Operating Agreement Template - Manager-Managed Limited Liability Company Page 15
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36in accordance with their interests in the Company in the event that Treasury Reg. §1.704-
1(b)(2)(iv)(m)(2) applies, or to the Member to whom the distribution was made in the event that
Treasury Reg. §1.704-1(b)(2)(iv)(m)(4) applies.
4.5.
Member Nonrecourse Deductions for any fiscal year of the Company will be
allocated to the Members in the same proportion as Profits are allocated under Section 4.1,
provided that any Member Nonrecourse Deductions for any fiscal year or other period will be
allocated to the Member who bears (or is deemed to bear) the economic risk of loss with respect
to the Member Nonrecourse Debt to which those Member Nonrecourse Deductions are
attributable in accordance with Treasury Reg. §1.704-2(i)(2).
4.6.
In any fiscal year of the Company, Profits in excess of Losses of the Company
resulting from a Capital Event in that fiscal year will be allocated to the Members in the
following order:
(a)
To Members whose Adjusted Capital Contributions are in excess of their
Capital Accounts, in proportion to those excesses, until all of those excesses have been
eliminated. “Adjusted Capital Contributions” means, with respect to each Member, the excess of
that Member’s contribution to the capital of the Company over all prior distributions to the
Member that have resulted from Capital Events.
(b)
Among the Members in the proportion that the Capital Contribution of
each Member bears to the total Capital Contributions of all Members.
4.7.
In any Company fiscal year, Losses in excess of Profits of the Company, resulting
from a Capital Event in that fiscal year, will be allocated to the Members with positive Capital
Accounts, in proportion to their positive Capital Account balances, until no Member has a
positive Capital Account. For this purpose, Capital Accounts will be reduced by the adjustments
set forth in Treasury Reg. §1.704-1(b)(2)(ii)(d)(4)-(6).
4.8.
Any Unrealized Appreciation or Unrealized Depreciation in the values of
Company property distributed in kind to Members will be deemed to be Profits or Losses
realized by the Company immediately before the distribution of the property and those Profits or
Losses will be allocated to the Capital Accounts in the same proportions as Profits are allocated
under Section 4.1. Any property so distributed will be treated as a distribution to the Members to
the extent of the Fair Market Value of the property, less the amount of any liability secured by
and related to the property. Nothing in this Agreement is intended to treat or cause those
distributions to be treated as sales for value. For the purposes of this Section 4.8, “Unrealized
Appreciation” or “Unrealized Depreciation” will mean the difference between the Fair Market
Value of that property and the Company’s federal adjusted tax basis for the property.
4.9.
Any item of income, gain, loss, or deduction with respect to any property (other
than cash) that has been contributed by a Member to the capital of the Company, or that has been
revalued under the provisions of Article III, Section 3.5(g), and that is required or permitted to be
allocated to the Member for income tax purposes under IRC §704(c) so as to take into account
the variation between the tax basis of the property and its Fair Market Value at the time of its
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