What is the Buy-Out Formula of a LLC Member Under the Revised New Jersey Limited Liability Act (RULLA)

HNWBusiness Law

LLC Operating Agreement

  • The New Jersey version of the Revised Uniform Limited Liability Act authorizes a member a buy-out in lieu of company dissolution when there is a disagreement among LLC members.
  • In the operating agreement, LLC members can ‘legislate’ the agreed upon value where a member claims oppression and demands to be bought out. When the operating agreement does not provide a buyout formula, NJ LLC law adopts a default standard which is “fair value”.

What Does Fair Value Mean When Buying Out an LLC Member

When the New Jersey Business Corporation Act became effective, “Fair value” has been the standard for payment to shareholders who wish to be bought out. The law does not recognize a distinction in the concept of fair value between shareholders exercising dissenters’ right and those claiming minority oppression. Fair value means the intrinsic commercial worth of a  member‘s legal interest in the entity. Consequently, the LLC member must be fairly compensated for the intrinsic value of what is being taken from him or her based upon a willing buyer and willing seller.  This standard is what defines fair market values.

To discuss your NJ LLC matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, New Jersey LLC Law Attorney

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