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operating agreement is consistent with a general requirement that
interim distributions to members of the LLC be proportionate to
their membership interests. The operative language provides as
follows:
Members * * * may make Distributions to the Members in
accordance with their Membership Interests. Such
distributions shall be in cash or Property (which need
not be distributed proportionately) or partly in both,
as determined by the Manager.
A straightforward reading of the foregoing language leads to the
conclusion that the parenthetical clause modifies the word
“Property”, not the word “distributions”. Finally, accepting for
the sake of argument petitioners’ logic for disproportionate
distributions among the members of the LLC, they have failed to
show us how they arrived at an approximately 68-20-12 split that,
13(...continued)
petitioners, rather than by “the past and future administrative
services of McKernan and Moore on behalf of the * * * [LLC]”, as
stated in the assignment and assumption agreement, it makes more
sense from an economic self-interest standpoint for Dr. McKernan
and Ms. Moore to have demanded increased membership interests
rather than so-called disproportionate distributions from the LLC
because the latter were likely to result in a return of capital
and, possibly, a negative capital account for either or both.
The resulting potential economic detriment of such an arrangement
is, in fact, illustrated by the 2000 sale of membership interests
in the LLC to Surgicoe. Sec. 3.5 of the Surgicoe purchase
agreement specifically requires that “the Sellers’ interests * *
* [be] fully paid and assessable”, which, in effect, supersedes
sec. 7.6 of the LLC operating agreement to the extent that it
provides that that agreement “shall not be construed as creating
a [capital account] deficit restoration obligation”. See also
sec. 12.3 of the LLC operating agreement, which limits the
distribution of assets, on the dissolution of the LLC, “to
Members in accordance with positive Capital Account balances”.
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Last modified: November 10, 2007