Delaware Chancery Court Awards Fair Value to Expelled LLC Member - Articles

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Posted by: Matthew Lyon on Sep 13, 2018

In a recent decision, Domain Associates, L.L.C. v. Shah, the Delaware Chancery Court determined that an expelled member of a member-managed LLC was entitled to the fair market value of his member interest. Shah was forced to withdraw by the other members of Domain, a venture capital firm registered as a member-managed Delaware LLC. Domain argued that Shah was entitled only to the value of his capital account under the LLC agreement. Vice Chancellor Laster held that although the forced withdrawal was authorized under the LLC agreement, the agreement was silent on the amount Shah would receive upon withdrawal. Because the agreement was silent, and Section 18-604 of the Delaware LLC Act applies only to voluntary withdrawals, no provision of the LLC Act controlled. Domain had chosen a member-managed model, “whose governance structure resembled a partnership.” Therefore, the court applied a 2006 Chancery Court decision interpreting the Delaware Revised Uniform Partnership Act and held that Shah was entitled to a payout “equal to the fair value of [his] economic interest.”