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Legislative updates

Senate Bill 1931, effective July 1, 2022, permits a nonprofit corporation to hold a meeting of members or proxyholders by means of remote communication.

House Bill 2645, effective April 20, 2022, allows an LLC to be formed as a decentralized organization. The articles of organization must contain a statement that it is a decentralized organization and set forth a notice on restrictions on duties and transfers.

Senate Bill 1935, effective April 8, 2022, amends provisions relating to the certification of certain documents filed by certain nonprofits with the Department of State.

Senate Bill 1660, effective March 18, 2022, provides that directors, trustees or members of the governing bodies of nonprofit corporations, associations, and organizations that are exempt from federal income taxation under § 501(c)(19) of the Internal Revenue Code shall be immune from suits arising from the conduct of the nonprofit’s affairs as long as the conduct at issue does not amount to willful, wanton, or gross negligence.

House Bill 106, effective April 7, 2021, amends the corporation law to allow a corporation to permit proxyholders to participate in meetings by remote communication and makes the authorization for remote communication by shareholders and proxyholders contingent on the implementation of certain measures and record maintenance.

Senate Bill 1754, effective June 22, 2020, clarifies the requirements regarding the form and filing of documents with the Secretary of State.

Case summaries

Personal Liability
Clarksville Towers, LLC v. Straussberger, No. M2020-00756, decided May 11, 2021. The Tennessee Court of Appeals affirmed summary judgment in favor of the president and sole owner of a corporation that contracted with the plaintiff to construct a building, and whose contractor’s license expired before completion of the project. The court stated that while the corporation could be liable for operating without a license, there was no evidence the president supervised, managed or was in charge of any part of the project and therefore he could not be considered a contractor. Nor was there evidence that he misrepresented the corporation’s licensing status.

Assignment of Rights
Hight v. Tramel, No. M2019-00 845, decided November 17, 2020. The Tennessee Court of Appeals affirmed the ruling that a former shareholder lacked standing to bring a lawsuit on the corporation’s behalf. The plaintiff claimed the corporation assigned its rights in a settlement agreement he entered into with the person who bought the corporation. However, the settlement agreement was clearly between the plaintiff and the buyer and the corporation was not a party. The corporation has a separate existence from its owner and has to assign its rights itself.

Residency Requirement Violates Commerce Clause
Tennessee Wine and Spirits Retailers, Assn. v. Thomas, No. 18-96, decided June 26, 2019. The U.S. Supreme Court held that a Tennessee law prohibiting companies from obtaining a license to operate retail liquor stores unless all of their directors, officers, and owners were Tennessee residents for the previous two years violates the Commerce Clause.

Charging Order
Peach Reo, LLC v. Rice, No. 2:12-cv-02752, decided 7/11/17. The U.S. District Court, Western District of Tennessee granted a motion for a charging order against the interests of the debtor member in six LLCs. The court rejected the member’s argument that a charging order was inappropriate because the operating agreements required consent before a member could assign its interests. The governing LLC statutes provide that a charging order is a lien – which is an interest in the property of another - and not an assignment of the interest.

Other notices

September 2022 — The Secretary of State’s office has issued a warning about what it refers to as “a new scam targeting businesses and individuals in Tennessee”. According to the warning, a company that is not affiliated with or authorized by the Secretary of State is sending an official-looking mailer titled "Tennessee UCC Statement Request Form," that incorrectly implies that businesses or individuals need a copy of a UCC-1 financing statement filed against them. You can read the warning, and see a copy of the mailer, by visiting the Secretary of State’s website.

June 16, 2022 — The Secretary of State’s office has issued an alert about what it refers to as a “new scam where individuals are being asked to provide personal information from a requestor who claims to be a celebrity or claims to be requesting information on behalf of a government official such as the Secretary of State.” For more information, see the alert on the Secretary of State’s website here.

November 8, 2021 — The Secretary of State's office has indicated that it has become aware of a scam in which individuals are being asked to provide personal information from a requestor who may be claiming to be requesting information on behalf of a government official such as the Secretary of State. These communications are typically made through unofficial channels such as social media or online video streaming platforms.

May 21, 2021 — The Secretary of State issued a warning statement to business owners about a “new Certificate of Existence filing scam”. The warning states that businesses in Tennessee are receiving a mailer that falsely implies that businesses must have a certificate of existence to complete its formation or to fully operate in the state. The warning also states that the mailer and organization sending it are not affiliated with or authorized by the Secretary of State’s Office in any way. The entire warning can be read from the Secretary of State’s website.

June 11, 2020 — Tennessee’s Secretary of State issued a press release warning businesses about what they call a “misleading” mailer titled “2020 Certificate of Existence Request Form,” that is being sent to businesses across the state.

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