While some of the largest businesses in the United States are corporations (i.e., incorporated entities under a state’s corporations law), many businesses today are also formed as Limited Liability Companies, LLCs for short. An LLC is a creature of state statute; Delaware, California, Florida (among many other states) have LLC statutes allowing for the creation of this often modular business form. LLCs have “members” who own interests in the LLC. Do members have appraisal rights? Depends on the state.

Some states, notably California, Florida, Minnesota, New York, and Washington provide for statutory appraisal rights for LLC members. Other states, including Delaware and Arizona, provide LLC members appraisal rights only if the operating agreement provides for appraisal rights – effectively allowing an LLC member to contract for appraisal rights in the formation documents. Why would someone include appraisal rights in an operating agreement? One answer, coming from Arizona law, is that providing for an “out” via appraisal rights may allow a dissenter to be bought out at fair value, instead of encouraging the dissenter to seek dissolution of the LLC as a remedy for their oppression. And, of course, an investor may insist on an appraisal condition in the operating agreement.

The Faculty of Law at the University of Oxford are holding an event on May 12th entitled “Valuation, Growth, and Appraisal Arbitrage” with Professor Richard Booth of Villanova Law School.  We’ve previously posted on Professor Booth’s work regarding appraisal.  If your company, firm, university, or otherwise is holding an event regarding appraisal, please do feel free to let us know by emailing shecht@lowenstein.com or rbodnar@lowenstein.com.