Standards of Value: Theory and Applications, 2nd Edition

CHAPTER 4

Standards of Value for Partnership and Limited Liability Company Buyouts

Noah J. Gordon

INTRODUCTION

As with the corporations discussed in Chapter 3, the issue of the appropriate standard of value arises in connection with a buyout, for whatever reason. This includes dissent and oppression in partnerships (general partnerships, limited partnerships, and limited liability partnerships (LLPs)) and limited liability companies (LLCs). These forms of business organizations have become increasingly popular. As they are increasingly used, especially for closely held businesses, understanding the application of the proper standard of value to partnership and LLC buyouts is becoming increasingly important.

The starting point for a determination of the applicable standard of value for these entities is the applicable state statute. As discussed in greater detail in the sections that follow, some state statutes provide for the buyout of an LLC or partnership member's interest upon the partner's or member's dissociation from the entity. As in the corporate context, state statutes may also provide for the buyout of a partner's or member's interest in lieu of dissolution, whether triggered by oppression or other conditions. In addition, a small minority of states provide for partners' or members' dissenters' rights that are similar to those enjoyed by shareholders in a corporation. In some instances, where a state statute provides for buyout, the statute also specifies the standard ...