CHAPTER 4

Standards of Value for Partnership and Limited Liability Company Buyouts

Noah J. Gordon

INTRODUCTION

As with the corporations discussed in Chapter 3, the issue of the appropriate standard of value arises in connection with a buyout, for whatever reason. This includes dissent and oppression in partnerships (general partnerships, limited partnerships, and limited liability partnerships (LLPs)) and limited liability companies (LLCs). These forms of business organizations have become increasingly popular. As they are increasingly used, especially for closely held businesses, understanding the application of the proper standard of value to partnership and LLC buyouts is becoming increasingly important.

The starting point for a determination of the applicable standard of value for these entities is the applicable state statute. As discussed in greater detail in the sections that follow, some state statutes provide for the buyout of an LLC or partnership member's interest upon the partner's or member's dissociation from the entity. As in the corporate context, state statutes may also provide for the buyout of a partner's or member's interest in lieu of dissolution, whether triggered by oppression or other conditions. In addition, a small minority of states provide for partners' or members' dissenters' rights that are similar to those enjoyed by shareholders in a corporation. In some instances, where a state statute provides for buyout, the statute also specifies the standard of value to be applied in determining the value of the interest that will be purchased. Because some states have adopted some versions of the uniform laws promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL), it is also helpful to look to the Uniform Laws for guidance.

Because LLCs and partnerships are primarily creatures of contract, where the owners determine most of the business's governing rules by contract in partnership agreements, operating agreements, or articles of organization, many states do not have a statutory scheme that provides the default rules for buyout or dissent. In the absence of such default rules, and in the absence of governing contractual provisions, case law may provide the appropriate standard of value, and, in some instances, it is arguable that the standard of value used in an analogous corporation statute should be used.

BUYOUT UPON DISSOCIATION

Dissociation is a legal term of art used by a number of LLC and partnership statutes. The term refers to the change in the relationships among the dissociated member or partner, the company, and the other members or partners caused by a member's or partner's ceasing to be associated in the entity's business.1 In some cases, the dissociation of the member or partner can terminate all of the rights and responsibilities that attach to that member's or partner's interest. In other cases, dissociation will result in the termination of a member's right to participate in the business of the LLC or partnership or to exercise any of the rights of a member or partner other than the right to share in the LLC's or partnership's profits, losses, and distributions.2 Events that may trigger dissociation include the member's or partner's voluntary withdrawal, bankruptcy, expulsion, termination, death, or the sale of the member's or partner's entire interest.

In some states, members or partners are entitled to receive payment for the value of their interest upon their dissociation (i.e., buyout), whereas in some states dissociation does not trigger buyout rights. Some states providing for a buyout specify that the applicable standard of value is fair value, and some states specify the factors that a court should consider when determining value under some other standard of value.

BUYOUT IN LIEU OF DISSOLUTION

As with corporations, most states authorize judicial dissolution of partnerships or LLCs upon the occurrence of certain triggering events. However, unlike many corporation statutes, many statutes governing partnerships and LLCs do not expressly provide for buyout in lieu of dissolution, or, if they do, they do not specify the standard of value under which a buyout must occur.

For general partnerships, in some states a partnership may be dissolved upon application of a partner if a court determines that the economic purpose of the partnership is likely to be unreasonably frustrated; another partner has engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with that partner; or it is not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement. Moreover, dissociation almost always causes dissolution in states that have adopted the Uniform Partnership Act (UPA), and is an important cause of dissolution under the Revised Uniform Partnership Act (RUPA) as well. Dissolution in turn results generally in winding up, liquidation, and distribution of the proceeds to the partners. However, even in situations that seem to call for liquidation upon dissolution, courts have permitted buyout rather than compelling liquidation, especially under UPA.3 Because liquidation and dissolution involve substantial costs and are a last-resort remedy, a strong argument can be made that, in the usual situation, the partnership entity and business continue after withdrawal of a partner and that liquidation occurs only in particular circumstances, such as a majority or unanimous vote of the partners for dissolution, or when judicial dissolution is appropriate.4 Moreover, when there is dissolution under the limited partnership statutes (under which limited partnerships are much less dissolvable than general partnerships), the partnership business may be continued by sale as a going concern to some of the partners of the dissolved partnership, to third parties, or through a buyout of some partners (or their estates) by partners who continue the business.5

For LLCs, judicial dissolution may be triggered in the event of deadlock, oppressive behavior, illegal conduct, other stated misconduct, or on the grounds that it is not reasonably practicable to carry on business. However, most—but not all—LLC statutes are silent with regard to the specific remedy of a buyout or its valuation methodology.6

DISSENTERS' RIGHTS

A small minority of states also afford investors in limited partnerships and LLCs dissenters' rights similar to those available to shareholders in corporations.

PARTNERSHIPS AND LIMITED LIABILITY PARTNERSHIPS (LLPS)

This section addresses the buyout provisions in the state partnership/LLP statutes. We begin with the NCCUSL, commonly referred to as the U.S. Uniform Law Commission. This is a nonprofit, unincorporated association headquartered in Chicago, which proposes uniform acts that are then posed to the states as model legislation. The NCCUSL is best known for its work on the Uniform Commercial Code (UCC) drafted in conjunction with the American Law Institute.7 The NCCUSL put forth the UPA in 1914. This act was adopted in every state except Louisiana. UPA's provisions governing a partner's withdrawal were modeled on what is known as the aggregate theory. Under this theory of partnerships, the partnership is viewed “as a collection of sole proprietors engaged in the same business. For example, where one or another general partner is held fully liable for any obligation of the partnership, the partnership is being treated as an aggregation of individuals.”8 Under the aggregate theory, whenever a partner departs, the partnership is legally terminated. If the remaining partners want to continue the partnership, they have to create a new partnership. Under UPA, some courts prohibit a buyout and required a forced sale of assets following dissolution of the partnership, since UPA provided in §38(1) that any partner has a right to compel liquidation of partnership assets in order to receive his share. 9 Under UPA, such a compelled liquidation occurred through a sale of all the partnership assets at an auction—at fair market value. This differs from a buyout, where the dissociating partner's interest is bought at a negotiated or predetermined price by the non-dissociating partners who wish to continue the partnership. Other courts, however, permitted a buyout under UPA on equitable grounds, out of a concern that liquidation would result in a loss of value because of the nature of the asset, market conditions, or the costs and risks of sale.10

In 1992, the NCCUSL proposed a revised UPA, to be known as the RUPA, which was approved by the states. Although many of RUPA's provisions were similar to UPA's provisions, RUPA was based on an entity theory of partnership, as opposed to an aggregate theory. Under RUPA, dissociation of a partner does not terminate the partnership, but triggers a buyout by the partnership of the dissociating partner's interest. Dissolution under RUPA is identical to dissolution under UPA.11 As under UPA, some courts interpreting RUPA permit a buyout to prevent dissolution, whereas other courts mandate a compelled liquidation. Subsequent revisions to RUPA occurred in 1993, 1994, 1996, and 1997, culminating with the 1997 version of RUPA. Wyoming, Montana, and Texas adopted the 1992 version of RUPA. Connecticut, Florida, and West Virginia adopted variations on the 1994 version. In all, the 1997 Act has been adopted in 37 states and the District of Columbia.12

Limited Liability Partnerships

The 1996 Amendments to UPA added the option for partnerships to become LLPs upon registration, thereby providing limited liability for all partners similar to the limited liability enjoyed by shareholders in a corporation. Partners in a general partnership are personally liable for all partnership obligations, so that they may be required to discharge partnership obligations from their own personal assets once partnership assets are exhausted. In a LLP a partner is immune from personal liability for any partnership obligations other than those individually incurred by the partner. A partner who personally incurs an obligation in the conduct of partnership business is fully liable.

In addition to having to register upon election to become a LLP, a partnership that elects to become an LLP must also identify itself as an LLP to those with whom it does business. The registration and identification requirements are to provide clear notice of its limited liability status to those who do business with the partnership.

Notwithstanding LLP status, the partnership is subject to UPA's (RUPA) laws. Therefore, rules that govern such matters as partners' obligations to each other, distributions, dissociation from the partnership, dissolution of the partnership, buyout, and so forth remain the same for LLPs as they do for general partnerships governed by UPA (RUPA).13

As set forth in the following, § 701 of RUPA added a buyout provision, because under the entity theory, dissociation and dissolution are separate pathways following a partner's withdrawal. Section 801 specifies the events that will trigger dissolution. Otherwise, a buyout is mandatory. Thus, in all instances when a partner exits the partnership, either the partnership will be dissolved or the partner will be bought out. Under § 701, a dissociated partner whose dissociation does not result in dissolution under § 801 has the right to a buyout of his or her partnership interest by the remaining partners. Unless the partnership agreement provides otherwise, a buyout is obligatory. The default buyout price governed by § 701(b) provides the dissociated partner with the greater of either “the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner.” The policy behind valuing the partnership assets this way is to provide the dissociating partner with fair compensation whether the business assets are put up for public sale or there is a buyout by the partnership. The Act also allows for payment of damages as reduction from the amount due to the departing partner.

SECTION 701. PURCHASE OF DISSOCIATED PARTNER'S INTEREST.14

If a partner is dissociated from a partnership without resulting in a dissolution and winding up of the partnership business under Section 801, the partnership shall cause the dissociated partner's interest in the partnership to be purchased for a buyout price determined pursuant to subsection (b).

The buyout price of a dissociated partner's interest is the amount that would have been distributable to the dissociating partner under Section 807(b) if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership were wound up as of that date. Interest must be paid from the date of dissociation to the date of payment.

Damages for wrongful dissociation under Section 602(b), and all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, must be offset against the buyout price. Interest must be paid from the date the amount owed becomes due to the date of payment.

These comments provide guidance on the standard of value for the buyout price to be paid to a departing partner. As can be seen, RUPA purposely did not use the terms fair value and fair market value, but instead used the term buyout price. This term appears to be enterprise value without minority discounts, but with marketability discounts and other discounts such as key-person discounts, if appropriate. However, the comments to § 701 state as follows:15

3. Subsection (b) provides how the “buyout price” is to be determined. The terms “fair market value” or “fair value” were not used because they are often considered terms of art having a special meaning depending on the context, such as in tax or corporate law. “Buyout price” is a new term. It is intended that the term be developed as an independent concept appropriate to the partnership buyout situation, while drawing on valuation principles developed elsewhere.

Under subsection (b), the buyout price is the amount that would have been distributable to the dissociating partner under § 807(b) if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of liquidation value or going concern value without the departing partner. Liquidation value is not intended to mean distress sale value. Under general principles of valuation, the hypothetical selling price in either case should be the price that a willing and informed buyer would pay a willing and informed seller, with neither being under any compulsion to deal. The notion of a minority discount in determining the buyout price is negated by valuing the business as a going concern. Other discounts, such as for a lack of marketability or the loss of a key partner, may be appropriate, however.

The comments further explain that:

the § 701 rules are merely default rules. The partners may, in the partnership agreement, fix the method or formula for determining the buyout price and all of the other terms and conditions of the buyout right. Indeed, the very right to a buyout itself may be modified, although a provision providing for a complete forfeiture would probably not be enforceable.16

Opponents of buyouts argue that a private sale does not provide partners with the fair market value of the assets because of the prospect of a higher return at a public auction. This concern can be partially eliminated by ordering judicial supervision of the sale to ensure a fair price. In addition, a buyout is an effective counterbalance to the risk of exploitation brought on by a right to liquidation, where a dissociated partner may compel liquidation simply to freeze out other partners and appropriate the partnership business for herself at less than fair market value.17

Twenty-nine states follow the definition set forth in RUPA that the buyout price of a dissociated partner's interest is the amount that would have been distributable to the dissociating partner if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and if the partnership were wound up as of that date. Interest must be paid from the date of dissociation to the date of payment.18

To this, Montana and Wyoming add that in either case (liquidation value or going-concern value) the selling price of the partnership assets must be determined on the basis of the amount that would be paid by a willing buyer to a willing seller, neither being under any compulsion to buy or sell, and with knowledge of all relevant facts (i.e., appearing to apply a fair market value standard of value).19 However, note that this language is followed in the comment section set forth earlier by the statement, “The notion of a minority discount in determining the buyout price is negated by valuing the business as a going concern. Other discounts, such as for a lack of marketability or the loss of a key partner, may be appropriate, however.”

Fifteen states use the phrase value of his interest in the definition of value, although using different verbiage in the definition. Colorado uses the phrase value of the partners' interest. Louisiana employs the phrase the value that the share of the former partner had at the time membership ceased.

A few states provide for the buyout at fair value. Delaware provides that the buyout price is an amount equal to the fair value of such partner's economic interest as of the date of dissociation based upon such partner's right to share in distributions from the partnership.20 Alabama21 and Texas22 simply provide for buyout at fair value as of the date of dissociation. New Jersey provides that buyout price means the fair value as of the date of withdrawal based upon the right to share in distributions from the partnership unless the partnership agreement provides for another fair value formula.23 Oregon specifies that the buyout price of a dissociated partner's interest is an amount equal to the fair value of the dissociated partner's interest in the partnership on the date of the dissociation, but adds that if the dissociated partner has a minority interest in the partnership, the buyout price of the dissociated partner's interest may not be discounted as a result of such minority interest.24

Exhibit 4.1 on the next page presents the provisions related to the buyout of a disassociated partner in all 50 states and the District of Columbia. For ease of reference, we have presented the definition of value in bold.

EXHIBIT 4.1 Individual States' Definitions of Value under Partnership Statutes

Thirty-seven states and the District of Columbia allow for a buyout of the partner's interest upon any form of dissociation. Thirteen states limit the buyout to retirement or death. Practitioners should consult with their attorney to obtain a definition of retirement in this context.

Thus, for partnerships, as contrasted with corporations, in many states the buyout provision applies not only for matters akin to dissent and oppression, but for retirement or any other reason a partner may dissociate from the partnership.

General Partnership Standard of Value Cases

Louisiana

The following two cases from Louisiana show how the standard of value for partnerships follows the reasoning in corporate dissent and oppression cases. In the first matter, Shopf v. Marina Del Ray Partnership, a partner sought to be bought out of his partnership interest. He requested to be bought out at fair market value and the court applied a minority discount following the reasoning of fair market value. In the second matter, Cannon v. Bertrand, the court followed fair value reasoning and declined to apply a minority discount, arguing that the remaining partners would suffer no lack of control. We suggest that a practitioner consult with an attorney on the applicability of the buyout provision and the standard of value for partnership buyouts within their jurisdiction.

The issue of the buyout of an interest held by a deceased partner's estate arose in a New York case. The New York partnership statute (N.Y. Consolidated Law Service Partnership 73 (LexisNexis 2012)) provides that when a partner dies or retires and the business continues, the depository partner, or representative of his estate, has the right to receive the “value of his interests at the date of dissolution ascertained.” The New York Appellate Court interpreted the value of his interest to be without minority and marketability discounts for a deceased partner. The court distinguished between the value for federal estate tax purposes where minority and marketability discounts would be applicable and the actual payment to the deceased partner's estate where they would not be applicable.

Limited Partnerships

Limited partnerships are partnerships that have limited partners who have little control over the partnership and general partners who exercise strong centralized, entrenched management over the partnership. Although limited partnerships are governed to some degree by the law of contracts, property, agency, equity, and trust, they are primarily governed by state statute.25 Most of the states have generally adopted one or more iterations of uniform limited partnership acts promulgated by the NCCUSL.

The first of these, the Uniform Limited Partnership Act (ULPA), was promulgated in 1916, and, with the UPA, has been the basic law governing partnerships in the United States. The first revision of ULPA after 1916 occurred in 1976, and there were further amendments in 1985. The 1975 Act along with the 1985 amendments thereto is commonly referred to as the Revised Uniform Limited Partnership Act (RULPA).26 Further changes were made in 2001 to modernize the Act. This included changes that addressed the modern needs of estate planning arrangements, by accommodating the so-called family limited partnership (FLP). That version is commonly referred to as ULPA 2001, although some refer to it as “Re-RULPA.”27 Here, we refer to it as ULPA 2001. When the states adopt any of these uniform acts, they are free to enact nonuniform language and provisions, so some states' acts may vary from the uniform acts.

Significantly, ULPA 2001 is a standalone act, delinked from both the original general partnership act (UPA) and the RUPA. ULPA 2001 incorporates many provisions from RUPA and some from the Uniform Limited Liability Company Act (ULLCA).28 Linkage refers to the concept of filling gaps in limited partnership law with rules governing general partnerships. Both ULPA and RULPA link to general partnership law. Delinkage of the law began with RUPA, which excluded from its scope the limited partnership. Even though ULPA 2001 delinked from UPA and RUPA, only a minority of states have adopted it.29 ULPA and RULPA were adopted in 49 states (except Louisiana), the District of Columbia, and the U.S. Virgin Islands.30 A few states enacted RULPA without repealing ULPA. Thus, some limited partnerships may be governed by ULPA, RULPA, or ULPA 2001.31

Limited partnerships should be distinguished from LLPs, discussed previously. The LLP, called a registered limited liability partnership in some states, is a form of general partnership in which general partners are not personally liable for some or all kinds of partnership debts and obligations.32 ULPA 2001 also provides for limited liability limited partnership (LLLP) status, which is expressly available to provide a full liability shield to all general partners of a limited partnership.

Effect of Dissociation

RULPA §§ 603 and 604 permitted a limited partner to withdraw on six months' notice and receive the fair value of the limited partnership interest, unless the partnership agreement provided the limited partner with some exit right or stated a definite duration for the limited partnership. However, under ULPA 2001 § 505, “[a] person does not have a right to receive a distribution on account of dissociation.” Instead, a partner that dissociates becomes a transferee of its own transferable interest under §§ 602(a)(3) (person dissociated as a limited partner) and 605(a)(5) (person dissociated as a general partner), although this default rule may be altered in the partnership agreement. Under this default rule, blocking the limited partners' exit allows the members to claim a valuation discount for estate tax purposes.33 Limited partnerships that provide for a general partner's right to dissociate arguably can be expected also to provide for buyout rights in the agreement.34

Dissent

California provides partners in a limited partnership with dissenters' rights similar to those enjoyed by shareholders in a corporation.35 The standard of value for determining the value of a partner's interest in California is fair market value.36 Florida also provides limited partnerships with appraisal rights. For this purpose, in Florida, fair value means the value of the limited partner's partnership interests determined: (a) immediately before the effectuation of the appraisal event to which the partner objects; (b) using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal, excluding any appreciation or depreciation in anticipation of the transaction to which the partner objects unless exclusion would be inequitable to the limited partnership and its remaining partners; (c) for a limited partnership with 10 or fewer limited partners, without discounting for lack of marketability or minority status.37

Dissolution

The vast majority of states provide that on application by a partner, a court may order dissolution of a limited partnership if it is not reasonably practicable to carry on the activities of the limited partnership in conformity with the partnership agreement.38

Michigan provides for dissolution of a limited partnership on application of a partner where it is established that the acts of the general partners or those of the general partners in control of the limited partnership are illegal, fraudulent, or willfully unfair and oppressive to the limited partnership or to the partner.39

Texas, while not specifying oppression as a ground for dissolution, provides that dissolution may be had where another partner has engaged in conduct relating to the partnership's business that makes it not reasonably practicable to carry on the business in partnership with that partner—ostensibly covering situations of illegality or oppression.40

Distribution upon Partner's Withdrawal

Some states provide that, if not otherwise provided in the partnership agreement, the withdrawing partner is entitled to receive, within a reasonable time after withdrawal, the fair value of his or her interest in the limited partnership as of the date of withdrawal based upon the withdrawing partner's right to share in distributions from the limited partnership. These include Alaska,41 Colorado,42 Connecticut,43 Delaware,44 Georgia,45 Indiana,46 Kansas,47 Maryland,48 Massachusetts,49 Michigan,50 Mississippi,51 Montana,52 Nebraska,53 New Hampshire,54 New Jersey,55 New York,56 North Carolina,57 Ohio,58 Oregon,59 Pennsylvania,60 Rhode Island,61 South Carolina,62 South Dakota,63 Tennessee,64 Texas,65 Vermont,66 West Virginia,67 Wisconsin,68 and Wyoming.69

Missouri, while also using a fair value standard of value, provides that if the partnership agreement does not provide for a distribution to which a withdrawn partner is entitled, the withdrawn partner becomes an assignee of the partner's interest, but the partnership may thereafter purchase the withdrawn partner's interest in the partnership, for the fair value of the withdrawn partner's interest in the partnership as of the date of withdrawal based upon such withdrawn partner's right to share in distributions from the partnership as an ongoing business.70 Oregon, which also applies a fair value standard of value, provides that the fair value of the withdrawing partner's interest is determined by assuming that any distribution to which the withdrawing partner is otherwise entitled has been made.71

Exhibit 4.2 (on page 220) shows examples of the standard of value set forth in certain state statutes.

EXHIBIT 4.2 Limited Partnerships

Limited Partnership Cases Rejecting Discounts

The courts in Arkansas, Kansas, and Maryland have rejected the use of discounts in the valuation of a withdrawing partner's interest.

LIMITED LIABILITY COMPANIES, GENERALLY

A limited liability company (LLC) is a flexible form of enterprise that blends elements of partnership and corporate structures, thereby providing limited liability to its investors, who are referred to as members rather than shareholders or partners. Members are also afforded favorable partnership tax treatment and extensive freedom to contractually arrange the business. Whereas LLC statutes provide default rules for the operation of LLCs, LLCs are primarily creatures of contract, and LLC operating agreements and other agreements typically can alter the default rules on most issues.72 In the United States, the LLC form of organization dates back to 1977, although it did not receive significant attention until disadvantageous federal income tax treatment to which it had been subject in its early years was changed in 1988.73 In recent years, the LLC has emerged as the favored business structure for many closely held enterprises, and LLC filings have been soaring.74 However, to date there is no uniform or consensus framework for LLCs, even though all jurisdictions have enacted LLC statutes. Thus, in generalizing about the laws that apply to LLCs, it is useful to use the uniform LLC acts propounded by the National Conference of Commissioners on Uniform State Laws (NCCUSL) as a framework and starting point, even though such uniform acts have not been widely adopted.

Uniform Acts

In 1996, the NCCUSL approved and recommended for enactment in all the states the Uniform Limited Liability Company Act (ULLCA) to govern LLCs. ULLCA was enacted in Alabama, Hawaii, Illinois, Montana, South Dakota, and the U.S. Virgin Islands.75 Ten years later, in 2006, the NCCUSL approved the Revised Uniform Limited Liability Company Act (RULLCA). As of the time of publication of this book, RULLCA was enacted in District of Columbia, Idaho, Iowa, Nebraska, New Jersey (effective March 18, 2013, for newly formed LLCs and March 2014 for all LLCs including existing LLCs formed under New Jersey's current LLC statute),76 Utah (effective July 1, 2013), and Wyoming, and it had been legislatively introduced in California, Kansas and Minnesota.77 Whereas ULLCA had not provided a statutory remedy for oppressive behavior, RULLCA does. Its oppression remedy appears in the section concerning dissolution. Section 701(a)(5) authorizes a court to dissolve a limited liability company:

on application by a member, . . . on the grounds that the managers or those members in control of the company:

(A) have acted, are acting, or will act in a manner that is illegal or fraudulent; or

(B) have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant.78

Section 701(b) authorizes a court to “order a remedy other than dissolution.”79 The operating agreement cannot alter § 701(a)(5) but may limit or even eliminate subsection (b).80 Thus, the default remedy is dissolution, but RULLCA provides a possible, less draconian alternative to dissolution. If the members in their operating agreement choose to override this alternative, provided in § 701(b), they will effectively limit the court and themselves to the all-or-nothing remedy of dissolution. A frequently used alternative to dissolution has been buyout in lieu of dissolution. As the drafting committee of RULLCA noted: “In the close corporation context, many courts have reached this position without express statutory authority, most often with regard to court-ordered buyouts of oppressed shareholders. The Drafting Committee preferred to save courts and litigants the trouble of re-inventing that wheel in the LLC context.”81

Buyout in Lieu of Dissolution

Thus, under RULLCA and the statutes of many states, once a court has determined that there has been unfairly prejudicial or oppressive conduct on the part of a majority owner, or when it is “no longer reasonably practicable” to carry on the business of the LLC or management is deadlocked, a court-ordered buyout will often be the court's remedy of choice, as typically such a remedy is less draconian than dissolution. “Oppression” and similar grounds of prejudicial or illegal conduct have evolved from statutory grounds for involuntary dissolution to statutory grounds for a wide variety of relief, including buyout.82 Unless a controlling LLC agreement establishes guidelines for determining a buyout price, the court will be faced with the issue of valuing the oppressed member's interest. This may occur more often than not, given the low likelihood that the operating agreement will provide buyout guidance. Although the LLC structure is likely to produce some ex ante bargaining between the members, this is no guarantee that effective planning for dissension will occur,83 let alone for how to value members' interests.84 Thus, the judicial role is likely to continue to be significant in buyout disputes.

New Jersey does not provide for the buyout of an oppressed minority member. Under RULLCA Article 7 (Dissolution and Winding Up)85

RULLCA provides remedies for oppressed minority owners. RULLCA permits a member to seek a court order dissolving the company on the grounds that the managers or those members in control of the company have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the member. RULLCA also permits a member to seek (or, in its equitable discretion, a court to order in lieu of dissolution) a less drastic remedy such as the appointment of a custodian.

Article 7 also provides for the sale of the members interest to either the LLC, or any other member or members of the LLC, if the court deems it fair and equitable to all parties.

However, because LLCs are a relatively new form of business organization, there is not much statutory or case law guidance for the proper approach to making such valuations.86 In the absence of precedent addressing LLC buyouts, the court may want to look for guidance in the jurisdiction's case law interpreting buyout provisions in the state's corporate and partnership statutes. Some commentators argue that the most appropriate standard of value to apply in these cases is fair value without the application of minority or marketability discounts, reasoning that such buyouts are coercive, there is a need to deter oppressive majority conduct, and the discounts inject uncertainty into the valuation process. They further reason that the goal of such buyouts is not to closely simulate a market sale, but rather to provide a sensible remedy for the deprivation of an investment that the LLC owner would have otherwise continued to own.87 In any event, as previously discussed, the state's LLC statutes are not uniform in their treatment of the standard of value to be applied in buyout situations, with many not addressing the issue at all.

In a majority of states, an LLC may be dissolved in a proceeding by or for a member or manager of the LLC if it is established that it is not reasonably practicable to carry on the business of the LLC in conformity with the operating agreement. Many also provide for dissolution if management is deadlocked or subject to internal dissention, dissolution is reasonably necessary for the protection of the rights or interests of the complaining members, or the business of the LLC has been abandoned.

Some states permit dissolution on application by or for a member where the members or managers of the LLC have acted or are acting in a manner that is illegal or fraudulent with respect to the LLC's business. These include Arizona,88 California,89 the District of Columbia,90 Idaho,91 Iowa,92 Kansas,93 Maine,94 Minnesota,95 Montana,96 Nebraska,97 New Hampshire,98 New Jersey,99 North Dakota,100 South Carolina,101 South Dakota,102 Utah,103 Vermont,104 West Virginia,105 Wisconsin,106 and Wyoming.107

Some states also provide for dissolution on application by or for a member where the other members or managers have engaged in oppression or have acted in a manner unfairly prejudicial toward one or more members or managers. These include the District of Columbia,108 Idaho,109 Iowa,110 Minnesota,111 Montana,112 Nebraska,113 New Hampshire,114 New Jersey,115 North Carolina,116 North Dakota,117 South Carolina,118 Utah,119 Vermont,120 West Virginia,121 Wisconsin,122 and Wyoming.123 Of the states providing for dissolution of an LLC based on member oppression, Minnesota,124 Nebraska,125 North Carolina,126 North Dakota,127 and Utah128 provide for a buyout election in lieu of dissolution, or for a court-ordered buyout in lieu of dissolution.

California129 and Utah130 provide for buyout in lieu of dissolution (for whatever reason) at fair market value. In California, if the parties are unable to agree on the buyout price, the court is directed to appoint three disinterested appraisers to appraise the value of the interest to be bought out. Utah provides that the court may make the valuation based on the factors the court determines to be appropriate.

In Illinois, in addition to being triggered by other factors, dissolution may be triggered if a dissociating member is not paid his or her distributional interest if the member's dissociation would not otherwise result in a dissolution and winding up of the company's business.131 Thus, to avoid dissolution in such an instance, the distributional interest must be paid at fair value, with the court considering among other relevant evidence the going-concern value of the company, any agreement among some or all of the members fixing the price or specifying a formula for determining value of distributional interests for any other purpose, the recommendations of any appraiser appointed by the court, and any legal constraints on the company's ability to purchase the interest.132

Withdrawal and Buyout

There is no uniform way the states handle the withdrawal or resignation of an LLC member. Under ULLCA, the LLC is required to purchase a dissociated member's interest for its “fair value” if the member's dissociation does not result in a dissolution and winding up of the company's business.133 If a member is dissociated by an LLC that is not entered into for a term (an at-will LLC), the member's interest must be purchased for its fair value as determined as of the date of the member's dissociation.134 If the LLC is entered into for a term (a term LLC), the member's interest must be purchased at the expiration of the specified term that existed on the date of the member's dissociation and for its fair value as of the date of the expiration of the LLC's term (unless the dissociation causes the LLC to dissolve).135 Although the ULLCA does not define the term fair value, if a dissociated member and the LLC cannot reach an agreement as to the fair value of the interest, such value may be judicially determined.136 A court is authorized to consider, among other relevant evidence, the going-concern value of the LLC, any agreement among some or all of the members fixing the price or specifying a formula for determining the value of the LLC interests for any other purpose, the recommendations of any appraiser appointed by the court, and any legal constraints on the LLC's ability to purchase the interest.137 The default value is “fair value,” and the court is free to determine the fair value of an LLC interest on a fair market, liquidation, or any other basis deemed appropriate under the circumstances. A fair market value standard is not used because it is too narrow, often inappropriate, and assumes a willing buyer and a willing seller, which is a factor not contemplated by ULLCA.138

Some states provide that upon withdrawal or disassociation, a withdrawing or disassociated member is entitled to receive any distribution to which the member is entitled under the articles of organization or operating agreement, and, if not otherwise provided in the articles of organization and operating agreement, the withdrawing/disassociated member is entitled to receive, within a reasonable time after withdrawal, the value of the withdrawing member's interest in the LLC as of the date of resignation based upon the member's right to share in distributions from the LLC. Included among these states are Florida (fair value),139 Louisiana (fair market value),140 Massachusetts (fair value),141 Michigan (fair value),142 Mississippi (fair value),143 Missouri (fair value, determined by excluding business goodwill),144 Montana (fair value),145 Nevada (fair market value),146 New Mexico (fair market value),147 New York (fair value),148 North Carolina (fair value),149 Pennsylvania (fair value),150 South Carolina (fair value),151 Tennessee (fair value;152 however, for LLCs formed prior to 1999, the lesser of the fair market value of the withdrawing or terminating member's interest determined on a going-concern basis or the fair market value of the withdrawing member's interest determined on a liquidation basis153), Texas (fair value),154 Vermont (fair value),155 West Virginia (fair value),156 and Wisconsin (fair value).157

In Illinois,158 Montana,159 South Carolina,160 Tennessee,161 Vermont162 and West Virginia,163 in determining fair value, the court must consider the going-concern value of the company, any agreement among some or all of the members fixing the price or specifying a formula for determining value of distributional interests for any other purpose, the recommendations of any appraiser appointed by the court, and any legal constraints on the company's ability to purchase the interest.

In Mississippi, the fair value of the member's financial interest must be determined using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal, and without discounting for lack of marketability or minority status.164

In New Jersey, under RULLCA,

a resigning owner is no longer entitled to receive the fair values of his or her LLC interest as of the date of resignation. Rather, upon resignation, the resigning owner is dissociated as a member and only has the rights of an economic interest holder.165

In Kansas, if not otherwise provided in the operating agreement, the resigning member is not entitled to receive the fair value of the member's limited liability company interest until the dissolution and winding up of the limited liability company.166

Other states, for example, New Hampshire,167 Ohio,168 and Rhode Island,169 provide that upon the withdrawal of a member, except as otherwise provided in writing in an operating agreement, the withdrawn member and his or her legal representatives, successors, and assigns do not have the right to receive any distribution by reason of the withdrawal but have only the rights of an assignee to receive distributions as to the withdrawn member's interest during any continuation of the business of the limited liability company and upon completion of winding up less any damages recoverable against the withdrawn member if the event of withdrawal violated the limited liability company's operating agreement.

Dissenters' Rights

As LLCs have become increasingly used business entities, states increasingly have endowed LLCs with rights similar to those enjoyed by corporations. Thus, a minority of states provide LLC members with dissenters' rights akin to those enjoyed by shareholders of corporations.

Typically, the states define the standard of value for dissenters' rights of LLC members in the same manner as they define that standard for corporation shareholders. This is the case in Florida,170 Georgia,171 Minnesota,172 North Dakota,173 Ohio,174 Tennessee,175 and Washington.176 In New Hampshire, while the definition is similar to that used for corporations, the definition for LLCs does not provide an exception for exclusion of appreciation or depreciation in anticipation of the limited liability action, whereas for corporations such an exception is made if exclusion would be inequitable.177 In California, where LLC dissenters are paid for their interests at fair market value,178 the exception where exclusion would be inequitable is made for LLCs, but not corporations.179 The New Jersey statute is silent on dissenter rights.

Professional LLCs

For LLCs used for performing professional services, some states provide a standard of value for certain distributions. In Alabama, a terminated professional is entitled to the fair value of the professional's interest upon disqualification or death, with the same rules applying to professional LLCs as to professional corporations.180 In Mississippi, the disqualified member is entitled to judgment for the fair value of the disqualified person's membership interest determined by the court as of the date of death, disqualification, or transfer. Fair value is determined using the 1999 RMBCA standard—namely, fair value means the value of the membership interest of the professional limited liability company determined using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal and without discounting for lack of marketability or minority status.181 In Virginia, absent a provision specifying the value to be paid to the terminated professional member, the LLC must pay the book value of the interest, determined as of the end of the month immediately preceding the event that terminated the membership of the former member.182

Exhibit 4.3 presents examples of the standard of value followed in certain states.

EXHIBIT 4.3 Limited Liability Company

LLC Decisions

While there are not a great deal of published decisions on the buyout of member interests in LLCs, in the following two cases, the courts in Rhode Island and New Jersey rejected minority and marketability discounts.

SUMMARY

As explained in this chapter, partnerships, including limited liability partnerships, limited partnerships, and limited liability companies, are being increasingly used as business vehicles in lieu of corporations. To address the issues of governance including buyouts, the NCCUSL established model laws for each of these entities. In turn, many states address the buyout of disassociating owners in their statutes. Lastly, a body of case law is beginning to develop on these issues. As always, practitioners should seek guidance from these sources and the attorney with whom they are working to determine the applicable standard of value for the specific situation.

1 See Uniform Limited Liability Company Act, § 601 comment (1996; available at https://www.law.upenn.edu/library/archives/ulc/fnact99/1990s/ullca96.htm).

2 See, e.g., Susan Kalinka, “Dissociation of a Member from a Louisiana Limited Liability Company: The Need for Reform,” 66 La. L. Rev. 365 (Winter 2006).

3 Alan R. Bromberg and Larry E. Ribstein, Bromberg and Ribstein on Partnership, § 7.11(f) (2012).

4 Id., at §§ 7.01(d), 7.11(h).

5 Id., at § 17.11(a).

6 Sandra K. Miller, “Discounts and Buyouts in Minority Investor LLC Valuation Disputes Involving Oppression or Divorce,” 13 U. Pa. J. Bus. L. 607, pp. 618–620 (Spring 2011).

7 The National Conference of Commissioners on Uniform State Laws. Uniform Law Commission. (2012; www.uniformlaws.org).

8 Burton J. DeFren, Partnership Desk Book (Minnetonka, MN: Olympic Marketing Corp., June 1978), at 103.

9 Unif. P'ship Act § 38(1) (1914).

10 Alan R. Bromberg and Larry E. Ribstein, Bromberg and Ribstein on Partnership, § 7.11(f) (1988 & Supp. 2007).

11 Tiffany A. Hixson, “Note, The Revised Uniform Partnership Act—Breaking Up (Or Breaking Off) Is Hard To Do: Why the Right to ‘Liquidation' Does Not Guarantee a Forced Sale upon Dissolution of the Partnership,” 31 W. New Eng. L. Rev., 797, 799.

12 Nicole Julal, Legislative Fact Sheet: Partnership Act, Uniform Law Commission (2012; www.uniformlaws.org/LegislativeFactSheet.aspx?title=Partnership%20Act). States that have enacted RUPA are: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

13 Nicole Julal, Legislative Fact Sheet: Partnership Act, Uniform Law Commission (2012; www.uniformlaws.org/LegislativeFactSheet.aspx?title=Partnership%20Act).

14 National Conference of Commissioners on Uniform State Laws, RUPA § 701, Purchase of Dissociated Partner's Interest (2012; www.uniformlaws.org).

15 Id.

16 National Conference of Commissioners on Uniform State Laws, RUPA § 701, Purchase of Dissociated Partner's Interest (2012; www.uniformlaws.org).

17 See Hixson, supra note 11, at 806–807.

18 See, e.g., Alaska Stat. § 32.06.701(b) (2012); N.D. Cent. Code, § 45-19-01 (2012).

19 Mont. Code Anno., § 35-10-619(2)(b) (2011).

20 6 Del. C. § 15-701(b) (2012).

21 Code of Ala. § 10A-8-7.01(b) (2012).

22 Tex. Business Organizations Code § 152.602(a) (2012).

23 N.J. Stat. § 42:1A-34(b) (2012).

24 ORS § 67.250(2) (2011).

25 Alan R. Bromberg and Larry E. Ribstein, Bromberg and Ribstein on Partnership, § 11.01(a) (2003).

26 See http://uniformlaws.org/ActSummary.aspx?title=Limited%20Partnership%20Act (this is the official website of the NCCUSL).

27 See, e.g., Elizabeth S. Miller, “Closely-Held Business Symposium: The Uniform Limited Partnership Act: Linkage and Delinkage: A Funny Thing Happened to Limited Partnerships When the Revised Uniform Partnership Act Came Along,” 37 Suffolk U. L. Rev., 891 (2004).

28 Id.

29 ULPA 2001 has been adopted in: Alabama, Arkansas, California, District of Columbia, Florida, Hawaii, Idaho, Illinois, Iowa, Kentucky, Maine, Minnesota,

Montana, Nevada, New Mexico, North Dakota, Oklahoma, Utah, and Washington (http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Limited%20Partnership%20Act).

30 http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Limited%20Partnership%20Act.

31 For a thorough discussion of linkage issues, see Elizabeth S. Miller, “Closely-Held Business Symposium: The Uniform Limited Partnership Act: Linkage and Delinkage: A Funny Thing Happened to Limited Partnerships When the Revised Uniform Partnership Act Came Along,” 37 Suffolk U. L. Rev., 891 (2004).

32 Bromberg and Ribstein on Partnership, § 11.01(a) (2003).

33 Alan R. Bromberg and Larry E. Ribstein, Bromberg and Ribstein on Limited Liability Partnerships, the Revised Uniform Partnership Act, and the Uniform Limited Partnership Act, § 9.505 (2012); 26 U.S.C. § 2704.

34 Id., at § 9.605.

35 Cal. Corp. Code § 15911.22(a) (2012).

36 Cal. Corp. Code § 15911.22(c) (2012).

37 Fla. Stat. § 620.2113(4) (2012); for a discussion of Florida's treatment of discounts in this context, see Rebecca C. Cavendish and Christopher W. Kammerer, “Determining the Fair Value of Minority Ownership Interests in Closely Held Corporations: Are Discounts For Lack of Control and Lack of Marketability Applicable?” 82 Fla. Bar J., 10 (Feb. 2008).

38 See, e.g., Md. Corporations and Associations Code Ann. § 10-802 (2012); ALM GL ch. 109, § 45 (2012); Minn. Stat. § 321.0802 (2012).

39 MCLS § 449.1802 (2012).

40 Tex. Business Organizations Code § 11.314(1)(B) (2012).

41 Alaska Stat. § 32.11.270 (2012).

42 C.R.S. 7-62-604 (2011).

43 Conn. Gen. Stat. § 34-27d (2012).

44 6 Del. C. § 17-604 (2012).

45 O.C.G.A. § 14-9-604 (2012).

46 Burns Ind. Code Ann. § 23-16-7-4 (2012).

47 K.S.A. § 56-1a354 (2011).

48 Md. Corporations And Associations Code Ann. § 10-604 (2012).

49 ALM GL ch. 109, § 34 (2012).

50 MCLS § 449.1604 (2012).

51 Miss. Code Ann. § 79-14-604 (2011).

52 Mont. Code Anno., § 35-12-1004 (20101).

53 R.R.S. Neb. § 67-266 (2012).

54 RSA 304-B:34 (2012).

55 N.J. Stat. § 42:2A-42 (2012).

56 N.Y. CLS Partn. § 121-604 (2012).

57 N.C. Gen. Stat. § 59-604 (2012).

58 ORC Ann. 1782.34 (2012).

59 ORS § 70.260 (2011).

60 15 Pa.C.S. § 8554 (2012).

61 R.I. Gen. Laws § 7-13-34 (2012).

62 S.C. Code Ann. § 33-42-1040 (2011).

63 S.D. Codified Laws § 48-7-604 (2012).

64 Tenn. Code Ann. § 61-2-604 (2012).

65 Tex. Business Organizations Code § 153.111 (2012).

66 11 V.S.A. § 3454 (2012).

67 W. Va. Code § 47-9-34 (2012).

68 Wis. Stat. § 179.54 (2012).

69 Wyo. Stat. § 17-14-704 (2012).

70 § 359.351 R.S.Mo. (2012).

71 ORS § 70.260 (2011).

72 See, e.g., 6 Del. C. § 18-1101(b) (2012) (“It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.”).

73 Larry E. Ribstein and Robert R. Keatinge, Ribstein and Keatinge on Limited Liability Companies 1:1, at 1-1 (2nd ed. 2004).

74 Sandra K. Miller, “Discounts and Buyouts in Minority Investor LLC Valuation Disputes Involving Oppression or Divorce,” 13 U. Pa. J. Bus. L., 607 (Spring 2011).

75 http://uniformlaws.org/LegislativeFactSheet.aspx?title=Limited%20Liability%20Company%20%281995%29%281996%29.

76 N.J. Stat. § 42:2C-48 (2012).

77 http://uniformlaws.org/LegislativeFactSheet.aspx?title=Limited%20Liability%20Company%20%28Revised%29.

78 Revised Uniform Limited Liability Company Act § 701(a)(5).

79 Id., at § 701(b).

80 Daniel S. Kleinberger and Carter G. Bishop, “The Next Generation: The Revised Uniform Limited Liability Company Act,” 62 Bus. Law., 515 (February 2007), noting that whereas § 110(c)(7) provides that an operating agreement may not “vary the power of a court to decree dissolution in the circumstances specified in Section 701(a) . . . (5)),” § 110(c) does not mention § 701(b), so that the operating agreement has plenary power over that provision.

81 RULLCA, 2005 Annual Meeting Draft, § 701(b), Reporters' Notes.

82 Douglas K. Moll, “Minority Oppression and the Limited Liability Company: Learning (Or Not) from Close Corporation History,” 40 Wake Forest L. Rev., 883 (Fall 2005).

83 Id., at 955.

84 See Sandra K. Miller, “What Buy-Out Rights, Fiduciary Duties, and Dissolution Remedies Should Apply in the Case of the Minority Owner of a Limited Liability Company?,” 38 Harv. J. on Legis., 413, at 416–417, 421 (2001) (indicating that operating agreements do not typically provide minority owners with certain buyout and dissolution rights). See also Sandra K. Miller, “A New Direction for LLC Research in a Contractarian Legal Environment,” 76 S. Cal. L. Rev., 351 (2003) (indicating that many LLC agreements are based on form agreements that are not extensively negotiated, and providing empirical data that even many attorneys lack familiarity with default buyout rights of LLC members).

85 N.J. Stat. § 42:2C-48 (2012).

86 See generally, Sandra K. Miller, “Discounts and Buyouts in Minority Investor LLC Valuation Disputes Involving Oppression or Divorce,” 13 U. Pa. J. Bus. L., 607 (Spring 2011).

87 Id., at 651.

88 A.R.S. § 29-785(3) (2012).

89 Cal. Corp. Code § 17351(5) (2012).

90 D.C. Code § 29-807.01(a)(5)(A) (2012).

91 Idaho Code § 30-6-701(e)(i) (2012).

92 Iowa Code § 489.701 1.e.(1) (2012).

93 K.S.A. § 17-76, 117(a) (2011).

94 31 M.R.S. § 1595 1.E. (2011).

95 Minn. Stat. § 322B.833 Subd. 1(2)(ii) (2012).

96 Mont. Code Anno., § 35-8-902(1)(e) (2011).

97 R.R.S. Neb. § 21-147(a)(5)(A) (2012).

98 RSA 304-C:51(IV) (2012).

99 N.J. Stat. § 42:2C-48 (2012).

100 N.D. Cent. Code, § 10-32-119 1.b.(2) (2012).

101 S.C. Code Ann. § 33-44-801(4)(e) (2011).

102 S.D. Codified Laws § 47-34A-801(a)(4)(iv) (2012).

103 Utah Code Ann. § 48-3-701(5) (2012).

104 11 V.S.A. § 3101(5)(E) (2012).

105 W. Va. Code § 31B-8-801(5)(v) (2012).

106 Wis. Stat. § 183.0902(3), (4) (2012).

107 Wyo. Stat. § 17-29-701(a)(iv)(A), (a)(v)(A) (2012).

108 D.C. Code § 29-807.01(a)(5)(B) (2012).

109 Idaho Code § 30-6-701(e)(ii) (2012).

110 Iowa Code § 489.701 1.e.(2) (2012).

111 Minn. Stat. § 322B.833 Subd. 1(2)(ii) (2012).

112 Mont. Code Anno., § 35-8-902(1)(e) (2011).

113 R.R.S. Neb. § 21-147(a)(5)(B) (2012).

114 RSA 304-C:51(VII) (2012) (where oppression is specified as a ground for judicial dissolution in the LLC agreement).

115 N.J. Stat. § 42:2C-48 (2012).

116 N.C. Gen. Stat. § 57C-6-02(2)(ii) (2012) (where liquidation is reasonably necessary for the protection of the rights or interests of the complaining member) or N.C. Gen. Stat. § 57C-6-02(2)(iv) (2012) (where the articles of organization or a written operating agreement entitles the complaining member to dissolution of the LLC).

117 N.D. Cent. Code, § 10-32-119 1.b.(2) (2012) (where the governors or those in control of the LLC have acted in a manner unfairly prejudicial toward a member).

118 S.C. Code Ann. § 33-44-801(4)(e) (2011).

119 Utah Code Ann. § 48-3-701(5) (2012).

120 11 V.S.A. § 3101(5)(E) (2012).

121 W. Va. Code § 31B-8-801(5)(v) (2012).

122 Wis. Stat. § 183.0902 (3), (4) (2012).

123 Wyo. Stat. § 17-29-701(a)(v)(B) (2012).

124 Minn. Stat. § 322B.833 Subd. 2 (2012).

125 R.R.S. Neb. § 21-147(b) (2012).

126 N.C. Gen. Stat. § 57C-6-02.1(d) (2012) (after dissolution has been okayed by court).

127 N.D. Cent. Code, § 10-32-119(2) (2012) (it is within court's discretion whether to order buyout).

128 Utah Code Ann. § 48-3-702 (2012).

129 Cal. Corp. Code § 17351(b) (2012).

130 Utah Code Ann. § 48-2c-1214(4) (2012) (effective until July 1, 2013, when it is replaced with Utah Code Ann. § 48-3-702).

131 805 ILCS 180/35-1 (2012).

132 805 ILCS 180/35-65(1) (2012).

133 Uniform Limited Liability Company Act § 701(a).

134 Uniform Limited Liability Company Act § 701(a)(1).

135 Uniform Limited Liability Company Act § 701(a)(2).

136 Uniform Limited Liability Company Act § 701(d), (e).

137 Uniform Limited Liability Company Act § 702(a)(1).

138 Uniform Limited Liability Company Act § 702, comment.

139 Fla. Stat. § 608.427(2) (2012).

140 La.R.S. 12:1325(C) (2012).

141 ALM GL ch. 156C, § 32 (2012).

142 MCL § 450.4305 (2012).

143 Miss. Code Ann. § 79-29-603 (2011).

144 § 347.103 2(1) R.S.Mo. (2012).

145 Mont. Code Anno., § 35-8-808(1) (2011).

146 Nev. Rev. Stat. Ann. § 86.331(2) (2012).

147 N.M. Stat. Ann. § 53-19-24 (2012).

148 N.Y. CLS LLC § 509 (2012).

149 N.C. Gen. Stat. § 57C-5-07 (2012).

150 15 Pa.C.S. § 8933 (2012).

151 S.C. Code Ann. § 33-44-701(a) (2011).

152 Tenn. Code Ann. § 48-249-505(c) (2012).

153 Tenn. Code Ann. § 48-216-101(e) (2012).

154 Tex. Business Organizations Code § 101.205 (2012).

155 11 V.S.A. § 3091(a) (2012).

156 W. Va. Code § 31B-7-701(a) (2012).

157 Wis. Stat. § 183.0604 (2012).

158 805 ILCS 180/35-65 (2012).

159 Mont. Code Anno., § 35-8-809(1)(a) (2011).

160 S.C. Code Ann. § 33-44-702(a)(1) (2011).

161 Tenn. Code Ann. § 48-249-506(3)(B)(ii) (2012).

162 11 V.S.A. § 3092(a)(1) (2012).

163 W. Va. Code § 31B-7-702(a)(1) (2012).

164 Miss. Code Ann. § 79-29-603 (a), (b) (2011).

165 N.J. Stat. § 42:2C-48 (2012).

166 K.S.A. § 17-76,107 (2011).

167 RSA 304-C:41 (2012).

168 ORC Ann. 1705.12 (2012).

169 R.I. Gen. Laws § 7-16-29 (2012).

170 Fla. Stat. § 608.4351(5) (2012).

171 O.C.G.A. § 14-11-1001(3) (2012).

172 Minn. Stat. § 322B.386 subd. 1(c) (2012).

173 N.D. Cent. Code, § 10-32-55(1)(a) (2012).

174 ORC Ann. § 1705.42(B) (2012).

175 Tenn. Code Ann. § 48-231-101(2) (2012).

176 Rev. Code Wash. (ARCW) § 25.15.425(3) (2012).

177 RSA 304-C:22-a(II) (2012).

178 Cal. Corp. Code § 17604 (2012).

179 Cal. Corp. Code § 17601(a) (2012).

180 Code of Ala. § 10A-5-8.01 (2012).

181 Miss. Code Ann. § 79-29-913(4), (6) (2011).

182 Va. Code Ann. § 13.1-1117(C) (2012).