Interest Dilution as Contribution-Default Remedy in LLCs and Partnerships

Nottingham Insolvency & Business Law e-Journal, Vol. 6, p. 180, 2018

Brooklyn Law School, Legal Studies Paper No. 572

22 Pages Posted: 17 Oct 2018

See all articles by Bradley T. Borden

Bradley T. Borden

Brooklyn Law School

Douglas L. Longhofer

University of Central Missouri

Date Written: October 9, 2018

Abstract

LLC and partnership agreements often provide that members will make additional contributions according to a pre-determined schedule or in response to capital calls. Agreements also typically include contribution-default remedies. Interest dilution is a common type of contribution-default remedy. This article identifies various types of interest-dilution contribution-default remedies and illustrates how they can differently affect the economic interests of both defaulting and contributing members based upon the denominator used to compute the effect of default and contribution. The article informs the drafting process, illustrates the economic consequences of interest dilution, and lays the foundation for examining the tax and other consequences of such remedies.

Suggested Citation

Borden, Bradley T. and Longhofer, Douglas L., Interest Dilution as Contribution-Default Remedy in LLCs and Partnerships (October 9, 2018). Nottingham Insolvency & Business Law e-Journal, Vol. 6, p. 180, 2018; Brooklyn Law School, Legal Studies Paper No. 572. Available at SSRN: https://ssrn.com/abstract=3263548

Bradley T. Borden (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

HOME PAGE: http://www.brooklaw.edu

Douglas L. Longhofer

University of Central Missouri ( email )

Warrensburg, MO 64093-5070
United States

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