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Legislative updates

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

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.