Discounts and Buyouts in Minority Investor LLC Valuation Disputes Involving Oppression or Divorce
This paper highlights the need for guidance on how to value a minority LLC interest in a court ordered buyout resulting from the exercise of LLC dissenters' rights, an oppression suit, or an action seeking an equitable distribution of property in a divorce. The Model Business Corporation Act prohibits both the "minority discount" reflecting the minority's lack of voting control and the "marketability discount" adjusting for the limited illiquid market of a private firm. The American Law Institute in the Principles of Corporate Governance and the Uniform Partnership Act recommend disregarding the minority discount and the marketability discount as a general rule, but recognize limited exceptions for the marketability discount. This paper advances arguments in favor of prohibiting both discounts in the valuation of an LLC. A contextual judicial approach to valuation is recommended as are amendments to the Revised Uniform Limited Liability Company Act and state LLC statutes in order to authorize an election in lieu of a judicial dissolution to foster fair and speedy resolutions of member conflicts.