Interest Dilution as Contribution-Default Remedy in LLCs and Partnerships
Nottingham Insolvency & Business Law e-Journal, Vol. 6, p. 180, 2018
22 Pages Posted: 17 Oct 2018
Date Written: October 9, 2018
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.
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