On Oct. 24, Potter Anderson & Corroon LLP presented a webinar on the Delaware Limited Liability Company Act (DLLCA), including amendments to contractual appraisal rights. We noted previously that this update was occurring.
The webinar highlighted that this year’s amendments to the DLLCA now provide for contractual appraisal rights in new situations. Previously, the DLLCA allowed contractual appraisal rights in connection with any amendment of an LLC agreement; a merger or consolidation in which the limited liability company is a constituent party; a conversion to another business form; a transfer to, domestication, or continuance in any jurisdiction; or a sale of all or substantially all of the limited liability company’s assets. The recent amendment allows the LLC to also contractually provide for appraisal rights in connection with “any division of a limited liability company, any merger or consolidation in which a registered series is a constituent party, any conversion of a protected series to a registered series of such limited liability company, and any conversion of a registered series to a protected series of such limited liability company.” In contrast to the Delaware General Corporation Law, there are no default rights for appraisal under the DLLCA. For appraisal rights to be available to members of the LLC, they must be contractually provided for.
Members of an LLC may now have the contractual right to appraisal in connection with a division. The concept of a division is still relatively new under Delaware law and was provided for by last year’s amendment. Section 18-217 of the DLLCA allows an LLC to divide into two or more distinct Delaware LLCs according to a plan of division.
Members also may have the contractual right to appraisal in connection with any merger involving a registered series or any conversion from protected series to a registered series, or vice versa. Last year’s amendment to the DLLCA introduced the terms “protected series” and “registered series.” Both protected series and registered series are protected against the liabilities and obligations of the LLC. But unlike a protected series, a registered series is formed by filing a certificate of registered series with the Delaware Secretary of State.
We will continue to monitor and report on how these contractual appraisal rights affect investors in LLCs.