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2016 LLC Act Update Part IV: What Brexit Can Teach Businesses About Dissenters’ Rights

By July 12, 2016 March 4th, 2020 No Comments

Nick Page on FlickrThis blog post is not intended to provide commentary on, analyze or synthesize world politics. But I’m about to discuss Brexit- which, sadly, is not a delicious new variety of cookie. The June “Brexit” vote by Britons to exit the European Union surprised me. (If only more British voters had heeded John Oliver’s siren song to his native land to stay in the European Union …) Now, news outlets are chattering about Scotland and Northern Ireland, where the majority of citizens voted to remain in the European Union, giving serious consideration to exiting the United Kingdom.

While the breakup of a political alliance is a far different beast than the breakup of a business, the Brexit vote and aftermath provide an illustrative backdrop for a discussion about the rights of dissenting LLC members. As I have written in previous posts in this series, a number of changes to Washington’s LLC Act became effective in 2016. This post discusses how these changes impact dissenters’ rights.

First, what are dissenters’ rights? Simply put, dissenters’ rights are the right of a member of an LLC who objects to a merger of the LLC with another entity to obtain fair market value payment in exchange for the dissenting member’s interest in the LLC. In other words, if an LLC member does not want a merger to happen, but that member has an insufficient interest to prevent it from happening, the dissenting member can force the members voting to proceed with the merger to buy the dissenter out.

Dissenters’ rights existed under Washington’s previous LLC Act. Under the new act, however, these rights are waivable. This means that LLC members can, if they choose, eliminate or restrict dissenter’s rights in the limited liability company’s operating agreement.

RCW 25.15.471 states:

Member—Dissent—Payment of fair value.

(1) Except as provided in RCW 25.15.481 or 25.15.491(2), or in a written limited liability company agreement, a member of a limited liability company is entitled to dissent from, and obtain payment of, the fair value of the member’s interest in a limited liability company in the event of consummation of a plan of merger to which the limited liability company is a party as permitted by RCW 25.15.416.

(2) A member entitled to dissent and obtain payment for the member’s interest in a limited liability company under this article may not challenge the merger creating the member’s entitlement unless the merger fails to comply with the procedural requirements imposed by this chapter, Title 23B RCW, chapter 25.05 RCW, chapter 25.10 RCW, or the limited liability company agreement, or is fraudulent with respect to the member or the limited liability company.

(3) The right of a dissenting member in a limited liability company to obtain payment of the fair value of the member’s interest in the limited liability company terminates upon the occurrence of any one of the following events:

(a) The proposed merger is abandoned or rescinded;

(b) A court having jurisdiction permanently enjoins or sets aside the merger; or

(c) The member’s demand for payment is withdrawn with the written consent of the limited liability company.

Considering what dissenters’ rights are – and what they might mean for the members of a limited liability company – are important issues to discuss at the time of company formation. That way, the company has a roadmap for how it intends to handle bumps – such as a member dissenting from a merger – down the road.

Photo credit: Nick Page on Flickr

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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