these health care professionals are considered related and complementary to each other; provided, that nothing in this part shall be construed to alter the lawful scope of practice of a professional who is a member or holder of financial rights of a PLLC under this subsection (e); and provided, further, that nothing in this part shall be construed to allow any professional who is a member or holder of financial rights of a PLLC under this subsection (e) to conduct the professional's practice in a manner contrary to the standards of ethics applicable to the professional's profession. Such individual shall accurately state such individual's professional credentials on any advertisement to the public.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 56; 2008, ch. 747, § 1.

48-249-1110. Transfers.

Qualified persons only. Subject to §§ 48-249-507 and 48-249-508, a member or holder of financial rights of a PLLC may transfer such member's or holder's membership interest, governance rights or financial rights, as applicable, in the PLLC, only to qualified persons; provided, that nothing in this section shall be construed as prohibiting such a member or holder from transferring such member's or holder's financial rights to a financial institution as collateral for a loan.
Prohibited transfers void. A transfer of a membership interest, governance rights or financial rights that is made in violation of subsection (a), except one made by operation of law or court judgment, is void.

Acts 2005, ch. 286, § 1.

48-249-1111. Required purchase of membership interest and financial rights.

Purchase obligation. A PLLC shall purchase, or cause to be purchased by a qualified person, the membership interest of any member and the financial rights of any holder of financial rights, at a price that represents the fair value of the membership interest or financial rights as of the date of the occurrence of the event giving rise to the PLLC's purchase obligation under this subsection (a), from the personal representative of the member or holder of financial rights, the member or holder of financial rights or the disqualified person to whom the membership interest or financial rights has or have been transferred, as applicable, in accordance with this section, if:
1. The member or holder of financial rights dies;
2. The member or holder of financial rights becomes a disqualified person, except as provided in subsection (c);
3. The membership interest of a member or the financial rights of a holder is or are transferred by operation of law or court judgment to a disqualified person, except as provided in subsection (c); or
4. The member or holder of financial rights retires, withdraws from or terminates employment with the PLLC.
Purchase terms. If the amount of fair value and other terms of payment for the membership interest or financial rights are fixed, or are to be determined by the LLC documents or a private agreement, the amount and terms so fixed or determined govern. If the amount of fair value and other terms of payment are not so fixed or determined by the LLC documents or a private agreement, the PLLC shall purchase the membership interest or financial rights in accordance with § 48-249-1112.
Limited disqualification. This section does not require the purchase of a membership interest or financial rights in the event a member or holder of financial rights becomes a disqualified person, if the disqualification lasts no more than five (5) months from the date the disqualification occurs.
Other benefits. This section and § 48-249-1112 do not prevent or relieve a PLLC from paying to a former member or holder pension benefits or other deferred compensation for services rendered by the former member or holder, if otherwise permitted by law.
Specific enforcement. Any governing terms contained in the LLC documents of a PLLC or a private agreement as to the amount of fair value and other terms of payment for a membership interest or financial rights are specifically enforceable.

Acts 2005, ch. 286, § 1; 2006, ch. 620, § 57.

48-249-1112. Purchase notice, acceptance and termination of interest.

Purchase notice. If a membership interest or financial rights is required to be purchased under § 48-249-1111, the PLLC shall deliver a written notice to the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a), offering to purchase the membership interest or financial rights at a price the PLLC believes to represent its fair value as of the date of the occurrence of the event giving rise to the PLLC's purchase obligation under § 48-249-1111(a). The notice shall be accompanied by the PLLC's balance sheet for a fiscal year ending not more than sixteen (16) months before the effective date of the notice, the PLLC's income statement for that year, a statement of changes in equity of the PLLC for that year, and the PLLC's latest available interim financial statements, if any.
Acceptance. The person who is entitled to receive payment in respect of a membership interest or financial rights under § 48-249-1111(a) has thirty (30) days after the effective date of the notice to accept the PLLC's offer, or to demand that the PLLC commence a proceeding under § 48-249-1113, to determine the fair value of the membership interest or financial rights. If such person accepts the offer, the PLLC shall make payment for the membership interest or financial rights within sixty (60) days after the effective date of the notice, unless a later date is agreed on, upon the transfer of the membership interest or financial rights from such person to the PLLC.
Termination. After the PLLC makes payment for the membership interest or financial rights, the person who was entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a), as well as the member or holder of financial rights whose membership interest or financial rights have been purchased, if different from such person, has no further membership interest or financial rights in the PLLC.

Acts 2005, ch. 286, § 1.

48-249-1113. Commencement of fair value determination proceeding.

Right to commence proceeding. If the person who is entitled to receive payment in respect of a membership interest or financial rights under § 48-249-1111(a) does not accept the PLLC's offer under § 48-249-1112(b), within the thirty-day period specified in § 48-249-1112(b), such person may, during the following thirty-day period, deliver a written notice to the PLLC demanding that the PLLC commence a proceeding to determine the fair value of the membership interest or financial rights. The PLLC may commence a proceeding to determine the fair value of the membership interest or financial rights at any time during the sixty (60) days following the effective date of the PLLC's notice under § 48-249-1112(a). If the PLLC does not do so, the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a) may commence a proceeding against the PLLC to determine the fair value of the membership interest or financial rights.
Jurisdiction. A proceeding brought to determine the fair value of a membership interest or financial rights under subsection (a) shall be brought in a court of record having equity jurisdiction in the county where the PLLC's principal executive office, or, if not in this state, its registered office, is located. The PLLC and the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a) shall each be made a party to the proceeding. The PLLC, at its expense, shall notify, in writing, all of the other members and any other person the court directs of the commencement of the proceeding. The jurisdiction of the court in which the proceeding is commenced is plenary and exclusive.
Appraisers. The court may appoint one (1) or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers have the power described in the order appointing them, or in any amendment to such order.
Right to judgment. The person who is entitled to receive payment in respect of a membership interest or financial rights under § 48-249-1111(a) is entitled to judgment for the fair value of the membership interest or financial rights determined by the court as of the date of the occurrence of the event giving rise to the PLLC's purchase obligation under § 48-249-1111(a), together with interest from that date at a rate determined by the court to be fair and equitable.
Installment payments. The court may order the judgment paid in such installments as may be determined by the court.

Acts 2005, ch. 286, § 1.

48-249-1114. Assessment of proceeding costs.

Determination and assessment. In a fair value proceeding commenced under § 48-249-1113, the court shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court, and the court shall assess the costs against the PLLC. Notwithstanding this subsection (a), the court may assess those costs in an amount the court determines to be equitable against the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a), if the court determines that such person acted arbitrarily, vexatiously or not in good faith in refusing to accept the PLLC's offer.
Other fees and expenses. The court may also:
1. Assess the fees and expenses of counsel and experts for the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a) against the PLLC, and in favor of such person, if the court determines that the fair value of the membership interest or financial rights substantially exceeded the amount offered by the PLLC or that the PLLC did not make an offer; or
2. Assess the fees and expenses of counsel and experts for the PLLC against the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a), and in favor of the PLLC, if the court finds that the fair value of the membership interest or financial rights did not substantially exceed the amount offered by the PLLC.

Acts 2005, ch. 286, § 1.

48-249-1115. Termination of membership interest or financial rights of a disqualified person.

If the membership interest or financial rights of a member or holder of financial rights is not or are not purchased under § 48-249-1112 or 48-249-1113 within ten (10) months after the death of the member or holder, or within five (5) months after the occurrence of any other event giving rise to the PLLC's purchase obligation under § 48-249-1111(a), the PLLC shall immediately terminate the membership interest or financial rights on the PLLC's books, and the person who is entitled to receive payment in respect of the membership interest or financial rights under § 48-249-1111(a), as well as the member or holder of financial rights, if different from such person, has no further membership interest or financial rights in the PLLC, other than such person's right to payment of the fair value of the membership interest or financial rights under § 48-249-1112 or 48-249-1113.

Acts 2005, ch. 286, § 1.

48-249-1116. Disqualification of members and other persons.

If any member or holder of financial rights of a PLLC becomes disqualified to render those professional services for which the PLLC was formed, or has elected professional LLC status within this state, such member or holder shall be deemed to have resigned and withdrawn from the PLLC, and shall have no further interests as a member or holder in the PLLC, other than the right to receive any distribution to which such member or holder may be entitled as a member or holder under the LLC documents or §§ 48-249-1111 — 48-249-1115, if applicable. If any member, manager, director, officer, agent or employee of a domestic or foreign PLLC who is rendering professional service to the public within this state becomes legally disqualified to render those professional services within this state, that member, manager, director, officer, agent or employee shall immediately sever all professional employment and professional relationships with, and financial interests in, that domestic or foreign PLLC. A domestic PLLC's failure to require compliance with this provision shall constitute a ground for the dissolution of the PLLC by the secretary of state, and a foreign PLLC's failure to require compliance with this provision shall constitute a ground for the revocation of the foreign PLLC's certificate of authority in this state by the secretary of state.

Acts 2005, ch. 286, § 1.

48-249-1117. Directors, managers and officers.

If persons other than qualified persons are permitted by the licensing authority to serve as directors, managers or officers of a PLLC, not less than one half (½) of the directors, if any, all managers, if any, and all officers, if any, except the secretary, assistant secretary and treasurer, if any, of a PLLC, shall be qualified persons with respect to the PLLC.

Acts 2005, ch. 286, § 1.

48-249-1118. Privilege.

A privilege applicable to communications between an individual rendering professional services and the person receiving the services recognized under the statutes or common law of this state is not affected by this part. The privilege applies to a domestic or foreign PLLC and to its members, holders of financial rights, directors, managers, officers and employees in all situations in which it applies to communications between an individual rendering professional services on behalf of the PLLC and the person receiving the services.

Acts 2005, ch. 286, § 1.

48-249-1119. Liability.

Individual professional liability. Each individual who renders professional services as a member, holder of financial rights, director, manager, officer, employee or other agent of a domestic or foreign PLLC is liable for such person's own negligent or wrongful acts or omissions, to the same extent as if the person rendered the services as a sole practitioner. A member, holder of financial rights, director, manager, officer, employee or other agent of a domestic or foreign PLLC is not liable, however, for the conduct of other members, holders of financial rights, directors, managers, officers, employees or agents of the PLLC, unless such person is also at fault.
PLLC professional liability. A domestic or foreign PLLC whose members, holders of financial rights, directors, managers, officers, employees or other agents perform professional services within the scope of their employment, or of their apparent authority to act for the domestic or foreign PLLC, is liable to the same extent as such members, holders of financial rights, directors, managers, officers, employees or other agents.
General limited liability. Except as otherwise provided by this part, the personal liability of a member, holder of financial rights, director, manager, officer, employee, or other agent of a domestic or foreign PLLC, is no greater, in any respect, than the liability of a member, holder of financial rights, director, manager, officer, employee or other agent of an LLC formed under this chapter.

Acts 2005, ch. 286, § 1.

NOTES TO DECISIONS

1. Sole Member Not Liable.

Cat owners' claims against a veterinarian who was the sole member of an LLC were dismissed where the owners introduced no evidence that the member contributed in any way to the cat's injury or ultimate demise, the veterinarian and the technician who improperly placed a feeding tube in the cat's trachea were both employees of the LLC, and the owners introduced no evidence that either the ceterinarian or the technician were improperly trained or improperly hired. Delany v. Kriger, — S.W.3d —, 2019 Tenn. App. LEXIS 139 (Tenn. Ct. App. Mar. 20, 2019).

48-249-1120. Mergers and conversions.

Mergers and conversions permitted. A PLLC may merge with or into, or convert into, any other entity permitted to render the professional services of the PLLC in this state, in the same manner and to the same extent as LLCs under part 7 of this chapter, and any entity permitted to render professional services of a PLLC in this state may convert into a PLLC, in the same manner and to the same extent as other entities under part 7 of this chapter.
Compliance. If the surviving entity or entity resulting from the conversion is an LLC and is to render professional services in this state, it shall comply with this part.

Acts 2005, ch. 286, § 1.

48-249-1121. Cessation of professional services.

If a domestic PLLC ceases to render professional services, it shall amend or restate its articles to delete references to rendering professional services and to conform its name to the requirements of § 48-249-106. After the amendment or restatement becomes effective, the domestic PLLC may continue in existence as an LLC under this chapter, and it is no longer subject to this part. If a foreign PLLC that is authorized to transact business in this state ceases to render professional services in this state, it shall amend its certificate of authority to delete references to rendering professional services and to conform its name to the requirements of § 48-249-903. After the amendment becomes effective, the foreign PLLC may continue its authority to transact business in this state as a foreign LLC, and it is no longer subject to this part.

Acts 2005, ch. 286, § 1.

48-249-1122. Dissolution.

The attorney general and reporter may commence a proceeding to dissolve a PLLC under § 48-249-617, if:

The secretary of state or a licensing authority with jurisdiction over a professional service described in the PLLC's articles serves written notice on the PLLC, in accordance with § 48-249-112, that it has violated or is violating a provision of this part;
The PLLC does not correct each alleged violation, or demonstrate to the reasonable satisfaction of the secretary of state or licensing authority that such violation did not occur, within sixty (60) days after service of the notice, in accordance with § 48-249-112; and
The secretary of state or licensing authority certifies to the attorney general and reporter a description of the violation, that it properly notified the PLLC of the violation, and that the PLLC did not correct such violation, or demonstrate that it did not occur, within sixty (60) days after service of the notice, in accordance with § 48-249-112.

Acts 2005, ch. 286, § 1.

48-249-1123. Foreign PLLCs.

Certificate of authority required. Except as provided in subsection (c), a foreign PLLC may not transact business in this state until it obtains a certificate of authority from the secretary of state.
Requirements. A foreign PLLC may not obtain a certificate of authority, unless:
1. Its name satisfies the requirements of § 48-249-1108;
2. It is formed for one (1) or more of the purposes referenced in, and satisfies the requirements of § 48-249-1104; and
3. All of its members, holders of financial rights, or their equivalent, if any, directors, or their equivalent, if any, managers, or their equivalent, if any, and officers, or their equivalent, if any, are licensed in one (1) or more states to render a professional service described in its articles; provided, however, that, if the licensing authority of this state permits persons other than qualified persons to serve as directors, managers or officers of a PLLC, not less than one half (½) of its directors, or their equivalent, if any, all of its managers, or their equivalent, if any, and all of its officers, or their equivalent, if any, except the secretary, assistant secretary and treasurer, if any, shall be qualified persons with respect to the foreign PLLC.
Exception. A foreign PLLC is not required to obtain a certificate of authority in this state, unless it maintains, or intends to maintain an office, in this state for conduct of business or professional practice.

Acts 2005, ch. 286, § 1.

48-249-1124. Application for a certificate of authority.

The application of a foreign PLLC for a certificate of authority in this state shall:

Contain the information required in § 48-249-904;
State that it is a foreign PLLC;
State that its purpose is to render specified professional services; and
Include a statement that the requirements of § 48-249-1123(b)(3) are satisfied.

Acts 2005, ch. 286, § 1.

48-249-1125. Revocation.

The secretary of state may administratively revoke the certificate of authority of a foreign PLLC authorized to transact business in this state, if a licensing authority with jurisdiction over a professional service described in the foreign PLLC's certificate of authority certifies to the secretary of state that the foreign PLLC has violated or is violating a provision of this part, and describes the violation in the certification.

Acts 2005, ch. 286, § 1.

48-249-1126. Offense — Penalty.

False document. A person commits a Class B misdemeanor, punishable by a fine of not more than five hundred dollars ($500), if such person signs a document such person knows is false in any material respect, with intent that the document be delivered to the licensing authority for filing.
Other offenses. The offense created by this section is in addition to any other offense created by law for the same conduct.

Acts 2005, ch. 286, § 1.

Cross-References. Penalty for Class B misdemeanor, § 40-35-111.

48-249-1127. Delivery of articles or certificate of authority to licensing authority.

A domestic PLLC may not render professional services in this state until it delivers a certified copy of its articles to each licensing authority with jurisdiction over a professional service described in the articles, and a foreign PLLC may not render professional services in this state until it delivers a certified copy of its certificate of authority to transact business in this state to each licensing authority with jurisdiction over a professional service described in the certificate of authority.

Acts 2005, ch. 286, § 1.

48-249-1128. Annual qualification statement.

Statement if required by licensing authority. If required by a rule promulgated by the licensing authority having jurisdiction over a professional service described in the articles of a domestic PLLC or certificate of authority of a foreign PLLC, each such domestic PLLC and each such foreign PLLC that is authorized to transact business in this state shall deliver, for filing to each licensing authority having jurisdiction over a professional service described in the domestic PLLC's articles or foreign PLLC's certificate of authority, an annual statement of qualification setting forth:
1. The names and usual business addresses of its members, holders of financial rights, or their equivalents, if any, directors, or their equivalents, if any, managers, or their equivalents, if any, and officers, or their equivalents, if any; and
2. Information required by rule promulgated by the licensing authority to determine compliance with this part and other rules promulgated under this part.
Delivery date. The first qualification statement of a domestic or foreign PLLC required under this section shall be delivered to the licensing authority between January 1 and April 1 of the year following the adoption of a rule requiring such statements and the calendar year in which the domestic PLLC was formed, professional LLC status was elected for the PLLC, or the foreign PLLC was authorized to transact business in this state, as applicable. Subsequent qualification statements shall be delivered to the licensing authority between January 1 and April 1 of the following calendar years.
No additional information. Any information required by a licensing authority, pursuant to this section, shall be submitted in the annual statement of qualification, and the licensing authority shall have no authority to require a domestic PLLC to include in its articles, filed pursuant to §§ 48-249-201, 48-249-202 and 48-249-1103, any information other than that which is specifically prescribed by §§ 48-249-201, 48-249-202 and 48-249-1103, or to require a foreign PLLC to include in its application for certificate of authority, filed pursuant to §§ 48-249-904 and 48-249-1124, or any amendment of such certificate of authority, any information other than that which is specifically prescribed by §§ 48-249-904 and 48-249-1124.

Acts 2005, ch. 286, § 1.

48-249-1129. Rules.

Each licensing authority is empowered to promulgate rules expressly authorized by this part if the rules are consistent with the public interest or required by the public health or welfare, or by generally recognized standards of professional conduct.

Acts 2005, ch. 286, § 1.

48-249-1130. Jurisdiction of licensing authority.

This part does not restrict the jurisdiction of a licensing authority over individuals rendering a professional service within the jurisdiction of the licensing authority, nor does it affect the interpretation or application of any law pertaining to standards of professional conduct, except that, notwithstanding any other provision of this chapter, this part expressly provides that persons engaged in a professional service are expressly authorized to form or elect professional LLC status for a PLLC in which to conduct their business and limit their liability for the acts of others.

Acts 2005, ch. 286, § 1.

48-249-1131. Amendment of existing laws and right to practice profession in other forms.

Notwithstanding any other provision of this chapter, the prior laws of this state, with respect to the practice and regulation of professional services rendered by or through a domestic or foreign PLLC and the laws of this state relating to the regulation of professional services, are hereby amended and superseded to the extent such laws are inconsistent as to form of organization with this chapter and are deemed amended to permit the provision of professional services within this state by domestic PLLCs and foreign PLLCs that are authorized to transact business in this state. This part does not affect an existing or future right or privilege to render professional services through the use of any other form of entity.

Acts 2005, ch. 286, § 1.

48-249-1132. Reservation of power to amend or repeal.

The general assembly has the power to amend or repeal all or part of this part at any time, and all domestic and foreign PLLCs that are subject to this part are governed by the amendment or repeal.

Acts 2005, ch. 286, § 1.

48-249-1133. Applicability — Savings clause.

Section 48-249-1002 applies to domestic PLLCs, including domestic PLLCs formed under the Tennessee Limited Liability Company Act, compiled in chapters 201-248 of this title, and LLCs formed under the Tennessee Limited Liability Company Act, for which professional LLC status has been elected under the Tennessee Limited Liability Company Act, and foreign PLLCs to the same extent as those provisions apply to other domestic and foreign LLCs.

Acts 2005, ch. 286, § 1.

Securities

Chapter 1 Securities

Part 1 Tennessee Securities Act of 1980

48-1-101. Short title.

NOTES TO DECISIONS

1. Arising in a Securities Context.

48-1-102. Part definitions.

NOTES TO DECISIONS

1. Jury Instructions.

2. Classification of Notes as Securities.

3. —Investment Contract.

4. Secondary Liability.

5. Security Definition.

Decisions Under Prior Law

1. Sales.

48-1-103. Exemptions.

48-1-104. Securities registration requirement — Civil penalty.

NOTES TO DECISIONS

1. Cease and Desist Order.

2. Exemptions.

48-1-105. Registration by coordination.

48-1-106. Registration by qualification.

48-1-107. Provisions applicable to registration generally.

48-1-108. Stop order denying, suspending, or revoking registration.

48-1-109. Registration as broker-dealers, agents, investment advisers, and investment adviser representatives.

NOTES TO DECISIONS

1. Statute of Limitations.

2. Registration.

3. Willfulness.

4. Exemptions.

48-1-110. Registration procedure.

NOTES TO DECISIONS

Decisions Under Prior Law

1. Commissioner's Discretion.

2. Filing of Documents and Issuance of Permit.

3. Agent's Noncompliance.

48-1-111. Records and reports — Examinations.

48-1-112. Denial, revocation, suspension, cancellation, or withdrawal of registration.

48-1-113. Filing of sales and advertising literature.

48-1-114. Unlawful representation concerning registration or exemption.

48-1-115. Administration.

48-1-116. Rules, forms, orders, and hearings.

NOTES TO DECISIONS

1. Cease and Desist Order.

48-1-117. Administrative files and opinions.

48-1-118. Investigations and subpoenas.

48-1-119. Injunctions.

48-1-120. Judicial review.

NOTES TO DECISIONS

1. Order Not Subject to Judicial Review.

48-1-121. Fraudulent acts or devices.

NOTES TO DECISIONS

1. Elements of Offense.

2. Federal Law.

3. Limitation of Actions.

4. —When Convictions Not Multiplicitous.

5. Claim Sufficient.

48-1-122. Civil liabilities.

NOTES TO DECISIONS

1. Reliance Upon Misrepresentations.

2. Limitation of Actions.

3. Tolling of Limitations.

4. Notice Requirement.

5. Misrepresentation.

6. Secondary Liability.

Decisions Under Prior Law

1. Reliance Upon Misrepresentations.

2. Estoppel.

48-1-123. Criminal prosecution.

NOTES TO DECISIONS

1. Willfully.

48-1-124. Scope of law — Service of process.

48-1-125. Notice filing and fee requirements for covered securities.

48-1-126. Exemptions from notice filing and fee requirements.

48-1-127. Senior exploitation reporting and records.

Part 2 Miscellaneous Provisions

48-1-201. Participation certificates in bonds or notes secured by mortgages on realty.

Chapters 2-10 [Reserved]

For-Profit Business Corporations

Chapter 11 General Provisions

Chapter 1
Securities

Part 1
Tennessee Securities Act of 1980

Part 2
Miscellaneous Provisions

Chapters 2-10
[Reserved]

Chapter 11
General Provisions

Part 1
Short Title and Reservation of Power

Part 2
Definitions and Notice

Part 3
Filing Documents

Part 4
Secretary of State

Chapter 12
Incorporation

Chapter 13
Purposes and Powers