Delaware Business Litigation Report

Court of Chancery Awards Fair Value to Forced-Out LLC Member

Domain Associates LLC v. Shah, C.A. No. 12921-VCL (Del. Ch. Aug. 13, 2018)

An LLC agreement may provide what payout a departing member receives for his or her interest.  It also may provide that a member may be forced to withdraw by his or her other members.  This decision addresses what should happen when an LLC agreement provides for a forced withdrawal but is silent on the issue of the payout.  Adopting the reasoning of a prior Delaware decision in the limited partnership context, the Court holds the forced-out member should receive the same sort of “fair value” awarded in stock appraisal cases.  This is another example of how rules of law or equity may fill in gaps in LLC agreements and why such agreements must be drafted carefully.

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