Determination of Fair Value

  1. Law
  2. Tennessee Code
  3. Securities, Corporations and Associations
  4. Tennessee Revised Limited Liability Company Act
  5. Admission of Members — Membership Interests — Transferees and Creditors of Members
  6. Determination of Fair Value

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If an LLC is required or elects to purchase a membership interest at fair value under §48-249-505, then:

  1. Communication by LLC.  The LLC shall communicate its determination of fair value, and its proposed terms of payment, to the member, or the member's personal representative, who is entitled to receive payment in consideration for the member's terminated membership interest, not later than thirty (30) days after the date of termination, or, if applicable, thirty (30) days after the later date of an election made under § 48-249-505(b)(2). Such communication shall be accompanied by:
    1. A statement of the LLC's assets and liabilities as of the date of termination;
    2. The LLC's latest available balance sheet and income statement, if any; and
    3. An explanation of how the determination of fair value was made;
  2. LLC documents govern.  If the amount of fair value and other terms of payment are fixed or are to be determined by the LLC documents, the amount and terms so fixed or determined govern; and
  3. Judicial determination of fair value.
    1. If an agreement as to the amount of fair value and payment terms is not made within one hundred twenty (120) days after the termination date, or, if applicable, the later date of an election made under § 48-249-505(b)(2), either the member whose membership interest has terminated, or the member's personal representative, or the LLC may, within another one hundred twenty (120) days, commence a proceeding against the other to determine the fair value and payment terms. Any such proceeding shall be brought in a court of record having equity jurisdiction in the county where the LLC's principal executive office, or, if not in this state, its registered office is located. The LLC, at its expense, shall notify all of the remaining members in writing, and any other person the court directs, of the commencement of the proceeding. The jurisdiction of the court in which the proceeding is commenced under this subdivision (3) is plenary and exclusive. The court shall determine the fair value of the membership interest, in accordance with the standards set forth in subdivision (3)(B) together with the terms for payment; and
    2. In a proceeding brought to determine the fair value of a membership interest in an LLC, the court:
      1. Shall enforce any governing terms in the LLC documents as to the amount of fair value and other terms of payment as provided in subdivision (2);
      2. In the absence of any such governing terms in the LLC documents, shall determine the fair value of the membership interest, considering, among other relevant evidence, the going concern value of the LLC, any other agreement among any members fixing the price or specifying a formula for determining value of membership interests for any other purpose, the recommendations of an appraiser appointed by the court, if any, the recommendations of any of the appraisers of the parties to the proceeding, and any legal or financial constraints on the ability of the LLC to purchase the membership interest;
      3. Shall specify the terms of the purchase, including, if appropriate, terms for installment payments, subordination of the purchase obligation to the rights of the other creditors of the LLC, security, including the purchased membership interest, for a deferred purchase price, and a covenant not to compete or other restriction on the member whose membership interest has terminated;
      4. Shall require, subject to retention of any security interest by the member whose membership interest has terminated under subdivision (3)(B)(iii) the member whose membership interest has terminated to deliver an instrument of transfer of the membership interest to the LLC upon receipt of the purchase price or the first installment of the purchase price;
      5. May award one (1) or more other parties their reasonable expenses, including attorney's fees and the expenses of appraisers or other experts, incurred in the proceeding, if the court finds that a party to the proceeding violated such party's obligations to act in good faith and to engage in fair dealing set forth in § 48-249-403(d); and
      6. Shall order that interest, at the rate specified for judgments under § 47-14-121, shall be paid on such amount, from the date such amount was determined to be due through the date of payment, if the court determines that all or any installment of the amounts to be paid in respect of the terminating member's membership interest should have been paid prior to the date of judgment.


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