July 19, 2021

Appraisal Rights: What About LLCs?

Delaware’s LLC statute does not have a provision granting appraisal rights to members who dissent from a merger, but as this Dorsey & Whitney blog points out, that doesn’t necessarily mean you won’t have to deal with them in a deal involving an LLC target:

Section 18-210 of the Delaware Limited Liability Company Act states that there are no statutory appraisal rights afforded to dissenting members in a merger of a Delaware LLC. Instead, the Delaware Limited Liability Company Act provides that dissenting members only have appraisal rights if those rights are specifically created by contract, most commonly in the limited liability company agreement or an agreement of merger.

Though a merger of a Delaware LLC does not involve mandatory, statutory appraisal rights, it is important for counsel to review the limited liability company agreement and any other agreements among members of the LLC to account for appraisal rights that may have been adopted by contract.  The default appraisal rights rules for mergers of LLCs vary by state. For example, FloridaCalifornia, and New York do provide statutory appraisal rights for dissenting members in an LLC merger. Counsel should check the statutes of each state under which a constituent entity to the merger was formed.

If a Delaware LLC has significant operations in another state, it would also be prudent to confirm that the statutes of the applicable state do not apply to the LLC involved in the merger. For example, the California Corporations Code extends statutory appraisal rights to apply to foreign LLCs formed on or after January 1, 2014 or qualified to do business in California on or after January 1, 2014, if members holding more than 50% of the voting power of the LLC reside in California.

John Jenkins