LLC Right of First Refusal
- Published: 13 August 2013
In the traditional operating agreements of an LLC, there is often a provision that the other members or the LLC itself have a right of first refusal. If a member wants to sell his or her interest in the company he/she must first offer it to the other members of the LLC. They then have a period of time in which to buy his interest or refuse to buy it. Starting an LLC? Is this what you want?
The LLC issue in this article was governed by the law of the State of Maine. Maine allows the members to set the rules via the drafting of an operating agreement.
The Maine court explains the terms of the agreement as follows:
"Under Section 8.3, before a member can transfer his or her interest in Concordia, the Transferring Member must notify the Managers of the company. In this regard, Section 8.3 provides:
If any Transferring Member, desires to transfer . . . all of any part of theLLC Units owned by the Transferring Member and such proposed transfer is not subject to the provisions set forth in Section 8.2 hereof [pertaining to Selling Members with a Bona Fide Offer], the Transferring Member shall first notify the Managers stating the nature of the Offered Interest to be transferred and the name of the person to whom the same is to be transferred and the manner of and reason for such transfer and the consideration (if any) to be received.
(Operating Agreement ¶ 8.3.) Providing notice triggers a period during which Concordia, as an "Optionee" under Section 8.1(e), has the option to purchase the member's interest for its Fair Value: "For a period of forty-five (45) days after determination of Fair Value in accordance with Section 8.1 above . . . the Optionee shall have the option to purchase the Offered Interest at its Fair Value upon the Deferred Payment Terms." (Id. ¶ 8.3.) The same Section then goes on to state:..."
This is a plain legal article written by Edward X. Clinton, Jr. and posted on lawyers.com.
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