Memo

To: / All Attorneys
From: / XXX, Real Estate/Financial Institutions Department Manager
XXX, Corporate Department Manager
XXX, Tax Department Manager
Date: / XXX
Subject: / Limited Liability Company (“LLC”) Operating Agreements

With the proliferation of LLCs in the last several years, there have been questions raised regarding who should draft and review LLC Operating Agreements. For the reasons outlined below, the Firm is now answering these questions by adopting and implementing the following new policies, which were developed by the Real Estate/Financial Institutions, Corporate and Tax Departments:

1.All LLC Operating Agreements that the Firm drafts must be drafted by an attorney in the Corporate or Tax Department.

2.All LLC Operating Agreements that the Firm reviews on behalf of a client must be reviewed by an attorney in the Corporate or Tax Department.

3.All LLC Operating Agreements that the Firm drafts or reviews on behalf of a client must be reviewed for tax issues by either XXX, XXX, XXX,XXX or XXX. (This policy does not, however, apply to a single member LLC.)

Unlike Articles and Bylaws of a corporation, LLC Operating Agreements are not readily susceptible to standardization and a “fill-in-the-blank” approach to drafting. With the adoption of the check-the-box regulations, the Internal Revenue Service allows taxpayers substantial flexibility regarding whether an LLC will be classified as a partnership, a corporation or a disregarded entity for federal income tax purposes. This flexibility offers many planning opportunities, but also necessitates conscious decisions in the drafting of an LLC Operating Agreement.

Furthermore, LLC Operating Agreements are often drafted to provide for the allocation of taxable income and losses among the members. These allocations are then reflected in the members’ capital accounts, and the balances in the capital accounts dictate how current and liquidating distributions are to be shared among the members. This structure requires that tax allocation provisions must be correct from a tax standpoint and must be considered carefully for their impact upon the economics of a deal.

For all of these reasons, we have concluded that (i) LLC Operating Agreements should be drafted and reviewed by individuals who have experience and expertise in addressing corporate and tax issues, and (ii) that the specific tax provisions should be reviewed by an experienced tax attorney. The LLC Operating Agreement need not be drafted by an attorney in the Tax Department; rather, the Operating Agreement must be reviewed by an experienced tax attorney for consideration of tax issues.

Thank you for your cooperation with respect to these policies.

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