assignment of voting rights agreement

Voting Right Assignment Unenforceable, But Subordinated Creditor Lacked Standing to Participate in Chapter 11 Plan Confirmation Process

In In re Fencepost Productions Inc. , 2021 WL 1259691 (Bankr. D. Kan. Mar. 31, 2021), the U.S. Bankruptcy Court for the District of Kansas recently addressed the enforceability of a provision in a pre-bankruptcy subordination agreement under which a subordinated creditor assigned to a senior creditor its right to vote on any chapter 11 plan proposed for the borrower. The bankruptcy court ruled that such a provision is not enforceable because it conflicts with the Bankruptcy Code. In a twist, however, the court concluded that the subordinated creditor lacked "prudential standing" to participate in the confirmation process because it was extremely out-of-the-money and therefore had no stake in the outcome of the case, but was attempting to assert the rights of third parties.

"Standing" is the legal capacity to commence litigation in a court of law. It is a threshold issue—a court must determine whether a litigant has the legal capacity to pursue claims before the court can adjudicate the dispute. In order to establish "constitutional" or "Article III" standing, a plaintiff must have a personal stake in litigation sufficient to make out a concrete "case" or "controversy" to which the federal judicial power may extend under Article III, section 2, of the U.S. Constitution. See Pershing Park Villas Homeowners Ass'n v. United Pac. Ins. Co. , 219 F.3d 895, 899 (9th Cir. 2000).

In bankruptcy cases, various provisions of the Bankruptcy Code confer another type of standing on various entities (e.g., the debtor, the debtor-in-possession ("DIP"), a bankruptcy trustee, creditors, equity interest holders, official committees, or indenture trustees) to, among other things, participate generally in a bankruptcy case or commence litigation involving causes of action or claims that either belonged to the debtor prior to filing for bankruptcy or are created by the Bankruptcy Code. For example, in a chapter 11 case, section 1109 of the Bankruptcy Code provides that any "party in interest," including the debtor, the trustee, a committee of creditors or equity interest holders, a creditor, an equity security holder, or an indenture trustee "may raise and may appear and be heard on any issue" in a chapter 11 case.

This "bankruptcy" or "statutory" standing is distinct from constitutional standing, which is jurisdictional—if a potential litigant lacks constitutional standing, the court lacks jurisdiction to adjudicate the dispute. The distinction between constitutional and bankruptcy standing was recently examined by the U.S. Court of Appeals for the Third Circuit in In re Wilton Armetale, Inc. , 968 F.3d 273 (3d Cir. 2020), in which the court of appeals held that the ability of a creditor to sue in bankruptcy is not a question of constitutional standing (because the risk of loss creates standing) but, rather, an issue of statutory authority because creditors may lose authority to pursue claims under the Bankruptcy Code. The Third Circuit explained that, in accordance with the U.S. Supreme Court's decision in Lexmark Int'l, Inc. v. Static Control Components, Inc. , 572 U.S. 118, 125 (2014), constitutional standing has only three elements: (i) there must be "a concrete and particularized injury in fact"; (ii) the injury must be "fairly traceable" to the defendant's conduct; and (iii) "a favorable judicial decision" would likely redress the injury. 572 U.S. at 125. Once a plaintiff satisfies those elements, the action "presents a case or controversy that is properly within federal courts' Article III jurisdiction." Id.

Finally, the judicially created concept of "prudential" or "zone of interests" standing examines whether: (i) the plaintiff's grievance falls within the zone of interests protected by a statute; (ii) the complaint raises abstract questions or a generalized grievance more properly addressed by the legislature; and (iii) the plaintiff is asserting his legal rights and interests or those of third parties. However, Congress can modify or even abrogate prudential standing requirements by statute. St. Paul Fire & Marine Ins. Co. v. Labuzan , 579 F.3d 533, 539 (5th Cir. 2009) (considering whether lawmakers intended to abrogate prudential standing requirements in section 362(k) of the Bankruptcy Code, which authorizes the recovery of damages for a willful violation of the automatic stay).

Voting on a Chapter 11 Plan

Generally, holders of allowed claims and interests have the right to vote to accept or reject a chapter 11 plan. See 11 U.S.C. § 1126(a). Claimants or interest holders whose claims or interests are not "impaired" under the plan (as defined in 11 U.S.C. § 1124), however, are deemed conclusively to accept the plan, and stakeholders who would receive nothing under the plan are deemed to reject it. See 11 U.S.C. §§ 1126(f) and (g). Any holder of a claim or interest to which an objection has been filed does not have the right to vote the portion of the claim or interest objected to, unless the holder obtains an order temporarily allowing the claim or interest for voting purposes pending resolution of the merits of the objection. Unliquidated or contingent claims may be estimated for purposes of voting on a plan. See 11 U.S.C. § 502(c).

Voting rights can have a significant impact on the ultimate fate of a chapter 11 plan. If a creditor holds a significant bloc of claims in a single class under a plan, it may be able to prevent confirmation of the plan or force the plan proponent to comply with the Bankruptcy Code's "cram down" requirements to achieve confirmation. Creditors holding a blocking position or having sufficient influence to create one through dealmaking with other creditors commonly use the resulting leverage to maximize their recoveries under the plan, sometimes at the expense of creditors who lack the same negotiating power. In some cases, the accumulation of claims and voting power can even be an effective means of gaining control of a company through chapter 11, since many chapter 11 plans involve debt-for-equity swaps.

For this reason, creditors sometimes bargain to obtain greater bankruptcy voting rights by means of pre-bankruptcy intercreditor or subordination agreements.

Intercreditor and Subordination Agreements

An intercreditor agreement is an agreement between or among creditors specifying in advance how their competing claims against the borrower will be dealt with in terms of priority, receipt of payment, recourse to assets, and other related rights. Such agreements typically include a "waterfall" provision specifying the order in which the parties will receive payments from a pool of the borrower's assets upon the occurrence of default or another specified event, and subordinating the liens or rights to payment of junior creditors to the liens or payment rights of senior creditors.

In the event of the borrower's bankruptcy, an intercreditor agreement may include, among other things, provisions that: (i) restrict the junior creditors' right to vote on a chapter 11 plan to maximize senior creditors' control over the plan process and enhance their ability to obtain confirmation of a plan they support; (ii) waive the junior creditors' right to challenge the validity, priority, perfection, and enforceability of the senior creditors' liens or the validity of their debt (and vice versa); (iii) give junior creditors advance consent to any DIP financing to be provided by senior creditors or any use of cash collateral approved by the senior creditors; (iv) waive junior creditors' right to seek relief from the automatic stay without the prior written consent of senior creditors and provide that junior creditors will not oppose any stay relief requested by senior creditors; and (v) waive junior creditors' right to object to any sale of the debtor's assets or to any credit bid submitted in connection with the sale by senior creditors.

To the extent that an intercreditor agreement provides for subordination of debt or security, the agreement will generally be enforced in a bankruptcy case pursuant to section 510(a) of the Bankruptcy Code, which provides that a subordination agreement is enforceable in a bankruptcy case "to the same extent that such agreement is enforceable under applicable nonbankruptcy law."

In construing the validity, enforceability, and application of a subordination agreement, section 510(a) directs the bankruptcy court to look to applicable nonbankruptcy law—generally state law—as well as the terms of the agreement itself. See Collier on Bankruptcy ("Collier") ¶ 510.03[3] (16th ed. 2021). If there is ambiguity in the agreement concerning the terms or extent of the subordination, a bankruptcy court may refuse to enforce it. See In re Bank of New England Corp. , 364 F.3d 355, 367 (1st Cir. 2004) (remanding case to bankruptcy court to determine under New York law whether subordination agreement actually provided for payment of postpetition interest on senior debt prior to any payment on junior debt), on remand , 404 B.R. 17 (Bankr. D. Mass. 2009) (finding that parties did not intend to subordinate claims for postpetition interest), aff'd , 426 B.R. 1 (D. Mass. 2010), aff'd , 646 F.3d 90 (1st Cir. 2011).

Moreover, a chapter 11 plan need not necessarily give effect to the explicit terms of a subordination agreement in providing for the treatment of creditor claims. See In re Tribune Media Co. , 587 B.R. 606, 614 (D. Del. 2018) (because section 510(a) is expressly excepted from section 1129(b)(1) of the Bankruptcy Code, a nonconsensual chapter 11 plan that does not fully enforce a subordination agreement may be confirmed as long as "the plan does not discriminate unfairly, and is fair and equitable"); see generally Collier at ¶ 510.03[3].

Enforcement of Chapter 11 Voting Right Assignments

As noted, section 1126(a) gives the holder of a claim or interest the right to vote on a chapter 11 plan. Courts disagree over whether an assignment of plan voting rights in an intercreditor or subordination agreement is enforceable. Some courts have concluded that they are not. See, e.g., In re 203 N. LaSalle St. P'ship , 246 B.R. 325, 331 (Bankr. N.D. Ill. 2000) ("Subordination … affects the order of priority of payment of claims in bankruptcy, but not the transfer of voting rights."); In re SW Hotel Venture LLC , 460 B.R. 4 (Bankr. D. Mass. 2011) (assignment of voting rights in a subordination agreement was unenforceable), aff'd in part, rev'd in part , 479 B.R. 210 (B.A.P. 1st Cir. 2012), vacated on other grounds , 748 F. 3d 393 (1st Cir. 2014); In re Croatan Surf Club, LLC , 2011 WL 5909199, *2 (Bankr. E.D.N.C. Oct. 25, 2011); In re Hart Ski Mfg. Co. , 5 B.R. 734, 736 (Bankr. D. Minn. 1980).

Other courts have enforced such assignments of voting rights. See, e.g., In re Coastal Broad. Sys., Inc. , 2013 WL 3285936, at *5–6 (D.N.J. June 28, 2013), aff'd , 570 Fed. Appx. 188 (3d Cir. 2014); In re Avondale Gateway Ctr. Entitlement, LLC , 2011 WL 1376997, *4 (D. Ariz. Apr. 12, 2011); In re Erickson Ret. Cmtys., LLC , 425 B.R. 309, 316 (Bankr. N.D. Tex. 2010); In re Aerosol Packaging, LLC , 362 B.R. 43, 47 (Bankr. N.D. Ga. 2006).

For example, in LaSalle , an intercreditor agreement provided that the debtor's senior secured creditor had the right to vote the subordinated secured creditor's claim in any bankruptcy. The bankruptcy court refused to enforce the assignment, ruling that sections 510(a) and 1126(a) of the Bankruptcy Code, rather than the provisions of the intercreditor agreement, controlled voting rights.

In particular, the court reasoned that: (i) the subordinated creditor's agreement that the senior creditor could vote on its behalf was not controlling because "prebankruptcy agreements do not override contrary provisions of the Bankruptcy Code"; (ii) section 510(a) does not permit a waiver of voting rights under section 1126(a) because subordination affects the priority of payment of claims in bankruptcy rather than voting rights; (iii) Rule 3018(c) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), which provides that acceptance or rejection of a plan must be signed by "the creditor or equity security holder or an authorized agent," does not provide a mechanism for enforcing vote relinquishment; and (iv) the conclusion that section 1126(a) controls is "completely consistent with reasonable bankruptcy policy," which "assures that the holder of a subordinated claim has a potential role in negotiation and confirmation of a plan, a role that would be eliminated by enforcing contractual transfers of Chapter 11 voting rights." LaSalle , 246 B.R. at 331.

By contrast, in Aerosol Packaging , a junior lender and the borrower signed a subordination agreement under which the junior lender agreed to refrain from taking any action to collect on its debt until the senior lender was paid in full, and to permit the senior lender, among other things, to vote on any chapter 11 plan proposed for the borrower in bankruptcy. After the borrower filed for bankruptcy, the junior lender voted to reject the debtor's plan even though the senior lender voted to accept the plan on the junior lender's behalf. The bankruptcy court, rejecting LaSalle , ruled that the subordination agreement appeared to be enforceable under state law and unequivocally provided that the junior lender assigned its right to vote on the plan. It also reasoned that section 1126(a) "does not expressly or implicitly prevent that right from being delegated or bargained away" and that Bankruptcy Rules 3018 and 9010 (the latter of which governs representation, appearances, and powers of attorney in bankruptcy cases) "explicitly permit agents and other representatives to take actions, including voting, on behalf of parties." Aerosol Packaging , 362 B.R. at 47.

Regardless of the particular approach adopted by a court on this issue, the growing consensus is that agreements that seek to limit or waive junior creditors' voting rights must contain express language to that effect. See In re MPM Silicones, L.L.C. , 596 B.R. 416 , 430 (S.D.N.Y. 2019) (junior lienholders did not breach an intercreditor agreement by voting in favor of a chapter 11 plan to which senior lienholders objected and which ultimately provided the senior lienholders with replacement notes allegedly worth less than their oversecured claims, absent an express voting rights waiver).

Fencepost Production, Inc. and its affiliates (collectively, "debtors") filed for chapter 11 protection on December 18, 2019, in Kansas. Prior to the bankruptcy filing, Associated Bank, N.A. ("Associated") agreed to loan the debtors up to $14 million on a secured basis. In 2018, Associated and another lender, BMS Management, Inc. (together with related individuals, "BMS Group"), entered into a subordination agreement providing that payment of the debtors' liability to BMS Group would be subordinated to payment in full of the debtors' obligations to Associated. It also provided that, in any bankruptcy: (i) Associated would file a claim on behalf of both lenders; (ii) Associated, at its sole discretion, had the right "to vote or consent to any … proceeding with respect to, any claims of [BMS Group] relating to [the debtors' obligations to BMS Group]"; and (iii) BMS Group would not take any position contrary to the terms of the agreement.

Associated filed a proof of claim in the debtors' bankruptcy for approximately $7.7 million, of which approximately $5.3 million (representing BMS Group's portion of the total debt) was unsecured. BMS Group separately filed a proof of claim for approximately $5.3 million. The debtors proposed a chapter 11 plan under which: (i) the secured claim of Associated would be paid from the proceeds of the liquidation of its collateral; (ii) holders of general unsecured claims (including any deficiency claim held by Associated) would recover 15% of their claims; (iii) BMS Group would be allocated $120,000 in respect of its separately classified, subordinated claim, but the funds would be distributed to Associated; and (iv) equity holders would retain their interests. The disclosure statement accompanying the plan stated that, if the debtors were liquidated in chapter 7, unsecured creditors would receive nothing and all assets would be distributed to secured and priority creditors.

Associated voted to accept the plan on behalf of itself and BMS Group. BMS Group separately voted to reject the plan. It also objected to approval of the debtors' disclosure statement and opposed confirmation of the plan.

The debtors objected to BMS Group's claim, arguing that it was barred by the subordination agreement. In addition, they filed a motion, also based on the express terms of the agreement, to disqualify BMS Group's vote and to strike its objection to the disclosure statement. BMS Group countered that although the other provisions of the subordination agreement were valid, assignment of its voting rights under the agreement was unenforceable.

The Bankruptcy Court's Ruling

Initially, Chief U.S. Bankruptcy Judge Dale L. Somers noted that, as exemplified by LaSalle and Aerosol Packaging , bankruptcy courts have reached different conclusions regarding the enforceability of chapter 11 plan voting right assignments in subordination agreements. He also explained that the issue has been commented upon extensively, and the ABI Commission to Study the Reform of Chapter 11 recommended in its 2014 final report that "[t]he contractual assignment of voting rights in favor of senior creditors under an intercreditor agreement, subordination, or similar agreement should not be enforced." See Final Report and Recommendations of the ABI Commission to Study the Reform of Chapter 11 (2014) p. 261.

According to Judge Somers, the reasoning of LaSalle is more persuasive. He accordingly held that BMS Group's assignment of its right to vote on the debtors' chapter 11 plan was unenforceable. In so ruling, he found that BMS Group did not appoint Associated as its agent under the subordination agreement.

Next, Judge Somers overruled the debtors' objection to BMS Group's claim. He reasoned that, notwithstanding the express terms of the subordination agreement, "subordination does not involve transfer of the subordinated creditor's legal interest." That interest, Judge Somers explained, is protected under the Bankruptcy Code's cramdown confirmation requirements in section 1129(b)(1) of the Bankruptcy Code, which provides that a nonconsensual plan may be confirmed "[n]otwithstanding section 510(a)." In other words, he wrote, "[t]his means that § 1129(b)(1) overrides § 510(a)."

However, Judge Somers concluded that BMS Group lacked standing to participate in the plan confirmation process.

He explained that BMS Group had statutory authority to participate under section 1109(b), section 1126(a) and section 1128(b) (providing that "[a] party in interest may object to confirmation of a plan."). Judge Somers declined to decide whether BMS Group had constitutional standing, "since it is not necessary in the present circumstances."

However, Judge Somers concluded that BMS Group lacked prudential standing to participate in the confirmation process because BMS Group was an out-of-the-money subordinated creditor with no financial stake in the outcome of the case. According to the judge, if permitted to participate, BMS Group "would be litigating issues affecting the rights of third parties, not itself," such as whether the plan violated the "absolute priority rule" by preserving equity interests without paying creditors in full. 

The ruling in Fencepost regarding the unenforceability of chapter 11 voting rights assignments in subordination agreements adds yet another chapter to the ongoing debate on this issue. That aspect of the court's decision is unremarkable and emblematic of the exacting scrutiny recently directed by many bankruptcy courts toward bankruptcy-related rights assignments and waivers in such agreements.

The Fencepost court's conclusion that BMS Group lacked prudential standing is more complicated. In part, it would appear to be driven by the facts of the case, which involved a subordinated, clearly out-of-the-money creditor intent upon impeding an otherwise consensual reorganization.

The Bankruptcy Code, however, expressly provides to the contrary by, among other things, giving every party in interest (including creditors and interest holders, without making an exception in cases where there is no value available for distribution to them), the right to appear and be heard "on any issue" in a chapter 11 case (section 1109(b)), the right to vote on a chapter 11 plan (section 1126(a)), and the right to object to confirmation of a plan (section 1128(b)). These provisions arguably indicate that Congress intended to modify or abrogate prudential standing requirements when it enacted the Bankruptcy Code. Moreover, the "rights" any out-of-the-money creditor or shareholder would be seeking to enforce by participating in the confirmation process are arguably their own, rather than the rights of third parties.

A logical extension of the rationale articulated in Fencepost is that clearly out-of-the-money creditors or shareholders of an insolvent corporation would never have prudential standing to participate in the chapter 11 plan confirmation process. That approach would be contrary to court rulings and general practice in many chapter 11 cases.

A version of this article is being published in Lexis Practical Guidance. It has been published here with permission.

Dan B. Prieto

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Assignment of Membership Interest: The Ultimate Guide for Your LLC

LegalGPS : July 24, 2024 at 12:10 PM

As a business owner, there may come a time when you need to transfer ownership of your company or acquire additional members. In these situations, an assignment of membership interest is a critical step in the process. This blog post aims to provide you with a comprehensive guide on everything you need to know about the assignment of membership interest and how to navigate the procedure efficiently. So, let's dive into the world of LLC membership interest transfers and learn how to secure your business!

Assignment of Membership Interest Template

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Table of Contents

Necessary approvals and consent, impact on ownership, voting, and profit rights, complete assignment, partial assignment.

• Key elements to include

Step 1: Gather Relevant Information

Step 2: review the llc's operating agreement, step 3: obtain necessary approvals and consents, step 4: outline the membership interest being transferred, step 5: determine the effective date of the assignment, step 6: specify conditions and representations, step 7: address tax and liability issues, step 8: draft the entire agreement and governing law clauses, step 9: review and sign the assignment agreement.

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• How our contract templates stand out from the rest

Frequently Asked Questions (FAQs) about Assignment of Membership Interest

Do you need a lawyer for this, what is an assignment of membership interest.

An assignment of membership interest is a document that allows a member of an LLC to transfer their ownership share in the company to another person or entity. This can be done in the form of a sale or gift, which are two different scenarios that generally require different types of paperwork. An assignment is typically signed by the parties involved and delivered to the Secretary of State's office for filing. However, this process can vary depending on where you live and whether your LLC has members other than yourself as well as additional documents required by state law.

Before initiating the assignment process, it's essential to review the operating agreement of your LLC, as it may contain specific guidelines on how to assign membership interests.

Often, these agreements require the express consent of the other LLC members before any assignment can take place. To avoid any potential disputes down the line, always seek the required approvals before moving forward with the assignment process.

It's essential to understand that assigning membership interests can affect various aspects of the LLC, including ownership, voting rights, and profit distribution. A complete assignment transfers all ownership rights and obligations to the new member, effectively removing the original member from the LLC. For example, if a member assigns his or her interest, the new member inherits all ownership rights and obligations associated with that interest. This includes any contractual obligations that may be attached to the membership interest (e.g., a mortgage). If there is no assignment of interests clause in your operating agreement, then you will need to get approval from all other members for an assignment to take place.

On the other hand, a partial assignment permits the original member to retain some ownership rights while transferring a portion of their interest to another party. To avoid unintended consequences, it's crucial to clearly define the rights and responsibilities of each party during the assignment process.

Types of Membership Interest Transfers

Membership interest transfers can be either complete or partial, depending on the desired outcome. Understanding the differences between these two types of transfers is crucial in making informed decisions about your LLC.

A complete assignment occurs when a member transfers their entire interest in the LLC to another party, effectively relinquishing all ownership rights and obligations. This type of transfer is often used when a member exits the business or when a new individual or entity acquires the LLC.

For example, a member may sell their interest to another party that is interested in purchasing their share of the business. Complete assignment is also used when an individual or entity wants to purchase all of the interests in an LLC. In this case, the seller must receive unanimous approval from the other members before they can transfer their entire interest.

Unlike a complete assignment, a partial assignment involves transferring only a portion of a member's interest to another party. This type of assignment enables the member to retain some ownership in the business, sharing rights, and responsibilities proportionately with the new assignee. Partial assignments are often used when adding new members to an LLC or when existing members need to redistribute their interests.

A common real-world example is when a member receives an offer from another company to purchase their interest in the LLC. They might want to keep some ownership so that they can continue to receive profits from the business, but they also may want out of some of the responsibilities. By transferring only a partial interest in their membership share, both parties can benefit: The seller receives a lump sum payment for their share of the LLC and is no longer liable for certain financial obligations or other tasks.

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How to Draft an Assignment of Membership Interest Agreement

A well-drafted assignment of membership interest agreement can help ensure a smooth and legally compliant transfer process. Here is a breakdown of the key elements to include in your agreement, followed by a step-by-step guide on drafting the document.

Key elements to include:

The names of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name of your LLC and the state where it was formed

A description of the membership interest being transferred (percentage, rights, and obligations)

Any required approvals or consents from other LLC members

Effective date of the assignment

Signatures of all parties involved, including any relevant witnesses or notary public

Before you begin drafting the agreement, gather all pertinent data about the parties involved and the membership interest being transferred. You'll need information such as:

The names and contact information of the assignor (the person transferring their interest) and assignee (the person receiving the interest)

The name and formation details of your LLC, including the state where it was registered

The percentage and value of the membership interest being transferred

Any specific rights and obligations associated with the membership interest

Examine your LLC's operating agreement to ensure you adhere to any predetermined guidelines on assigning membership interests. The operating agreement may outline specific procedures, required approvals, or additional documentation necessary to complete the assignment process.

If your LLC doesn't have an operating agreement or if it's silent on this matter, follow your state's default LLC rules and regulations.

Before drafting the assignment agreement, obtain any necessary approvals or consents from other LLC members as required by the operating agreement or state law. You may need to hold a members' meeting to discuss the proposed assignment and document members' consent in the form of a written resolution.

Detail the membership interest being transferred in the Assignment of Membership Interest Agreement. Specify whether the transfer is complete or partial, and include:

The percentage of ownership interest being assigned

Allocated profits and losses, if applicable

Voting rights associated with the transferred interest

The assignor's rights and obligations that are being transferred and retained

Any capital contribution requirements

Set an effective date for the assignment, which is when the rights and obligations associated with the membership interest will transfer from the assignor to the assignee.

This date is crucial for legal and tax purposes and helps both parties plan for the transition. If you don’t specify an effective date in the assignment agreement, your state's law may determine when the transfer takes effect.

In the agreement, outline any conditions that must be met before the assignment becomes effective. These could include obtaining certain regulatory approvals, fulfilling specific obligations, or making required capital contributions.

Additionally, you may include representations from the assignor attesting that they have the legal authority to execute the assignment. Doing this is important because it can prevent a third party from challenging the assignment on grounds of lack of authority. If the assignor is an LLC or corporation, be sure to specify that it must be in good standing with all necessary state and federal regulatory agencies.

Clearly state that the assignee will assume responsibility for any taxes, liabilities, and obligations attributable to the membership interest being transferred from the effective date of the assignment. You may also include indemnification provisions that protect each party from any potential claims arising from the other party's actions.

For example, you can include a provision that provides the assignor with protection against any claims arising from the transfer of membership interests. This is especially important if your LLC has been sued by a member, visitor, or third party while it was operating under its current management structure.

In the closing sections of the assignment agreement, include clauses stating that the agreement represents the entire understanding between the parties concerning the assignment and supersedes any previous agreements or negotiations. Specify that any modifications to the agreement must be made in writing and signed by both parties. Finally, identify the governing law that will apply to the agreement, which is generally the state law where your LLC is registered.

This would look like this:

Once you've drafted the Assignment of Membership Interest Agreement, ensure that all parties carefully review the document to verify its accuracy and completeness. Request a legal review by an attorney, if necessary. Gather the assignor, assignee, and any necessary witnesses or notary public to sign the agreement, making it legally binding.

Sometimes the assignor and assignee will sign the document at different times. If this is the case, then you should specify when each party must sign in your Assignment Agreement.

Importance of a Professionally-drafted Contract Template

To ensure a smooth and error-free assignment process, it's highly recommended to use a professionally-drafted contract template. While DIY options might seem tempting, utilizing an expertly-crafted template provides several distinct advantages.

Advantages of using a professionally-created template:

Accuracy and Compliance: Professionally-drafted templates are designed with state-specific regulations in mind, ensuring that your agreement complies with all necessary legal requirements.

Time and Cost Savings: With a pre-written template, you save valuable time and resources that can be better spent growing your business.

Reduced Legal Risk: Legal templates created by experienced professionals significantly reduce the likelihood of errors and omissions that could lead to disputes or litigations down the road.

Get Your Assignment of Membership Interest Template with a Legal GPS Subscription

How our contract templates stand out from the rest:

We understand the unique needs of entrepreneurs and business owners. Our contract templates are designed to provide a straightforward, user-friendly experience that empowers you with the knowledge and tools you need to navigate complex legal processes with ease. By choosing our Assignment of Membership Interest Agreement template, you can rest assured that your business is in safe hands. Click here to get started!

As you embark on the journey of assigning membership interest in your LLC, here are some frequently asked questions to help address any concerns you may have:

Is an assignment of membership interest the same as a sale of an LLC? No. While both processes involve transferring interests or assets, a sale of an LLC typically entails the sale of the entire business, whereas an assignment of membership interest relates to the transfer of some or all membership interests between parties.

Do I need an attorney to help draft my assignment of membership interest agreement? While not mandatory, seeking legal advice ensures that your agreement complies with all relevant regulations, minimizing potential legal risks. If you prefer a more cost-effective solution, consider using a professionally-drafted contract template like the ones we offer at [Your Company Name].

Can I assign my membership interest without the approval of other LLC members? This depends on your LLC's operating agreement and state laws. It's essential to review these regulations and obtain any necessary approvals or consents before proceeding with the assignment process.

The biggest question now is, "Do you need to hire a lawyer for help?" Sometimes, yes ( especially if you have multiple owners ). But often for single-owner businesses, you don't   need a lawyer to start your business .

Many business owners instead use tools like  Legal GPS for Business , which includes a step-by-step, interactive platform and 100+ contract templates to help you start and grow your company.

Get Legal GPS's Assignment of Membership Interest Template Now

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Shareholder Voting Arrangements

• Legal Documents
• Business Entities

In certain situations, shareholders may find it advantageous to enter into agreements with other shareholders regarding how the company should be run or who will run the company.  These agreements, known as “shareholder agreements” or sometimes “vote pooling agreements” or “block voting arrangements” are generally permissible and can pertain to a variety of topics.  The specific rules governing shareholder agreements varies from state to state, however most states follow some version of the Revised Model Business Corporation Act (“RMBCA”).  Section 7 of the RMBCA states the rules regarding shareholder agreements.

The most common types of shareholder agreements are:

• Voting Trusts:  In a voting trust, shareholders agree to transfer their shares to a trust and to appoint a trustee who will be in charge of voting all of the shares controlled by the trust.
• Voting Agreements:  A written agreement by which each shareholder that is a party to the agreement agrees to vote his shares in a specific way.
• Management Agreements:  An agreement between shareholders to take some specific management action.

Voting Trusts

A voting trust is best understood as a group of shareholders agreeing to delegate voting authority for their shares to a third party, known as the trustee of the voting trust.  Voting trusts are written agreements in which shareholders transfer their shares to a trust in exchange for in interest in the proceeds from the trust.  Most commonly, a group of shareholders will transfer their shares to the trust in exchange for an interest in the proceeds of the trust that is proportional to the number of shares each transfers.  Because their interest in the trust is proportional to the interest of their shares, each party’s financial stake (that is, the amount of money each shareholder will receive from dividend payouts) remains unchanged.  The trustee is given the authority to vote the shares and distribute the proceeds from the trust.  Often, the trustee is also given directions regarding how to vote the shares of the trust.  For example, the trustee can be instructed to “vote the shares of the trust in favor of a member of the Smith family to become a director of the corporation if at least one member of the Smith family seeks to be a director.”  Generally, the only proceeds of the trust are the dividends paid to the shares.  Under Section 7.30 of the RMBCA, five elements must be present for a voting trust to be validly:

• Written Agreement:  All shareholders creating the trust must sign an agreement explaining the terms of the trust.  This requirement can also be satisfied if the voting trust is created by the will of a deceased party who leaves the shares to the voting trust (for no longer than the permissible time period) and designates a person or persons who shall have a right to the proceeds from the trust until the trust expires.
• Transfer of Legal Ownership:  The creation of a voting trust requires that legal title to the shares is transferred to the trust itself.  If an agreement calls for the shareholders to retain ownership of the shares, the agreement cannot qualify as a voting trust.
• Filed with the corporation:  The corporation must be given a copy of the trust agreement as well as the name and address of each party with a present beneficial interest (the parties which will receive the proceeds of the trust) in the trust.
• Ten Year Limit:  A voting trust is valid for not more than ten years.  A trust can be extended for up to ten additional years if all of the parties to the trust agree.  If the trust is extended, the new ten year limitation starts at the time of the agreement to extend rather than at the end of the current ten year period.

Voting Agreements

A voting agreement is an agreement between shareholders to vote their shares in a specific way.  Instead of delegating voting authority to a third party as is the case in a voting trust, in a voting agreement, each shareholder pledges to abide by the agreement.  If the agreement is validly executed, any party to the agreement can sue for specific performance of the agreement if another party refuses to abide by the agreement.  If a suit for specific performance is successful, the court will order the parties to vote the shares in accordance with the voting agreement.  Unlike voting trusts, voting agreements can be for any duration and do not need to be filed with the corporation.  Under Section 7.31 of the RMBCA, a voting agreement is valid if three requirements are satisfied:

• The agreement is in writing.
• The agreement is signed.
• The agreement is not subject to any contractual defenses.  Because a voting agreement is a contract between shareholders, the agreement is subject to the normal contractual defenses.  If the agreement would be void or voidable under the applicable state’s contract law, the agreement is void or voidable.

Voting agreements offer several benefits when compared to voting trusts.  First, voting agreements are easier to enter into and easier to maintain, because they do not need to be filed with the corporation and do not need to be renewed every ten years.  Additionally, voting agreements may be less expensive to implement, becauase trustees may charge a fee for their services.  Furthermore, owners are allowed to retain complete ownership of the shares under a voting agreement.

Voting agreements also have some disadvantages when compared to voting trusts.  Most notably, because a voting agreement is a contract, there is less room for the exercise of future discretion.  For example, when the future is unclear, a voting trust can lay out general decision making guidelines for a trustee to follow and have the trustee make the final decision, whereas in a voting agreement, each party will likely make their own choice, possibly defeating the purpose of the agreement. The less clear or more subjective the requirements of the agreement are, the less likely a court is to specifically enforce the agreement.  Additionally, because voting agreements can be perpetual in nature, a party that no longer wishes to be bound by a voting agreement may be bound by the agreement perpetually.

Management Agreements

Management agreements are contracts entered into by the shareholders regarding the governance of the corporation.  Management agreements can address a variety of topics, including the authorization or paying of dividends, the identity of the corporation’s directors or officers, and the powers of the board of directors.  Management agreements are so powerful they can even be used to eliminate the board of directors entirely or give a specific shareholder the power to manage the business.  Because of the enormous power of management agreements, RMBCA Section 7.32 severely limits the methods of creating a management agreement.  Under the RMBCA, a shareholder agreement can be created in two ways:

• The agreement is made a part of the corporation’s articles of incorporation or bylaws AND all of the shareholders who are shareholders at the time the agreement is made a part of the articles of incorporation or bylaws approve of the agreement.
• All shareholders agree in writing to the management agreement AND the written agreement is filed with the corporation.

Once a valid management agreement is in force, the agreement can be amended or terminated either by an agreement of all of a corporation’s then current shareholders or in accordance with any terms set forth in the agreement.  If a corporation “goes public” by listing its shares on a national exchange, any existing management agreements are automatically suspended.  RMBCA Section 1.40(18A).

Legal Disclaimer

This website provides information addressing legal topics of interest to the general reader.  You should not consider this information designed or adequate to meet any of your particular legal needs, concerns or inquiries.  You should consult with a lawyer licensed to practice law in the jurisdiction appropriate to your legal situation to assess your situation and provide you with appropriate legal advice.  A good starting point for finding a lawyer is to contact your state’s bar association.

This article is copyrighted by Knowledge Website, LLC – 2010

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Assignment of Voting Rights in Intercreditor Agreements

ASSIGNMENT OF VOTING RIGHTS IN INTERCREDITOR AGREEMENTS

Gregory E. Spitzer[1]

Paul, Hastings, Janofsky & Walker LLP 191 North Wacker Drive 30th Floor Chicago, Illinois 60606 Ph.: 312.499.6000 Fax: 312.499.6100

I.Introduction

Intercreditor agreements are normally enforced, pursuant to section 510 of the Bankruptcy Code,[2] insofar as they address payment and priority of payment. The enforceability of other types of provisions, however, is less clear.Clauseswaiving or transferring various rights of a junior creditor—to file a proof of claim, to receive adequate protection, or to vote on a plan of reorganization—have met with varying responses from the bankruptcy courts. At the same time, written decisions that touch on intercreditor agreements are less than plentiful, because differences between parties must be settled quickly in the fast-moving bankruptcy process.[3]All of this leaves substantial uncertainty concerning even very common terms in intercreditor agreements.

The assignment of voting rights is one of the issues that courts and commentators continue to disagree over. Whether a provision in a subordination agreement transferring the junior creditor’s voting rights to the senior creditor should be enforced is a question yet to be fully resolved.In an effort to sort out some of the confusion, this paper examines the status of the law on assignability of voting rights, and suggests several possibilities for practitioners looking to ensure enforceability of such provisions.

II.Competing Views on Enforceability

A.Early Cases

One of the earliest decisions on assignability of voting rights wasIn re Itemlab, Inc.,[4] a case decided under the former Bankruptcy Act.Itemlab arose out of an intercreditor agreement between Dutch-American Mercantile Corp. (“Dutch-American”)and Blanmill Realty Corp. (the “Junior Lender”) in connection with loans to the debtor.[5] The agreement contained general provisions subordinatingthe Junior Lender’s claim to that ofDutch-American, butwas“silent as to voting of claims.”[6]Nevertheless, whenthe debtorentered bankruptcy and Dutch-American and the Junior Lender disagreed over a proposed plan of arrangement, the court found that as a “complete subordination agreement” the parties’ agreementgave Dutch-American “complete control over the claim,” including the right to vote.[7]The Itemlab decision thus held that voting rights transfers not only could be enforced, but could even be inferred where an intercreditor agreement did not explicitly address the issue at all. Indeed, in the view of many commentators, it remains “the most far-reaching decision giving a senior creditor the right to vote the claim of a subordinated creditor.”[8]

The first decisions on voting rights following the enactment of the Bankruptcy Code in 1978did not go quite so far as Itemlab, but maintained the general proposition that a voting rights transfer provision in an intercreditor agreement would be enforced. In In re Davis Broadcasting, Inc., a junior lender moved to reopen a chapter 11 case to “correct an error” in the order confirming the plan of reorganization.[9] The plan had been pushed through by the senior lender, relying on the terms of a subordination agreement allowing it to vote both its own and the junior lender’s claims.[10]The junior lender voiced no objection at the time of confirmation, but eight months later filed its motion to modify the plan confirmation order.[11] The court refused, observing that the junior lender “freely entered into the Subordination Agreement that put it into this situation,”and “is now ingeniously attempting to find a new way to appeal the confirmation order.”[12]

Echoing the same sentiment, the court in In re Curtis Center Ltd. Partnership held that a junior creditor that willingly contracted away its voting rights must be held to its bargain.[13]“The language of the subordination agreement is plain and unambiguous,” the court explained, and “the terms of this prepetition agreement are fully enforceable in this Bankruptcy case pursuant to [section 510 of the Bankruptcy Code].”[14]

An alternative rationale for enforcement was articulated in In re Inter Urban Broadcasting of Cincinnati, Inc. [15] In that case, the debtor had borrowed funds from both Barclays Business Credit, Inc. (“Barclays”) and Firstmark Credit Corp. (the “Junior Lender”).[16] In connection with the loans, all three parties executed a subordination agreement giving Barclays the right to vote the Junior Lender’s claim.[17] After the debtor entered chapter 11, Barclays filed a plan of reorganization and voted both its own and the Junior Lender’s claim to accept the plan.[18] The debtor moved to disqualify Barclays’ votes, and the bankruptcy court denied the motion.[19]On appeal, the district court upheld the decision. The courtexplained that under the intercreditor agreement, the Junior Lender “held no claim or interest and could not do so unless and until Barclays was paid in full.”[20] Because Barclays had a superior interest in the Junior Lender’s claim, Barclays could be considered the holder of the claim for voting purposes:“Barclays’ vote of [the Junior Lender’s] claim was proper and in accord with the law.”[21]

Thus, nearly all of the early case authority supports enforceability of voting rights transfer provisions. At least one decision, however, came out the other way. The case In reHart Ski Mfg. Co.asserted (albeit in dicta) that “[t]he Bankruptcy Code guarantees each secured creditor certain rights, regardless of subordination . . . includ[ing] the right to participate in the voting for confirmation or rejection of any plan of reorganization.”[22]In this court’s view, a junior creditor could not waive or transfer its right to vote on a plan, even by express agreement.

B.The 203 North LaSalle Decision

Theenforceability of voting rightstransfer provisionswas dramatically challenged by the2000 case In re 203 North LaSalle Street Partnership .[23] The203 North LaSallecase had a considerable impact on the academic discussion of voting rights assignability, and, as at least one commentator has suggested, may also have affected practitioners’ approach to the issue.[24]Because it called into question what had seemed to be more or less settled law surrounding voting rights transfers, 203 North LaSallecaptured the interest—and also some ire—of those in the field.

At issue in 203 North LaSalle was an intercreditor agreement between Bank of America (the “Bank”), which held a $93 million first mortgage on a commercial property in downtown Chicago, and North LaSalle Street LP (the “Junior Lender”), general partner of the debtor and also a secured creditor.[25]In a“Consent and Subordination Agreement,” the Junior Lenderagreed not only to subordinate its debt to the Bank’s, but also to let the Bank vote the Junior Lender’s claim in any bankruptcy reorganization.[26]The agreement provided:

[The Junior Lender] hereby irrevocably agrees that the Bank may, at its sole discretion, in the name of [the Junior Lender] or otherwise, demand, sue for, collect, receive and receipt for any and all . . . payments or distributions and file, prove, and vote or consent in any . . . proceedings with respect to, any and all claims of [the Junior Lender] relating to the Junior Liabilities.[27]

After the debtor filed for bankruptcy, the Bank and the debtor proposed competing plans for reorganization. To have its plan confirmed, the Bank needed both its own and the Junior Lender’s votes, and filed an adversary complaint against the Junior Lenderseeking a declaration of its rights under the intercreditor agreement.

The court in 203 North LaSalle found that “[w]hile the language of the subordination agreements governs the outcome of the Bank’s right to repayment . . . the language of the Bankruptcy Code governs the determination of voting rights in this case.”[28]Because section 1126(a) of the Code provides that “[t]he holder of a claim”[29]—and only the holder of a claim, in the court’s reading—may vote on a plan of reorganization, a junior creditor could not waive or transfer its right to vote.[30] Moreover, while Bankruptcy Rule 3018(c) allows for voting of a claim by a creditor’s “agent,” the Bank could not fairly be characterized as the agent of the Junior Lender when it was acting in its own interests, contrary to those of the Junior Lender.[31]Thus, the court concluded, the voting rights transfer provision was unenforceable, and the Junior Lender was entitled to vote its own claim despite the clear language of the intercreditor agreement to the contrary.

C.Return to Enforcement:Aerosol Packaging

203 North LaSallecast into doubt even the most basic points regarding assignability of voting rights. While speculation was rampant, the following years saw no judicial decisions that put the issue to the test, and the 2005 revision of the Bankruptcy Code did not address the subject. Finally, in late 2006, the Bankruptcy Court for the Northern District of Georgia decided In re Aerosol Packaging, LLC,[32]the first post-LaSalle case to address a voting rights transfer provision.

The Aerosol Packaging case arose out of a subordination agreement executed between Wachovia Bank (“Wachovia”) and Blue Ridge Investors (the “Junior Lender”), a small business investment fund.[33] In connection with the refinancing of Wachovia’s loan to the debtor, the Junior Lender assigned its voting rights to Wachovia:

[T]he Lender is hereby irrevocably authorized and empowered (in its own name or in the name of the Subordinated Creditor or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in subsection (a) above and give acquittance therefor and to file claims and proofs of claim and take such other action (including without limitation voting the Subordinated Debt or enforcing any security interest or other lien securing payment of the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Lender hereunder.[34]

Subsequently, the debtor entered chapter 11, and both Wachovia and the Junior Lender filed ballots to vote the Junior Lender’s claim.[35]Deciding which ballot was valid required the court to rule on the enforceability of the voting rights transfer provision.

On these facts, the court inAerosol Packaging reached a decisionprecisely opposite to that of the 203 North LaSalle case. Indeed, the decision directly attacked the reasoning of 203 North LaSalle, point by point, concluding that courts have not only the power but the obligation to enforce voting rights assignment provisions.

TheAerosol Packaging court began by observing that, while Bankruptcy Code section 1126 grants to “[t]he holder of a claim” a right to vote on restructuring plans, it “says nothing about whether such right may be delegatedor bargained away.”[36]Further, the court continued, Bankruptcy Rule 3018(c) expressly allows for voting of a claim by a creditor’s “agent.”In this regard, the court rejected the argument, suggested in 203 North LaSalle, that to establish an agency relationship requires an alignment of interest between the senior and junior creditors:

In this case, Wachovia is acting as a duly authorized agent of [the Junior Lender], similar to the actions of a real estate lender acting as the agent for the borrower in executing a deed under power of sale . . . to convey title to foreclosed property (i.e., as an agent having a power coupled with an interest). In both instances, the agent acts in its own interests, and not in those of the purported principal.[37]

Thus, theAerosol Packagingopinion concluded, the terms of the subordination agreement, together with applicable sections of the Bankruptcy Code, “compel the conclusion that the right to vote any claim of [the Junior Lender] in Debtor’s bankruptcy proceeding was assigned by [the Junior Lender] to Wachovia.”[38]In the view of the Aerosol Packaging court, the law not only empowered but required it to enforce the voting rights transfer provision as written.

III.Ensuring Enforceability

As the preceding discussion suggests, the law surrounding assignment of voting rights in intercreditor agreements remains unsettled. While most courts faced with the issue have enforced assignment provisions, the 203 North LaSalle decision is enough to cast doubt on any assertion of certainty. Of course, in spite of this state of affairs, or rather because of it, practitioners will wish to take all possible precautions to ensure that the agreements they craft will be enforced as intended. Beyond careful drafting of the basic voting rights transfer language, additional considerations in structuring the agreement may add a measure of security.The following sections examineseveralof these possibilities (and attendant pitfalls) for ensuring that voting rights transfer provisions stand up to judicial scrutiny.

A.Establishing an Agency Relationship

Following the Aerosol Packaging rationale, one possibility for ensuring enforceability of a voting rights transfer may be found in Bankruptcy Rule 3018(c), which provides that a vote on a reorganization plan may be signed by “the creditor or equity security holder or an authorized agent.”[39]This Rule suggests that explicit language designating the senior lender as the agent of the junior lender would require that a voting rights transfer be enforced. Especially in light of the Aerosol Packaging court’s finding that the agency rationale does not require the senior creditor to share or vote in the junior creditor’s interests, Rule 3018(c) provides strong support for this approach. Several commentators have warned, however, that such an approach may be seen as a transparent attempt to avoid203 North LaSalle.[40]

In an effort to resolve this difficulty, it has beensuggested that “a different result [may be] warranted when a direct agency relationship is established by contract rather than seeking a determination by the court that an agency relationship is created based on conduct.”[41]An explicit agency clause in the intercreditor agreement could therefore helpin determining enforceability. This measure may not be necessary—theAerosol Packagingopinion mentions no explicit grant of agency—butit certainly seems advisable. It is difficult to see what a party seeking enforcement would have to lose by including such a provision, and it might well persuade an otherwise unconvinced court to enforce a voting rights transfer provision.

B.Rendering Agency Irrevocable

To even further reinforce the agency rationale for a voting rights transfer, practitioners may also wish to consider a second, complementary approach. This strategy, too,seems to have been anticipated by the Aerosol Packaging court, with its suggestion that in voting the Junior Lender’s claim Wachovia was acting as “an agent having a power coupled with an interest.”[42]An “agency coupled with an interest,” or one given for consideration, is generally irrevocable, and therefore stands a greater chance of holding up in the event of a subsequent dispute.

Under the basic law of agency, a principal ordinarilymay revoke a grant of agency at any time.[43] However, where the agent’s authority is coupled with an interest in the subject matter of the agency, or given for consideration, the principal retains no power to terminate the agency relationship at will.[44]In the intercreditor context, then, an irrevocable agency with respect to voting of claims could theoretically be established in two ways:(i) by having the junior lender grant the senior lender an interest in the junior lender’s claim; or (ii) by having the senior lender pay or give consideration to the junior lender for the authority to act as the junior lender’s agent for voting purposes.

In practice, the first concept is difficult to work out (with none of the cases or commentary suggesting what an attempt might look like). The second possibility, however, appears more promising. One approach, for instance, would be for the senior lender to simply make payment to the junior lender for the authority to act as the junior lender’s agent. This approach, although simple to implement, may lack substance and thus not be effective. Alternatively, consideration might be found in the structure of the agreement itself.Becausea prudent senior lender would be unwilling to enter into a loan transaction without intercreditor concessions from the junior lender,the senior lender’s loan to the debtor could itself be framed as consideration.Accordingly, including a recital of consideration in the junior lender’s grant of agency could make the grant irrevocable; an irrevocable agency relationship, in turn, promises a strong basis for argument should the senior lender be forced to defend a rights transfer in court. Indeed, when coupled with an express declaration that the senior lender, as agent, may act in any manner consistent or inconsistent with the interests of the junior lender, it provides a solid rationale for enforcement.

However, a word of caution is in order here as well. In some states—notably California—the simple payment of consideration may not suffice to render an agency relationship irrevocable.[45]Indeed, even an express declaration that consideration has been paid with the intent of making a grant irrevocable may not be enough.[46]In such circumstances, there appears to be little recoursefor a senior lender seeking to render its agency power irrevocable. While it will not hurt to try, prudence counsels against relying on the use of an irrevocable agency rationale as a panacea.

C.Model Language

The preceding sections have laid out several conceptual approaches to ensure enforceability of voting rights transfer provisions.It remains to be considered, however, what specific language can be used to effect these approaches in practice. To that end, the following paragraphs lay out model language that may be usefulfor practitioners aiming to implement some or all of the suggestions discussed above.

For a simple grant of agency to a senior creditor, the following form language provides a helpful starting point:

The Bank and each of its officers are hereby irrevocably authorized (but not required), as the undersigneds’ agent and attorney, to file for, make claim on, collect, receive, and receipt for, and exercise all votes and consents with respect to, any and all Junior Indebtedness in any . . . insolvency proceeding or liquidation.[47]

A more complex provision, incorporating the concept of an agency coupled with an interest, might read as follows:

To induce the Senior Lender to enter into the refinancing of Debtor’s loans, [and upon payment of ____ dollars ($___)][48] and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, including but not limited to the Senior Lender’s agreement to make the Senior Loans to Debtorthat the Senior Lender would not enter into without the following agency appointment, the Junior Lender hereby irrevocably authorizesand appoints the Senior Lender, as its agent and attorney in fact, to file for, make claim on, collect, receive, and receipt for, and exercise all votes and consents with respect to, any and all Junior Indebtedness in any bankruptcy, winding up, liquidation, or other similar proceeding relating to Debtor or its creditors, with any such duties to be undertaken at the option and discretion of the Senior Lender. The Senior Lender shall actas an agent having a power coupled with an interest, which power is hereby made irrevocable by the exchange of consideration previously recited. The Junior Lender agrees and acknowledges that in this capacity, the Senior Lender may exercise all votes and consents of the Junior Lender in any manner, whether consistent or inconsistent with the interests of the Junior Lender, and without guidance from the Junior Lender.

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Bankruptcy: assignment of voting rights

One of the more effective risk-mitigation legal tools used by  senior real estate lenders is the single purpose entity borrower.  Among other things, having a single purpose, bankruptcy  remote borrower makes avoiding the risks of bankruptcy easier.  Even in bankruptcy, if the borrower is truly single purpose, and it  keeps the universe of creditors small, the senior secured lender  will have an easier time defeating any plan of reorganization  proposed by the borrower because it will control all of the  legitimate classes of creditors by virtue of the voting rights  associated with its large, usually undersecured claim.

Sometimes, however, a borrower will need junior debt, and  sometimes that debt will not be available on a mezzanine  basis. If the senior secured real estate lender is willing to permit  a junior loan, it generally will want to tie the hands of the  junior creditor as tightly as possible, in either an intercreditor  or subordination agreement. One of the ways senior secured  lenders implement this hand-tying is to have the junior creditor  “assign” to the senior lender its right to vote on any plan of  reorganization in a borrower bankruptcy. If such an assignment  is enforceable, the senior secured lender will be able to maintain  the possibility of controlling the voting in all the creditor classes  in a borrower bankruptcy, thereby preventing confirmation of a  plan without its consent.

The assignment of the voting rights of the junior lender is  important because of the way confirmation of a plan works  under the Bankruptcy Code. Section 1122 provides that a plan  of reorganization must provide for classes of creditors, and that  classes must contain claims that are similar. In most single asset  real estate cases, there should be only two classes of creditors  - a class of secured claims, which is typically the secured claim  of the senior secured lender, and a class of unsecured claims.  The class of unsecured claims usually includes the unsecured  portion of the senior lender’s claim - the amount by which the  senior lender’s claim exceeds the value of the collateral. Section  1129 of the Bankruptcy Code contains the requirements for  confirmation of a plan. Section 1129(a)(10) requires that, to  be confirmed, a plan must have at least one class of creditors  that is both impaired under the plan and that accepts the plan.  Under Section 1126, a class accepts a plan if the creditors in  the class accept the plan by 2/3 in dollar amount and 1/2 in  number. So, in a simple case involving a single asset borrower  and two classes of claims (secured and unsecured), the secured  lender would have a veto over any plan in the case so long as  its unsecured claim amounted to more than 1/3 of the overall  amount of unsecured claims, because the secured lender would  be able to cause both classes to vote “no” on any plan.

In cases involving real estate assets, the fight is normally  over the unsecured class or classes, and how such classes  are constructed. Borrowers often try to create more than  one unsecured class (often called “gerrymandering”), hoping  to create one that it can impair and that will vote for the  borrower’s plan. Borrowers will sometimes “artificially impair”  that class - for example, they will pay the class in full 30 days  after the effective date, even though the borrower has the  cash on hand on the effective date to make the payment - with  the delay purportedly constituting “impairment” of the class.  Gerrymandering and artificial impairment are regularly litigated  issues in real estate bankruptcy cases. However, if there is junior  secured debt, and the debtor can reach an agreement on plan  treatment with the junior secured creditor (whose claim can  more easily be separately classified), the borrower’s plan can  satisfy 1129(a)(10) without any attempt at “gerrymandering”  the unsecured claims or creating an “artificially impaired” class.  If, on the other hand, the senior lender controls the vote of the  junior lender, that option is not available, and confirmation of  a plan over its objection returns to the configuration described  above - where the senior secured lender often has an effective  veto.

Courts have split on the enforceability of an assignment of  voting rights in bankruptcy. The first few cases on the subject  found that such assignments were unenforceable. In re Hart  Ski Mfg. Co., 5 B.R. 734 (MN 1980); In re 208 N. LaSalle Street,   246 B.R. 325 (ND IL 2000). In short, these courts found the  assignment to be unenforceable for four (4) reasons:

• Section 1126 of the Bankruptcy Code says that a “creditor”  may vote its claim, and the Bankruptcy Code cannot be  overridden by agreement;
• Section 510 of the Bankruptcy Code, which confirms the  enforceability of subordination agreements in bankruptcy,  does not support enforcement of provisions in such  agreements other than those that result in subordination;
• Federal Rule of Bankruptcy Procedure 3018(c), which  permits voting by an “agent”, does not lead to a contrary  result, because Bankruptcy Rules cannot contradict the  Bankruptcy Code, and because an agent must act in the  interest of its principal; and
• Enforcing such provisions would eliminate a junior creditor’s  role in the bankruptcy case, which is bad policy.

Hart Ski and 208 N. LaSalle Street created serious question  about the enforceability of the assignment of voting rights in  a bankruptcy case, as there was for a time no contrary case  law. Then in 2006 Judge Margaret Murphy addressed the  enforceability of voting rights assignments in In re Aerosol  Packaging, LLC , 362 BR 43 (GA -2006), a case in which the  author represented the senior secured creditor. In Aerosol  Packaging, Judge Murphy held that:

• Section 510 of the Bankruptcy Code says that subordination  agreements are enforceable to the extent enforceable under  state law, and there was no indication in that case that the  voting rights assignment at issue was not enforceable under  applicable Georgia contract law;
• Section 1126 of the Bankruptcy Code gives voting rights  to a “creditor”, but does not address at all whether those  rights can be assigned or bargained away; and
• Federal Rules of Bankruptcy Procedure 3018 and 9010 say  that agents may vote claims - and some agents (i.e agencies  coupled with an interest) can and do act for their own  benefit and not for that of the principal.

Cases since Aerosol Packaging have come down on both sides  of issue. In re Coastal Broadcasting Systems, Inc. 2012 WL  2803745 (NJ 2012)(enforced); In re Croatan Surf Club, Inc., 2011  WL 59099199 (NC 2011)(not enforced); Matter of Avondale  Gateway Center Entitlement, LLC, 2011 WL 1376997 (AZ 2011) (enforced).

The Matter of Avondale case may be the most interesting of  these, since the agreement at issue there did not even contain  any express language assigning voting rights. Instead, the court  relied on the following subrogation provision :

“[Junior] agrees that [senior] shall be subrogated to [junior]  with respect to [junior’s] rights, liens, and security interests, if  any, in any of the Borrower’s assets and the proceeds thereof  (excluding, however, [junior’s] right under any pledge of  Borrower’s membership interests made under the Subordinate  Debt Documents) until the Senior Debt shall have been paid in  full.”

From that language, the Court inferred an assignment, and then  found such an inferred assignment to be enforceable.

The issue of the enforceability of assignments of voting rights  is an important one. The ability to obtain voting rights from a  junior creditor supports the overall structure of the single asset  bankruptcy remote borrower. Although case law continues to  develop in this area, there is no certainty as to how the issue  will ultimately be resolved. In the interim, senior secured lenders  should consider some of the following measures to enhance the  chances of their clauses being enforced:

• Be as specific as possible about the assignment of the right  to vote. Consider reference to specific Bankruptcy Rules;
• Consider providing for the assignment to the senior secured  lender of the junior lender’s entire claim, not just the  assignment of the right to vote, or obtaining an option  to buy the junior claim for a nominal amount (excluding,  possibly, in either case, the right to a distribution under  such claim). 

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Courts Disagree Whether Section 510(a) Allows Subordination Agreement to Assign Voting Rights in Chapter 11

by Matthew Gensburg | Feb 23, 2022 | GCK on Law

This was the conclusion reached in In re Fencepost Productions, Inc. , 629 B.R. 289 (Bankr.D.Kan.2021), which found the LaSalle Street analysis of Section 1126(a) persuasive.  Section 1126(a) of the Bankruptcy Code provides that “[t]he holder of a claim” may vote to accept or reject a plan, and found that none of the arguments submitted by the senior lender there justified deviation from the statute’s plain language.  It noted that LaSalle Street held that the fact that the junior lender agreed that the senior lender could vote on its behalf was not controlling because “[i]t is generally understood that prebankruptcy agreements do not override contrary provisions of the Bankruptcy Code.”  Second, it held that Section 510(a), providing for the enforcement of subordination agreements, does not allow for waiver of voting rights under Section 1126(a) because subordination affects the priority of payment of claims in bankruptcy, not voting rights.

In Fencepost , the court found that agreement between the junior and senior lenders, allowing the senior lender to vote on behalf of the junior lender, did not appoint the senior lender the junior lender’s agent.  “Unlike an agent, who has fiduciary duty to act at the direction of the principal, Associated would be acting for its own benefit, contrary to the wishes of the BMS Group.” Id. at 295.  The court concluded that “subordination merely reorders priorities among creditors.  Unlike the circumstance where a claim is assigned to another party, subordination does not involve transfer of the subordinated creditor’s legal interest.”

Notwithstanding the fact that Fencepost found the subordination agreement ineffective in transferring voting rights to the senior lender, it also found that the junior lender did not have “prudential standing” to participate in the confirmation process, or raise objections to the debtor’s plan.  The court reached this conclusion by finding that there were no circumstances under which the junior lender (BMS Group) had any financial stake in the outcome of the confirmation process because it subordinated its claim, and there were insufficient funds or assets to pay it anything after the senior lender.  The court stated:

In this case, the BMS Group, if permitted to participate in the Plan confirmation proceedings, would be litigating issues affecting the rights of third parties, not itself. As noted above, there is no scenario under which the BMS Group will receive any direct financial benefit.  If the Plan were amended to provide larger payment to Class 5A, the subordinated BMS Group claims, Associated could benefit financially, but other unsecured creditors would likely receive less.  The BMS Group seeks to vote against confirmation to force Debtors to satisfy the § 1129(b) requirements of cram down.  But the BMS Group would not benefit from enforcement of the requirements that the Debtors’ plan not discriminate, be fair and equitable to impaired classes, and satisfy the absolute priority rule.  It is other creditors, Associated in particular, who have a financial stake in these matters.  This case therefore fits with the circumstance of special concern to the Second Circuit, quoted above, when a “constituency seeks to disturb a plan of reorganization” though asserting rights other than its own.

Id. at 299-300.

A contrary conclusion was reached in Blue Ridge Investors, II, LP v. Wachovia Bank (In re Aerosol Packaging, LLC) , 362 B.R. 43 (Bankr.N.D.Ga.2006).  This court found that “[t]he express terms of the Subordination Agreement * * * compel the conclusion that the right to vote any claim of Blue Ridge in Debtor’s bankruptcy was assigned by Blue Ridge to Wachovia,” making Wachovia the “duly authorized agent of Blue Ridge.”  It reasoned that the subordination agreement appeared to be enforceable under applicable state law, and rejected the reasoning of LaSalle finding that although Section 1129(a) grants a right to vote to a holder of claim, it does not expressly or implicitly prevent that right from being delegated or bargained away by the holder of the claim. Additional cases support enforcement.

In In re MPM Silicones, L.L.C. , 2019 WL 121003 (S.D.N.Y.2019 ) , the court approached the issue from a different perspective.  Here, the first lienholders pleaded that the second lienholders breached an intercreditor agreement (“ICA”) by entering the Restructuring Support Agreement and voting to approve the Chapter 11 Plan over the first’s objections, and which ultimately paid the firsts less than payment in full, in cash, of their liened securities.  The relevant clauses in the intercreditor agreement provided:

will take any action that would hinder any exercise of remedies undertaken by the [firsts] with respect to the Common Collateral * * * including any sale, lease, exchange, transfer or other disposition of the Common Collateral, whether by foreclosure or otherwise

It also provides that each second:

waives any and all rights it * * * may have as a junior lien creditor or otherwise to object to the manner in which the [Seniors] seek to enforce or collect the Senior Lender Claims or the Liens granted in any of the Senior Lender Collateral

Finally, the intercreditor agreement also provided as follows:

Notwithstanding anything to the contrary in this Agreement, the [seconds] may exercise rights and remedies as an unsecured creditor against the Company or any subsidiary.* * * * Nothing in this Agreement shall prohibit the receipt by any … of the required payments of interest and principal so long as such receipt is not the direct or indirect result of the exercise by any [second] of rights or remedies as a secured creditor in respect of Common Collateral

The court ruled that the prohibition on hindering the firsts’ remedies was not intended to mean that the seconds were waiving all the voting rights that they are otherwise entitled to under bankruptcy law.  The court noted that those agreements that have been enforced contained specific waivers, assignment of rights, or express agreements that the juniors would be “silent seconds.” Id . at *11.  It stated that “the case law, equities, economics, and practicalities of this case favor a reading of the ICA that does not write an express waiver of voting rights into the general language and does not nullify entire provisions of the agreement, such as Section 5.4.” Id.  Therefore, absent “express constraints or waivers in the ICA” an effort to strip the seconds of their voting rights would not be allowed.  Id . at *12.

Matthew T. Gensburg [email protected]

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Assignment of Rights Agreement: Everything You Need to Know

An assignment of rights agreement refers to a situation in which one party, known as the assignor, shifts contract rights to another party, known as assignee. 3 min read

An assignment of rights agreement refers to a situation in which one party, known as the assignor, shifts contract rights to another party. The party taking on the rights is known as the assignee.

An Assignment of Rights Agreement

The following is an example of an assignment of rights agreement. Dave decides to buy a bicycle from John for $100 and after agreeing on the price, Dave and John draw up a written agreement. Let's suppose that there will be a one week wait before the bicycle is ready for delivery to Dave and before anything is passed between them.

Meanwhile, John accepts that he will transfer his right to be paid $100 from Dave to Rob, in exchange for Rob paying John $90 immediately. Let's assume that John's motivation is an immediate need for cash. In this context, John is regarded as the assignor and Rob is the assignee.

John is the assignor as he is giving the assignment to Rob and Rob is the assignee because he is acquiring the assignment from John. To put it simply, the assignee is the party who gets something. In this case, Rob will receive $100.

Rules of Assignments

Assignments frequently occur in contracts. It's important to note the following points:

• The assignor (e.g. John) is accountable according to the contract unless the parties make an agreement that states otherwise.
• This means that if Dave does not receive the bicycle, he can sue John for it.
• Assignments are allowed in almost every type of agreement unless the contract includes an explicit ban on assignments or unless a specific exception is applicable.
• The assignor does not need to speak to the other contract party in order to create the assignment. For example, John would not need to ask Dave if John can transfer his right to be paid to Rob.

Exceptions Where a Contract Cannot be Assigned

• Some exceptions dictate that a contract cannot be assigned .
• Unenforceable assignments include the following: a personal services agreement, changing the contract duties, changing the material provisions of the agreement (e.g. time, amount, location, etc.).
• An example of a personal services agreement, which cannot be assigned, would be if you decided to employ a particular professional writer to write a book for you.
• That writer would not be allowed to take your payment and then give the work to another writer because you employed that particular writer to write the book, rather than someone else.
• Some kinds of assignments have to be in writing in order to be enforceable such as assignments of actual property (e.g. selling your house), loans, or debts.
• It's best to look at the statute of frauds for more information on the kinds of agreements that must be in writing.

Delegations and Novations

A delegation is very similar to an assignment in terms of what it involves. A delegation takes place when a party moves his or her obligations (or liabilities) under an agreement to a different party. Assignments, on the other hand, involve the transfer of rights.

If the parties in our previous example had created a novation , Rob would be entirely accountable to Dave and John would be clear of responsibility. A novation replaces the earliest party with a new party.

Contract Assignment

An Assignment Agreement can also be called a Contract Assignment. Another example of this would be if you're a contractor who needs assistance finishing a job. You could give those tasks and rights to a subcontractor, but only if the original agreement does not prohibit the assignment of these rights and responsibilities.

Creating an Assignment Agreement

In an Assignment Agreement, it is important to include details such as:

• The name of the person assigning the responsibilities (known as the assignor)
• The name of the of the party who is taking the rights and responsibilities (the assignee)
• The other party to the first agreement (known as the obligor)
• The name of the agreement and its expiration date
• Whether the first contract necessitates the obligor's approval before assigning rights
• The date of the obligor's consent
• When the contract will be put into effect
• Which state's laws will regulate the contract

If you need help with an assignment of rights agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Estate Planning & Criminal Defense Law

Voting Rights in LLCs: Who Has a Voice?

September 30, 2022 Posted in: Business , Estate Planning , Snyder Blog

On average, 4 million new businesses are started each year in the United States. Many of those businesses are organized as limited liability companies (LLCs). Combining the benefits of a corporation and a partnership, an LLC protects its members’ personal assets from business liabilities, avoids double taxation, and provides flexibility regarding its operations, management, and financial and voting rights.

While state LLC laws establish default provisions, LLC members may adopt a written operating agreement that alters those rules, specifying how they want the business to be run. An operating agreement is not required, but without one, members are subject to statutory default provisions. These provisions may not align with their interests and goals. This includes the default rules on voting for LLC matters such as adding new members, disassociating members, dissolving the company, and amending the operating agreement.

The Most Common LLC Voting Rights

An operating agreement should be drafted at the time of LLC formation. You can amend the operating agreement by a vote of the members at any time. This brings us back to our original topic: how are voting rights determined in an LLC?

The first consideration is whether the LLC is set up as member-managed or manager-managed .

• In a member-managed LLC, all members are active in managing and voting on the company’s business affairs. This is the default structure and can work for LLCs with a small number of members who are not only investors, but are active in running the company.
• In a manager-managed LLC, the members/owners leave the management of the company to professional managers. This is similar to a board of directors in a corporation. Members of a manager-managed LLC can usually vote on major changes. These changes include amending the operating agreement and adding or removing a member.  In contrast, members have limited authority to make business decisions, such as entering contracts, hiring employees, and borrowing money. The managers of the LLC are not required to be members.

The default rule in most LLC statutes is member management. However, in practice, most attorneys recommend the use of manager-managed LLCs for increased liability protection. For the company to operate as a manager-managed LLC, this management structure must be specified in the articles of organization or the operating agreement, depending on the state.

Voting in Member-Managed LLCs

Management authority is vested in the members of a member-managed LLC. Each member has a say in decision-making according to the voting structure. This is outlined in the state LLC statute or the operating agreement. The following are the most common voting powers:

• Voting on a weighted, or proportionate, basis is decided by a member’s ownership share. For example, let’s say an LLC has four members. One member owns 70 percent of the company while the other members own 10 percent. In this scenario the owner holding a 70 percent share can outvote the other members.
• Per capita voting is done on a “one person, one vote” basis. This means that there is no “majority shareholder” whose vote outweighs the votes of the other LLC members. Each member’s vote is counted equally, regardless of their investment share.

Voting in Manager-Managed LLCs

A manager-managed LLC requires an operating agreement that is customized for this structure. It should state that managers will make management decisions and detail the voting process. The operating agreement should also spell out a process for adding or removing managers, rules for meetings, and how many managers must be present for a vote.

Unanimous versus Majority Votes

Whether an LLC is member-managed or manager-managed, the state’s default rules may require unanimous consent or majority consent for certain business decisions. Again, these default rules can be modified by the operating agreement. If they are not, the LLC must follow rules that may not be ideal for its members. If your state has a unanimous consent rule to add members, for example, this may not be a problem in the LLC’s early stages. But this rule could make it more difficult to bring in new investors needed for the LLC to grow and expand.

LLCs should establish a management and voting structure that is tailored to the needs of its members. If these structures are not addressed in an operating agreement, the applicable rules could be altered whenever a state updates its LLC laws. If that happens, a state default rule that was initially fine with the members could suddenly become problematic.

Your LLC operating agreement should, at a minimum, include provisions addressing voting rights for the following matters:

• Admitting new members
• Terminating members
• Changing the operating agreement
• Allocating profits and losses
• Dissolving or winding down the company
• Binding the LLC to contracts
• Selling an entire membership interest to a third party
• Selling, mortgaging, or distributing LLC assets

Other important issues that the operating agreement should address are how votes are cast (by video call, email, in person, etc.), whether votes can be cast by proxy, and failure to object (i.e., whether failure to object or cast a vote is considered tacit agreement with the matter being voted on).

LLC Economic Interests with No Voting Rights

An advantage of a manager-managed LLC is that it is easier to add passive investors who do not participate in running the business. However, a passive investor retains some voting rights. This happens because they are a member of the LLC despite not being actively involved in its daily operations.

There is also what is known as an “economic interest” in an LLC. This is an ownership share that allows the holder to receive distributions (i.e., profits and distribution of company assets) from the LLC, without any control or voting rights. This individual could be an investor who is a silent partner or the beneficiary of an economic interest in an LLC left by a relative. In the latter case, a business owner may have given their children and grandchildren economic interests entitling them to receive a share of the profits, while the business is run by professional managers.

It is possible to allow an economic interest holder to become a member through a vote of the LLC members, but—you guessed it—the process should be laid out in the operating agreement. For a family business, an operating agreement could even be drafted to specify that when a member passes away, their financial and membership rights are passed on to a chosen beneficiary. However, default state rules generally limit the transfer of interests to economic interests and do not allow full membership rights to be transferred without the consent of the remaining members.

Get Help Setting Up Your LLC

Choosing to structure your business as an LLC is just the beginning. The next decision is to decide on a management structure and to formalize it in the articles of incorporation and operating agreement. At a minimum, you need to understand state default LLC rules about financial rights, voting rights, and how voting works. This is so you can ensure your LLC runs how the members want it to.

Flexibility is one of the best features of an LLC, but the number of options can make the decision-making process feel overwhelming. The choices you make when you create your operating agreement will have a significant impact on your business’s day-to-day functions. This means that they should not be made lightly or without consulting an attorney. You should review your operating agreement on a regular basis to stay on top of legal changes and to make sure it remains in line with members’ goals and interests. For more information please contact us at (949) 333-3702.

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Restoring the Voting Rights Act

The 59th anniversary of the Voting Rights Act underscores the urgent need to protect the freedom to vote, especially for people of color. 

• Voting Reform
• Voter Suppression

Fifty-nine years ago today, President Lyndon Johnson signed the Voting Rights Act into law, undoing the barriers of the Jim Crow era and opening up important voting opportunities for communities of color. But in the last decade, the Supreme Court has relentlessly weakened this landmark achievement of the civil rights movement. In 2021, a solution that would restore the Voting Rights Act to full force was introduced in Congress: the John R. Lewis Voting Rights Advancement Act . That legislation, named for the late civil rights icon, was passed by the House but did not reach the 60 votes required to overcome a filibuster in the Senate. Had it become law, safeguards for minority voters would be in far better shape today.

The heart of the Voting Rights Act was “preclearance,” which required jurisdictions with a history of discrimination to obtain federal approval for any changes to voting policies. In 2013, the Supreme Court’s ruling in Shelby County v. Holder effectively eliminated it, and in doing so, emboldened states to adopt racially discriminatory policies. The John Lewis Voting Rights Act would have revived preclearance, barring racially discriminatory voting laws and other barriers that make it harder for people of color to participate in our democracy before they were put in place. Discriminatory congressional district maps, like those drawn by several jurisdictions following the 2020 census, would have been blocked.

The John Lewis Voting Rights Act would have also gone beyond restoring geographic preclearance and covered certain changes long known to have discriminatory effects, such as inadequately providing multilingual voting materials and reducing polling locations. And standardized public notice and transparency requirements would have been implemented — providing additional protections against any changes to voting practices that, intentionally or not, disenfranchise voters.

Instead, Shelby County unleashed a wave of discriminatory voting policies in the states. Within hours of the ruling, Texas  announced  it would implement a restrictive voter ID policy that a court had previously blocked. All told, in the 11 years following the decision, at least 31 states have enacted at least 103 new restrictive voting laws .

Even in just the law few years, restrictive laws continue to pass at alarming rates, disproportionately impacting minority voters. In 2022, at least 8 states enacted 11 restrictive voting laws. In 2023 , at least 14 states enacted 17 restrictive voting laws. And in the first four months of 2024 , at least 6 states enacted 7 restrictive laws. Had Congress passed the John Lewis Voting Rights Act in 2022, many of these harmful policies would have been subject to federal review and likely blocked.

Without the protection of preclearance, voters must rely on lawsuits to challenge discriminatory voting practices and racially discriminatory maps. Under Section 2 of the Voting Rights Act, policies that deny the right to vote on account of race or color are prohibited. But lawsuits are expensive, time consuming, and allow discriminatory policies to be in effect until they’re resolved.

Compounding this problem, in 2021, the Supreme Court weakened Section 2 in Brnovich v. Democratic National Committee . That decision made it more difficult to challenge discriminatory voting laws in court, tilting the playing field in favor of discriminatory states.

That was the case in the 2022 redistricting cycle. Several courts, including the Supreme Court, concluded that some proposed maps were in fact discriminatory. But lawsuits were not enough to block discriminatory maps from being used during the midterm elections in Alabama, Georgia, Louisiana, and Texas. Voters in other states are still awaiting their day in court. All told, as of July 2024 , 32 cases have challenged congressional or legislative maps under Section 2.

The Voting Rights Act was among the most successful and pivotal legislation to come out of the civil rights movement. It increased participation among minority voters and blocked racially discriminatory maps intended to limit their voting power. Congress’s failure to pass the John Lewis Voting Rights Act and its companion bill, the Freedom to Vote Act , has weakened our democracy. On the anniversary of the Voting Rights Act’s enactment, it is critically important to acknowledge all the obstacles that remain for minority communities and the urgent need for reform. Congress must prioritize passing the John Lewis Voting Rights Act and the Freedom to Vote Act — not just to rectify past injustices, but to safeguard the future of our democracy for all eligible voters.

Related Issues:

Michigan Blazes a Path for Pro-Democracy Reform

In the battleground state, recent moves by voters and lawmakers have made voting more accessible and election subversion more difficult.

How Federal Agencies Are Increasing Access to Voting

Drawing on the spirit of the Voting Rights Act, President Biden’s executive order taps federal agencies to expand voter registration.

The Racial Turnout Gap 11 Years After SCOTUS Diminished the Voting Rights Act in Shelby County

The good news about democracy in 2023, freedom to vote in jeopardy, especially for people of color, the freedom to vote, the voting rights act explained, informed citizens are democracy’s best defense.

Transfer And Assignment Agreement: Definition & Sample

Jump to section, what is a transfer and assignment agreement.

A transfer and assignment agreement is a legal document that outlines the terms and conditions of the transfer of an employee from one company to another. It also includes the assignment of all rights and obligations, including any IP or confidential information. This document can be used to protect both the employee and the employer in case of any disputes. When negotiating a transfer and assignment agreement, it is important to consider all potential risks and liabilities.

Common Sections in Transfer And Assignment Agreements

Below is a list of common sections included in Transfer And Assignment Agreements. These sections are linked to the below sample agreement for you to explore.

Transfer And Assignment Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.7 10 dex107.htm FORM OF SALE, TRANSFER AND ASSIGNMENT AGREEMENT , Viewed April 26, 2022, View Source on SEC .

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Eleanor Roosevelt and the United Nations

Written by: bill of rights institute, by the end of this section, you will:.

• Explain the continuities and changes in Cold War policies from 1945 to 1980

Suggested Sequencing

Use this narrative at the beginning of Chapter 13 to cover the creation of the United Nations and the U.N. Universal Declaration of Human Rights.

During World War II, President Franklin D. Roosevelt envisioned a system of collective security among nations to create a lasting world peace. After Roosevelt died, President Harry Truman assumed responsibility for making Roosevelt’s idea a reality with the creation of a charter for the United Nations (U.N.) at the San Francisco Conference in the spring of 1945. Over the next few years, former First Lady Eleanor Roosevelt furthered her husband’s vision by leading the U.S. effort to encourage the U.N. General Assembly’s adoption of a Universal Declaration of Human Rights. This would assert inviolable human rights in the wake of World War II and the struggle against tyranny.

Eleanor Roosevelt, pictured here in 1933, helped create the U.N. Universal Declaration of Human Rights and later became the first chair of the United Nations Commission on Human Rights.

In August 1941, Franklin Roosevelt had met with Winston Churchill, and together they had issued the Atlantic Charter, which enumerated several common principles of free nations. The charter’s last point expressed support for “the establishment of a wider and permanent system of general security.” After the Pearl Harbor attack on December 7, 1941, the United States entered the Pacific War against Imperial Japan and then entered the war in Europe against Nazi Germany a few days after. The outline of a United Nations took shape over the next few years as the Allies the United States, Great Britain, and the Soviet Union discussed the idea at the Quebec Conference (August 1943) and the Teheran Conference (December 1943). The foreign ministers of the United States, the Soviet Union, Great Britain, and China also signed the Four-Power Declaration at the Moscow Conference that fall. The declaration asserted that the four great powers (later joined by France) would be the permanent members of a security council and enforce collective security against aggressor nations.

During a 1943 Christmas Eve address, Roosevelt summed up the reasons for working toward an international organization: “The doctrine that the strong shall dominate the weak is the doctrine of our enemies we reject it.” At the Dumbarton Oaks Conference in Washington, DC, from August to October 1944, delegations from the Big Four hammered out the general form of the United Nations. It would consist of a General Assembly, a Security Council, and an international court. Unresolved issues included the Soviets’ demand for an absolute veto in the Security Council and for representation of all 16 Soviet republics in the General Assembly. These sources of contention grew worse as World War II entered its final phase and tensions between the Soviet Union and the United States and its Western European allies increased.

In early 1945, the Allies pressed in against Germany from all sides. The Russians attacked along the Eastern Front, and the Americans, British, French, and Canadians moved in from the Western Front. In his Annual Message to Congress on January 6, President Roosevelt stated, “After the last war, we gave up the hope of achieving a better peace because we had not the courage to fulfill our responsibilities in an admittedly imperfect world. We must not let that happen again.” With the end of the war in Europe in sight, Roosevelt met with Churchill and Joseph Stalin at Yalta. They agreed to demand the unconditional surrender of Germany, Russia promised to enter the war against Japan, and the Russians also pledged to hold free elections for a coalition government in Poland. The powers also agreed to attend a conference in San Francisco starting on April 25 to create the United Nations organization. Roosevelt reluctantly agreed to support the admission of the Soviet republics of Ukraine and Byelorussia (now Belarus) in the new organization to ensure Soviet participation, even if it meant adding two extra votes controlled by the Soviet Union.

“The Big Three” – Winston Churchill, Franklin Roosevelt, and Joseph Stalin (left to right) – met at the Yalta Conference in February 1945 to begin discussions about the United Nations.

Before the conference began, President Roosevelt died on April 12 and was succeeded by Vice President Harry Truman. Truman had to be brought up to speed quickly on foreign affairs because Roosevelt had rarely confided in him. Truman confirmed the San Francisco Conference would still be held. On April 16, he told Congress: “Without such an organization, the rights of men on earth cannot be protected. Machinery for the just settlement of international differences must be found. Without such machinery, the entire world will have to remain an armed camp.” He had learned from the failures of Woodrow Wilson’s League of Nations and included important members of Congress and the Republican Party in the U.S. delegation.

Tensions between the United States and the U.S.S.R. clouded the anticipated success of the impending meeting. The Russians went back on their agreement to support free elections in Poland and instead installed the communist Lublin regime. The U.S. ambassador to the Soviet Union, Averell Harriman, warned the new president of the expansionist ambitions of the totalitarian regime. Truman decided to get tough with the Soviets and confronted their foreign minister, Vyacheslav Molotov, in a meeting in which Molotov demanded that communist Poland be admitted to the United Nations. After a heated exchange, Molotov said, “I have never been talked to like that in my life.” Truman retorted, “Carry out your agreements and you won’t get talked to like that.” Molotov then proceeded to the San Francisco Conference.

Delegates from 46 invited countries (which had all declared war against Nazi Germany and Imperial Japan) assembled in San Francisco for the opening of the Conference on April 25. Newly liberated Denmark, profascist Argentina, and the Soviet republics of Ukraine and Byelorussia also attended. Over the next two months, the representatives negotiated day and night to create a charter for the United Nations. Disagreements, most related to national sovereignty and self-interest, divided the nations in several different ways. For example, European colonial powers such as Britain, the Netherlands, and France opposed any interference with their colonies and resisted a proposed trusteeship to transition them to independence. Smaller countries were generally opposed to the unequal power exercised by the great powers in the Security Council.

The United States and Latin American countries wanted to preserve American control over the western hemisphere with the Monroe Doctrine and Good Neighbor policy. Many countries had bilateral agreements and did not want the international organization to supersede them. The United States rejected being bound by international law as a violation of its own sovereign laws. Many exemptions were granted to achieve the creation of the United Nations. The nations acceded to the demands of the Soviets to seat its two republics and communist Poland, because the Red Army exercised uncontested military strength in Eastern Europe.

The participants unanimously signed the United Nations Charter on June 26. President Truman heralded the achievement as a continuation of the wartime alliances. He asserted, “We have tested the principle of cooperation in this war and we have found that it works.” Unlike the case when the Treaty of Versailles established the League of Nations, the U.S. Senate ratified the U.N. charter in July by a vote of 89-2. Eleanor Roosevelt praised the charter in her syndicated “My Day” newspaper column. Admitting that she had been disappointed by the failures of international cooperation in the past, she wrote, “But I want to try for a peaceful world”.

This poster includes people from around the world and states the preamble of the United Nations Charter, “We the peoples of the United Nations, determined to save succeeding generations from the scourge of war . . . “

When Truman asked Eleanor Roosevelt to serve as a delegate to the United Nations’ General Assembly, she did not feel up to the task. “How could I be a delegate to help organize the United Nations when I have no background or experience in international meetings?” she asked the president. Truman was convinced she had plenty of political experience and persuaded her to accept.

In early January 1946, Eleanor Roosevelt sailed for London to attend the first meeting of the U.N. General Assembly. She was asked to serve on a small commission to make recommendations on the structure and function of a permanent Human Rights Commission. The Commission was also charged with creating a universal declaration of rights consistent with the preamble to the U.N. Charter, which pledged “to reaffirm our faith in fundamental human rights, in the dignity and worth of the human person, in the equal rights of men and women and of nations large and small.”

Eleanor Roosevelt was elected chair of the commission, which met from April 29 to May 20, 1946, in New York. By June, its members had created a Commission on Human Rights, with the five great powers as permanent members and 13 rotating members with three-year terms. Roosevelt reported of the work of the commission: “Many of us thought the lack of standards for human rights the world over was one of the greatest causes of friction among nations.”

The Commission on Human Rights set about preparing an international bill of rights and held its first session in January 1947. Eleanor Roosevelt was quickly chosen to chair the commission, and representatives from 16 countries were selected to draw up the document.

The meetings were acrimonious, and philosophical divisions became immediately apparent. Participants argued over the nature of God and the nature of humans from different cultural perspectives, about whether rights were individual or collective, and about whether social and economic rights should be guaranteed by government. The most apparent divisions were between the philosophical traditions of East and West, and between the ideas of the Soviet Communist bloc and the free nations. Roosevelt weighed in on the chilly morning of February 5. She stated, “It seems to me that in much that is before us, the rights of the individual are extremely important. It is not exactly that you set the individual apart from his society, but you recognize that within any society the individual must have rights that are guarded.” The Communists, however, rejected the idea of individual rights in favor of collective rights provided by the state.

The next day, the youngest delegate and secretary of the commission, Lebanon’s Charles Malik, contested the Soviet view and asserted that the danger in the postwar world was “not that the state is strong enough . . . but that social claims are in danger of snuffing out any real personal liberty.” Roosevelt went on record as saying that she agreed “wholeheartedly” with Malik.

Eleanor Roosevelt was a strong supporter of practical social and economic rights and equality. She had written shortly after World War II: “Freedom without bread . . . has little meaning. My husband always said that freedom from want and freedom from aggression were twin freedoms, which had to go hand in hand.” She said she wanted to keep the spirit of the New Deal alive. The Communist representatives wanted to focus exclusively on these social rights rather than individual rights, whereas Roosevelt and the other delegates sought a balance.

Roosevelt was then chosen along with Malik, P.C. Chang from China, and John Humphrey from Canada to form a subcommittee to draft the international declaration of human rights. The subcommittee asked Humphrey to create a working draft of the declaration and then edited it.

In a 1947 photo, Eleanor Roosevelt holds a copy of the Spanish-language Universal Declaration of Human Rights, which includes Franklin D. Roosevelt’s Four Freedoms.

On November 29, Eleanor Roosevelt set off for Geneva, Switzerland, to present the declaration of universal human rights to the Human Rights Commission. The commission unanimously endorsed the declaration by a vote of 13-0, with the Soviet Union and its puppet states abstaining. In December 1948, the General Assembly met in Paris and passed the U.N. Universal Declaration of Human Rights without a single dissenting vote. As Roosevelt admitted in her December 10 speech, the Universal Declaration of Human Rights was not legally binding on states, but she urged all countries to accept it “as a standard of conduct for all.”

Review Questions

1. The idea for the formation of the United Nations began with the

• League of Nations
• Atlantic Charter
• Yalta Conference
• Four Power Declaration

2. The major agreement that came out of the Four-Power Declaration after the Moscow Conference of 1943 led to the

• creation of the United Nations
• establishment of a security council with five permanent members
• United Nations Universal Declaration of Human Rights
• dissolution of the League of Nations

3. In what proved to be his final Annual Message to Congress, President Franklin Roosevelt said, “After the last war, we gave up the hope of achieving a better peace because we had not the courage to fulfill our responsibilities in an admittedly imperfect world. We must not let that happen again.” In this quote, Roosevelt was referring to the failure of

• the policy of appeasement
• America and its European allies in allowing dictatorships to arise in Europe
• the Washington Naval Conference agreements
• the United States to join the League of Nations

4. The first meeting of the United Nations that included all allied nations from World War II occurred in

• London, England
• Geneva, Switzerland
• Dumbarton Oaks, Washington, DC, USA
• San Francisco, California, USA

5. As a delegate to the United Nations, Eleanor Roosevelt worked for which of the following issues?

• International human rights
• The independence of colonies around the world
• Collective security against the Soviet Union
• The eradication of diseases such as polio

6. In regard to American policy, a major difference between the founding of the League of Nations and that of the United Nations was that

• the United States had no relationship with the League of Nations
• the U.S. Senate voted overwhelmingly to ratify the United Nations charter
• the American people did not want the United States to join the United Nations
• Americans accepted that U.N. policy would influence American foreign policy

Free Response Questions

• Analyze the United States’ purpose in helping create the United Nations.
• Describe the creation of the United Nations and the issues that divided the opening conferences.

AP Practice Questions

“Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world, Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people, Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law . . . Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom . . . Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge”

Preamble to the “U.N. Universal Declaration of Human Rights” December 10, 1948

1. An immediate cause of the sentiments expressed in the excerpt was the

• failure of the League of Nations
• 1918 revolution in Russia
• lack of human rights in many countries during World War II
• impact of the Great Depression on minority groups

2. The ideals expressed in the excerpted document were most likely influenced by the

• Articles of Confederation
• Communist Manifesto
• Age of Enlightenment
• Covenant of the League of Nations

3. Which of the following groups would most likely agree with the sentiments expressed in the excerpt?

• Signers of the Declaration of Sentiments at the Seneca Falls Convention
• Signers of the Declaration of Independence
• Members of the Sons of Liberty
• Jacksonian Democrats

Primary Sources

“The Universal Declaration of Human Rights.” 1948. https://www.un.org/en/universal-declaration-human-rights/

Suggested Resources

Dallek, Robert. Franklin D. Roosevelt and American Foreign Policy, 1932-1945 . Oxford: Oxford University Press, 1979.

Dobbs, Michael. Six Months in 1945: From World War to Cold War . New York: Knopf, 2012.

Gaddis, John Lewis. The Cold War: A New History . New York: Penguin, 2005.

Glendon, Mary Ann. A World Made New: Eleanor Roosevelt and the Universal Declaration of Human Rights . New York: Random House, 2001.

Hoopes, Townshend, and Douglas Brinkley. FDR and the Creation of the United Nations . New Haven, CT: Yale University Press, 1997.

Kennedy, Paul. The Parliament of Man: The Past, Present, and Future of the United Nations . New York: Vintage, 2006.

Schlesinger, Stephen C. Act of Creation, The Founding of the United Nations: A Story of Superpowers, Secret Agents, Wartime Allies and Enemies, and Their Quest for a Peaceful World . New York: Westview, 2003.

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Life, Liberty, and the Pursuit of Happiness

In our resource history is presented through a series of narratives, primary sources, and point-counterpoint debates that invites students to participate in the ongoing conversation about the American experiment.

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Bennett County agrees to open satellite office for Native Americans after voting rights probe

A Sioux Falls resident votes in the city and school board election at Southern Hills United Methodist Church on April 9, 2024. (Makenzie Huber/South Dakota Searchlight)

Bennett County in South Dakota has agreed to open a satellite office to resolve claims that it violated the voting rights of Native Americans.

The U.S. Justice Department announced the agreement Monday and said it was prompted by claims that the county failed to make its registration and early voting opportunities equally open to Native American voters.

Under the terms of the agreement, Bennett County will operate a satellite office in Allen. It will provide in-person registration and absentee voting services during regular business hours for the full state-mandated 46-day absentee voting period prior to federal, state and county elections.

Justice disparities on South Dakota reservations need attention, US attorney general says

The Justice Department said equal registration and early voting opportunities are required by the federal Voting Rights Act.

Assistant Attorney General Kristen Clarke, of the department’s Civil Rights Division, commented on the agreement in a news release.

“It is time to eliminate all barriers standing between Native American voters and the ballot box across our country,” Clarke said. “An inclusive democracy must provide all of its eligible voters access to the full range of voter registration and early voting opportunities required by law.”

The U.S. attorney for the District of South Dakota, Alison Ramsdell, also commented in the news release.

“The right to vote is fundamental to our democracy, but that right is hollow without access to registration and early voting opportunities,” Ramsdell said. “We are grateful Bennett County has agreed to improve voting access for Native Americans in South Dakota by adding and staffing a satellite office in Allen.”

The Justice Department’s investigation found that Native Americans living on tribal lands in the county disproportionally lacked the ability to travel long distances to the county seat of Martin for in-person voting services. Since 2015, the state has made Help America Vote Act funds available to counties like Bennett to establish a satellite office on tribal lands.

More information about voting and elections is available on the Justice Department’s website at www.justice.gov/voting .

Learn more about the Voting Rights Act and other federal voting laws at  www.justice.gov/crt/voting-section .

Complaints about possible violations of federal voting rights laws can be submitted through the Civil Rights Division’s website at  civilrights.justice.gov or by telephone at 1-800-253-3931. Individuals can also contact the U.S. Attorney’s Office for the District of South Dakota by emailing [email protected] or calling 605-330-4400.

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Early voting in Michigan

Michigan voters have the right to cast a ballot early and in person at an early voting site before Election Day.

Early voting will be available beginning with the presidential primary in 2024 and every statewide and federal election thereafter.

Check back for additional updates on early voting requirements and information.

Learn more about early voting in Michigan

What is early voting, who can vote early, where can i vote early, when can i vote early, how do i vote early, is early voting secure, how is early voting managed.

In November 2022, Michigan voters overwhelmingly approved a constitutional amendment that gives voters the right to vote early and in person at early voting sites before statewide and federal elections. Communities may also choose to provide early voting for local elections.

Early voting allows a voter to cast a ballot before Election Day, in an experience similar to voting on Election Day.

During the early voting period, voters are issued a ballot and can then insert their ballot directly into a tabulator at their early voting site.

Both early in-person voting and absentee voting allow voters to cast a ballot prior to Election Day. However, there are key differences between the two methods of voting.

Early voting allows voters to cast a ballot similar to how they would do so at a polling place on Election Day. Voters are issued a ballot and can personally insert it into the tabulator at their early voting site.

Absentee voting allows voters to request a ballot by mail or in person at their local clerk’s office. Voters can complete their absentee ballot at home or at their local clerk’s office and submit it in an envelope by mail, in person, or by drop box. After an absentee ballot is received by the local clerk, the voter’s absentee ballot is processed and tabulated by their local clerk.

Absentee voters also have more flexibility to “spoil” their ballot, or change their vote, after it has been submitted.

Learn more about absentee voting.

Yes. In fact, many states have some form of early voting. This includes states with smaller populations such as Delaware, North Dakota, and West Virginia as well as larger states like Florida, Illinois, New York, and Texas.

For more information, visit the National Conference of State Legislature’s brief on early in-person voting .

Any registered voter in Michigan has the right to vote early in person at an early voting site for statewide and federal elections in which they are eligible.

Voters in Michigan can register to vote up to and on Election Day, including during the early voting period.

Learn more about voter registration.

It is recommended that voters be registered to vote at their current address prior to visiting an early voting site. Voter registration is available online at Michigan.gov/Vote. Within 14 days of an election, voters must visit their local clerk’s office and provide proof of residency to register to vote.

Early voting sites do not offer voter registration. However, if an early voting site is located at a clerk’s office or satellite office, voters may register to vote on site at the clerk’s office, and cast a ballot at the early voting site. Contact your local clerk’s office or visit their website to learn more.

Learn more about voter registration .

Find your clerk's information .

No. Voters should remember to bring an acceptable form of photo identification to an early voting site or to the polls on Election Day. However, a photo ID is not required to cast a ballot. Voters without a photo ID, or voters who forgot to bring their photo ID, can still vote after signing an Affidavit of Voter Not in Possession of Picture Identification.

All voters, including voters with disabilities, have the right to vote in person at an early voting site, at a polling place, or by using a standard or accessible absentee ballot.

Early voting sites feature at least one Voter Assist Terminal (VAT), a ballot-marking device that can be used by any voter. VATs also provide assistive tools for voters with visual, hearing, mobility, or other disabilities.

Accessible curbside voting is also available at early voting sites. Voters may contact their local election clerk to request curbside voting. Voters may need to send someone into the early voting site to request curbside voting on their behalf. An election official will then bring the ballot outside for the voter to complete.  

Look up voter assist terminal equipment by county .

Learn more about accessible voting .

Voters can visit an early voting site in their area to cast a ballot in person during the early voting period.

Voters can look up their assigned early voting site(s) up to 60 days prior to Election Day at Michigan.gov/Vote .

An early voting site is like a polling place where voters can cast a ballot prior to Election Day, during the early voting period. Voters from more than one precinct, city, or township may be assigned to a single, shared early voting site.

Voters may only cast a ballot at their assigned early voting site(s). They can look up their assigned early voting site(s) up to 60 days prior to Election Day at Michigan.gov/Vote .

Some voters may only have one assigned early voting site, while others may have several locations to choose from.

At least one early voting site must be available to all voters in every city and township.

Local clerks select the number and location of early voting sites that work best for their community by examining the area’s population density, site accessibility, and expected voter turnout.

Local clerks may also partner with other cities and townships, or their county, to run an early voting site together.

The early voting period takes place for a minimum of nine consecutive days, ending on the Sunday before an election. Communities may decide to provide additional days of early voting, up to 28 days total.

Early voting sites must be open for at least eight hours each day during the early voting period.

Early voting is offered for all statewide and federal elections. Communities may also choose to provide early voting for local elections.

Early voting site locations, dates, and hours are available 60 days prior to Election Day at Michigan.gov/Vote .

Early voting will be available beginning with the 2024 presidential primary. It will be available for the 2024 August primary election, the November 2024 general election, and every statewide and federal election thereafter.

The early voting period begins the second Saturday prior to Election Day and ends the Sunday before an election. However, communities may decide to provide additional days of early voting. Under state law, communities can offer up to 28 days of early voting.

Early voting is provided for local elections (non-federal or state elections) at the discretion of the local clerk. Early voting site locations, dates, and hours are available up to 60 days prior to Election Day at Michigan.gov/Vote . You can also contact your local clerk’s office for more information.

Find your local clerk’s information .

Yes. During each day of the early voting period, eligible voters waiting in line when an early voting site closes have the right to stay in line and cast a ballot.

The following steps can help you make a plan to vote early.

☑ Make sure you are registered to vote, and that your voter registration address is up to date. Check your status or register online .

☑ Within 60 days of a statewide or federal election, lookup your early voting site information at Michigan.gov/Vote .

☑ Review a sample ballot online at Michigan.gov/Vote .

☑ Visit your early voting site during the early voting period to cast a ballot.

Yes. Voters can request an absentee ballot and submit it prior to Election Day by mail, in person at their local clerk’s office, or by drop box.

Voters who no longer wish to use their absentee ballot and who would prefer to vote early in person should bring their absentee ballot to surrender at their early voting site. After surrendering their absentee ballot, a new ballot is issued to complete and submit on-site.

Beginning in the February 27 Presidential Primary election, voters can bring their absentee ballots to an early voting site to insert into a tabulator. The election inspector must verify that voters with absentee ballots are in the correct location and that they have the correct ballot number. Once the election inspector has confirmed this information, the voter can insert a completed absentee ballot into the tabulator, just like at a polling place on Election Day.

Learn more about absentee voting .

Yes, every voter has the right to a secret ballot.

At early voting sites, voters insert their completed ballot into a tabulator, just like at a polling place on Election Day. To protect voter privacy, once a ballot has been inserted into a tabulator, it cannot be traced back to an individual voter.

Ballots inserted in the tabulator are sealed in secure containers each night during the early voting period. After polls close on Election Day, all ballots submitted at an early voting site are totaled and reported, along with the vote totals from absentee and Election Day ballots.

The use of cameras and recording devices in early voting sites is not allowed. However, voters may take a photo of their own ballot while in the voting booth, with nothing else included in the photo. Local clerks may also allow news or media organizations to film quick, panning shots of polling places, but must exclude any voter personal information.

Once a ballot has been inserted into a tabulator, it cannot be changed.

Voters who complete and submit an absent voter ballot by mail, in person at a local clerk’s office, or via drop box, have the option to change their vote by spoiling their original ballot and requesting a new one. The deadline for spoiling an absentee ballot is 5 p.m. on the second Friday before an election.

Voters who insert their absentee ballot into a tabulator at an early voting site cannot spoil their ballot or change their vote.

Learn more about absentee voting and spoiling a ballot .

At early voting sites, voters insert their completed ballot into a tabulator, just like in an Election Day polling place. Ballots inserted into the tabulator are sealed in secure containers every night during the early voting period.

After polls close at 8 p.m. on Election Day, all ballots submitted at an early voting site are totaled and reported, along with the vote totals from absentee and Election Day ballots. Results are posted on local election websites.

Just like voting on Election Day, there are multiple security reviews and checks and balances in the early voting process.

Thousands of Republican, Democratic and independent election clerks, staff and volunteers work together to ensure the early voting process is secure and accurate.

Strict security protocols are enforced to make sure Michigan’s elections system is among the strongest and most secure in the nation.

Learn more about election security in Michigan .

Voting equipment information

Steps taken to ensure secure voting include the following:

☑ Voting equipment used to tabulate ballots are certified by the bipartisan Board of State Canvassers and tested by local election officials before use during early voting.

☑ All voters are checked in at their early voting site to make sure they are registered to vote, and that they have not already voted, before they are issued a ballot.

☑ The early voting electronic pollbook prevents double voting by providing regular updates on voter activity, reflecting when a voter has cast a ballot or been issued an absentee ballot.

☑ Bipartisan groups of election inspectors run early voting sites under the supervision of local clerks.

☑ Voters cast their ballot using paper ballots which are then stored in secure, sealed ballot containers.

☑ Precinct results from ballots cast at early voting sites are not posted until after polls close at 8 p.m. on election night so that no early election results are known or made public.

☑ All early voting site results are reviewed by the bipartisan Board of County Canvassers before certification. Early voting ballots are available for recounts and audits like all other ballots.

Each early voting site accesses the Qualified Voter File, a secure voter records database that sends and receives regular updates of a voter’s ballot activity. Ballot information entered at any early voting site or at a local clerk’s office is regularly uploaded to prevent the issuance of duplicate ballots.

This means that if a voter has already submitted an absentee ballot or an early voting ballot, this information is flagged for election workers to prevent double voting. If a voter submits an absentee ballot, and then votes at an early voting site, only one ballot will be counted

If a voter submits an absentee ballot, and then votes at an early voting site, then the absentee ballot is rejected and does not count.

No. The Qualified Voter File, a secure voter records database, receives regular updates of a voter’s ballot activity. If a voter submits two separate ballots, the system indicates a vote has already been submitted, and the second ballot is not issued. 

Yes. Election observers are an important part of the electoral process to ensure transparency and properly run elections. Volunteer election challengers and poll watchers may observe the voting process at early voting sites as permitted by Michigan election law. All election observers must strictly adhere to proper standards and procedures.

Learn about the appointment, rights and duties of election challengers and poll watchers .

Learn the difference between election inspectors, poll watchers, and challengers .

County and municipal clerks are responsible for implementing and administering early voting for communities.

Local clerks may also partner with another jurisdiction or the county to run early voting together.

Election workers are available at each early voting site to check-in and assist voters, similar to a polling place on Election Day.

Clerks receive training on early voting procedures at in-person training sessions and through online training modules provided by the Michigan Bureau of Elections.

Yes. Workers are paid at the rate determined by the local clerk or the jurisdiction conducting early voting.

Registered voters can sign up to serve as a paid election worker at Michigan.gov/DemocracyMVP .

Learn more about the responsibilities of election inspectors (poll workers) .

Communities across Michigan have the opportunity to receive a state funded grant to purchase election equipment and for administrative costs. Grants are distributed from a $30 million appropriation by the state legislature for the implementation of early voting.

Information on how to apply will be made available as soon as possible.

On Election Day, ballots at a polling place are stored by individual precincts. An early voting site, however, can accommodate voters from several different precincts, cities, and townships, with ballots from several precincts inserted into a single tabulator.

To accommodate voters from multiple precincts, tabulators at early voting sites are programmed to count ballots from different precincts and to record the results by each voter’s individual precinct.

The Michigan Bureau of Elections is actively reviewing best practices from other states and working closely with local county and municipal clerks to finalize a secure and effective procedure for storing early voting ballots.

All ballots submitted in Michigan, whether at an early voting site, a polling place, or by absentee voting, are retained and available for review during the post-election canvass, recount, and audit processes.

All paper ballots submitted in Michigan, whether at a polling place, an early voting site, or through absentee voting, are retained in secure, sealed ballot containers after the election. Each seal has a unique number that is recorded in the poll book by a team of bipartisan election workers.

Michigan election law requires the secure handling of paper ballots. Once early voting is complete and a ballot container is sealed, the seal cannot be broken until the canvass, recount, or audit process begins. An unbroken seal ensures that ballots are in the same condition they were on Election Day.

The Michigan Bureau of Elections is actively working with local county and municipal clerks to determine retention procedures for early voting ballots.