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Chancery Awards Fair Value of Member Interest to Expelled Member of Del. LLC

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Lewis H. Lazarus, Morris James

Delaware statutes enabling formation of unincorporated entities like limited liability companies (LLCs) and limited partnerships afford freedom for owners to structure business relationships as they see fit. This freedom carries with it the responsibility  to accurately and completely describe the parties’ rights and duties. It also means that when disputes arise among owners or managers, a Delaware court will resolve the dispute through application of principles of contract interpretation. Moreover, if the parties in their foundational agreement do not address an issue, the court will apply default rules under the applicable business entity statute. The recent case of Domain Associates LLC v. Shah, C.A. No. 12921-VCL (Aug. 13, 2018), well illustrates these principles—the court applied default rules under the Limited Liability Company Act to hold that an expelled member of a Delaware LLC was entitled to the fair value of his interest and not simply to the value of his capital account.

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