NEW LLC ARTICLE IN THE ABA BUSINESS LAWYER

In the latest issue of the Business Lawyer, the American Bar Association has published an article by Donald J. Weidner, a leading LLC scholar, entitled “LLC Default Rules Are Hazardous to Member Liquidity.”  It’s an article that every LLC lawyer should read and study.  Here is the author’s preliminary summary of the article:

Simply by forming LLCs, entrepreneurs now unwittingly lock themselves in to perpetual entities that offer them no liquidity and present them with costly procedural obstacles to enforcing both their agreement among themselves and their statutory rights. Even in at-will LLCs that are member-managed, recent LLC acts deny members both a right to dissolve and a right to be bought out. While thus locking members in, these acts deny them standing to bring many if not most of their claims among themselves or against the firm. In swinging so dramatically toward a corporate model, recent acts have failed to consider the presumptive intent of small groups of entrepreneurs who operate informally and expect to have a direct role in management. At least in the case of member-managed LLCs, legislatures should reinstate more appropriate default rules and courts should be receptive to claims that members never intended their relationships to have such harsh consequences.

LLC MERGERS VS. CORPORATE MERGERS

The post in Peter Mahler’s “New York Business Divorce” under the link below will be of interest not only to LLC lawyers in New York but also in all other states.  Peter introduces the post as follows:

This week’s New York Business Divorce is a follow-up to last week’s article, a piece about the enormously important appellate decision in the Farro case, the first to carefully consider the correct meaning and interpretation of New York’s LLC merger statute and its relation to the analogous corporation merger statute. In this week’s article, learn about the rest of the story in the Farro litigation, addressed in two companion appellate decisions issued the same day. Continue Reading…

The link to the post is as follows:  https://www.nybusinessdivorce.com/2021/01/articles/expulsion-and-removal/the-farro-litigation-the-rest-of-the-story/

FREEZE-OUTS

Whether fairly or not, the majority members of a multi-member LLC often want to get rid of a dissenting minority member.  Peter Mahler’s excellent blog “New York Business Divorce” addresses this issue in the post under the link below.  The introduction to the post is as follows:

In a long-awaited decision handed down last week by the Appellate Division, Second Department, the court construed two sections of New York’s LLC Law in a significant boost to the ability of members with voting control to remove minority members by means of a cash-out merger. Learn more in this week’s New York Business Divorce.

Here’s the link:  https://www.nybusinessdivorce.com/2021/01/articles/freeze-out-merger/groundbreaking-appellate-ruling-boosts-llc-cash-out-mergers/

VALUATION OF A MEMBERSHIP INTEREST

The article cited below will be of interest to many LLC lawyers, members and others.  I’ve also set forth below the first paragraph of the article.

22 Transactions: Tenn. J. Bus. L. 170
Transactions: The Tennessee Journal of Business Law
Fall, 2020
Case Commentary
Issam Bahour
Copyright © 2020 by Transactions: The Tennessee Journal of Business Law, Inc.; Issam Bahour

LLCS–VALUATION OF MEMBERSHIP INTEREST IN LIMITED LIABILITY COMPANIES

The Tennessee Court of Appeals held that, in the context of Tenn. Code Ann. § 48-249-505-506, (1) “fair value” is determined by the member’s proportionate interest in the company as a going concern, and is distinguished from “fair market value”, which consists of the price at which property would change hands between a willing buyer and a willing seller; (2) discounts for lack of control and marketability are not necessary for appraising a membership interest; and (3) tax affecting is relevant in assisting the court’s determination of the fair value of the going concern value of an S corporation. Raley v. Brinkman, No. M2018-02022-COA-R3-CV, 2020 Tenn. App. LEXIS 341 (Tenn. Ct. App. July 30, 2020).

ESTATE PLANS VS STOCK TRANSFERS

Peter Mahler introduces his latest NY Business Divorce Blog as follows:

In this week’s New York Business Divorce, we discuss a recent decision serving as a reminder to corporate shareholders planning to bequeath their shares of stock to ensure no contracts prohibit them from doing so, lest they leave behind a very disappointed beneficiary.

The ruling applies equally to LLCs:  In drafting provisions about transfers of members’ membership rights—e.g., upon their death—LLC lawyers should ensure that these provisions are consistent with members’ estate plans.

The link to Peter’s column is as follows:

https://www.nybusinessdivorce.com/2020/11/articles/stock-transfer-restrictions/when-estate-plans-and-stock-transfer-restrictions-collide/