Delaware Court Allows LLC Members to Opt Out of “Fair Value” Standard In Operating Agreement

A Delaware court recently awarded a departing LLC member the “liquidation value” of his membership interest, as opposed to the statutory “fair value.” The departing member had argued that he was entitled to fair value for his membership interest upon his resignation from the LLC. However, the LLC Operating Agreement explicitly stated that resignation or withdrawal from the LLC was not permitted. The Operating Agreement did allow for the departing member to receive payment for his membership interest equal to “net equity,” defined as the amount payable to a member upon liquidation of the LLC. As a result, the departing member was not entitled to receive the higher “fair value” for his membership interest had he departed the LLC in accordance with the terms of the Operating Agreement.

LLC members should be aware of the various retirement, withdrawal, resignation and other transfer restrictions contained in the Operating Agreement. Adherence to the terms of the Operating Agreement is often critical to ensuring that a departing member receives fair value for his or her interest in the LLC.