§ 1.993   Insulation criteria for interests in limited partnerships, limited
liability partnerships, and limited liability companies.

   (a) A limited partner of a limited partnership and a partner of a limited
   liability partnership shall be treated as uninsulated within the meaning of
   § 1.992(b)(2)(ii)(A)  unless  the  partner is prohibited by the limited
   partnership agreement, limited liability partnership agreement, or other
   operative agreement from, and in fact is not engaged in, active involvement
   in the management or operation of the partnership and only the usual and
   customary investor protections are contained in the partnership agreement or
   other operative agreement. These criteria apply to any relevant limited
   partnership or limited liability partnership, whether it is the licensee, a
   controlling U.S.-organized parent, or any partnership situated above them in
   the vertical chain of ownership.

   (b) A member of a limited liability company shall be treated as uninsulated
   for purposes of § 1.992(b)(2)(iii)(A) unless the member is prohibited by the
   limited liability company agreement from, and in fact is not engaged in,
   active involvement in the management or operation of the company and only
   the usual and customary investor protections are contained in the agreement.
   These criteria apply to any relevant limited liability company, whether it
   is  the  licensee, a controlling U.S.-organized parent, or any limited
   liability company situated above them in the vertical chain of ownership.

   (c) The usual and customary investor protections referred to in paragraphs
   (a) and (b) of this section shall consist of:

   (1) The power to prevent the sale or pledge of all or substantially all of
   the assets of the limited partnership, limited liability partnership, or
   limited  liability  company  or  a  voluntary filing for bankruptcy or
   liquidation;

   (2)  The  power  to prevent the limited partnership, limited liability
   partnership, or limited liability company from entering into contracts with
   majority investors or their affiliates;

   (3)  The  power  to prevent the limited partnership, limited liability
   partnership, or limited liability company from guaranteeing the obligations
   of majority investors or their affiliates;

   (4) The power to purchase an additional interest in the limited partnership,
   limited liability partnership, or limited liability company to prevent the
   dilution of the partner's or member's pro rata interest in the event that
   the limited partnership, limited liability partnership, or limited liability
   company issues additional instruments conveying interests in the partnership
   or company;

   (5) The power to prevent the change of existing legal rights or preferences
   of the partners, members, or managers as provided in the limited partnership
   agreement, limited liability partnership agreement, or limited liability
   company agreement, or other operative agreement;

   (6) The power to vote on the removal of a general partner, managing partner,
   managing member, or other manager in situations where such individual or
   entity  is subject to bankruptcy, insolvency, reorganization, or other
   proceedings  relating  to the relief of debtors; adjudicated insane or
   incompetent by a court of competent jurisdiction (in the case of a natural
   person);  convicted  of  a  felony; or otherwise removed for cause, as
   determined by an independent party;

   (7) The power to prevent the amendment of the limited partnership agreement,
   limited  liability partnership agreement, or limited liability company
   agreement, or other organizational documents of the partnership or limited
   liability company with respect to the matters described in paragraphs (c)(1)
   through (6) of this section.

   (d) The Commission reserves the right to consider, on a case-by-case basis,
   whether voting or consent rights over matters other than those listed in
   paragraph  (c) of this section shall be considered usual and customary
   investor protections in a particular case.

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