New Jersey overhauled its limited liability company (LLC) laws more than a decade ago when it adopted the New Jersey Revised Uniform Limited Liability Company Act (RULLCA), N.J.S.A. 42:2C-1 et seq., on September 19, 2012 (effective for all LLCs on March 1, 2014). The RULLCA is critical because it acts to fill any gaps in LLC operating agreements, the documents governing LLCs. Since adoption of the RULLCA, New Jersey courts have published only a handful of cases interpreting its provisions, leaving LLC owners, referred to as “members,” unsure how certain events will play out if they do not have a comprehensive operating agreement in place.
One of the most significant uncertainties lies in what happens when a member’s interest needs to be valued as part of a buyout. When a member is bought out, they will be paid in accordance with their membership interest. If there is no operating agreement in place specifying how or when that member’s interest should be valued, the RULLCA and related case law do not provide a clear answer. New Jersey courts are split on whether to apply valuation date provisions from statutes governing other types of businesses, such as corporations. This has created uncertainty for members and their legal counsel.
The RULLCA
The RULLCA contains no provision specifying a valuation date for a member seeking to transfer their interest to the remaining members or to another person or entity. A common situation where a member of an LLC would need to value their interest is minority member oppression. In these cases, members who own less than a controlling interest and have had their rights in the LLC infringed upon can petition the Superior Court for various forms of relief, including dissolution of the LLC. One remedy permitted in such a situation is a buyout. See N.J.S.A. 42:2C-48(b) (stating in the alternative to a dissolution of the LLC, the court may “order the sale of all interest held by a member . . . if the court determines in its discretion that such an order would be fair and equitable to all parties under all of the circumstances of the case”).
The RULLCA’s provisions for transfer of a member’s interest (selling their interest), N.J.S.A. 42:2C-41 to -44, disassociation of a member (where the other members “buy out” the interest), N.J.S.A. 42:2C-45 to -47, and a buyout in lieu of a dissolution (a forced buy out), N.J.S.A. 42:2C-48, do not specify any procedure or timeline for valuation of a member’s interest. In light of the RULLCA’s silence on this issue, courts have looked to the New Jersey Business Corporation Act (BCA), N.J.S.A. 14A:1-1 et seq. for guidance.
The BCA
The BCA contains detailed provisions for determining the “fair value” of a shareholder’s stake in a corporation. While publicly traded corporations can readily identify the price of their shares, privately held corporations have a path akin to LLCs. The BCA contains a special valuation provision for minority shareholder oppression cases when the corporation at issue has twenty-five or less shareholders. See N.J.S.A. 14A:12-7(1)(c). If a minority shareholder brings suit and proves other shareholders oppressed it, the BCA empowers a court to order a “sale of all the shares of the corporation’s stock held by any other shareholder who is a party to the proceeding to either the corporation or the moving shareholder” if the court determines “that such an order would be fair and equitable to all parties under all the circumstances of the case.” N.J.S.A. 14A:12-7(8).
In the event a court determines to force the sale of an oppressing shareholder’s stock in the corporation, the court must determine the valuation date. The BCA sets the presumptive valuation date as the date that the minority shareholder brought the oppression suit, but gives courts significant leeway to change the valuation date in the interest of fairness and equity. N.J.S.A. 14A:12-7(8)(a); see also Torres v. Schripps, Inc., 342 N.J. Super. 419 (App. Div. 2001) (changing the valuation date to the date of a minority member’s termination after the corporation’s value subsequently fell dramatically).
New Jersey’s Muddy Caselaw Applying the BCA to LLCs
New Jersey courts have recognized the RULLCA’s absence of a definitive valuation date provision compared to the BCA. In 2024, the Appellate Division applied the BCA to an LLC oppression case, finding that the presumptive valuation date is the date the action was filed, but “[t]rial courts are permitted to change the valuation date in the interest of equity.” Kiely v. Iler, 2024 N.J. Super. Unpub. LEXIS 106, at *25-26 (App. Div. Feb. 12, 2024) (citing Torres, 342 N.J. Super. at 437). The Kiely Court relied on the BCA oppression statute’s language, which specifically allows a court to move the valuation date in the interests of equity. Id.
The Appellate Division in Kiely and several other cases has applied the BCA’s oppression statute outside the corporation context—but all are unpublished and not binding on other New Jersey trial courts. See Gaines v. Luongo, 2011 N.J. Super. Unpub. LEXIS 734 (App. Div. Mar. 25, 2011) (applying the statute to an LLC); Rughani-Shah v. Noaz, 2011 N.J. Super. Unpub. 2404 (App. Div. Sept. 16, 2011) (applying the statute to a professional association); Regan v. Conway, 2025 N.J. Super. Unpub. LEXIS 540 (App. Div. Apr. 7, 2025) (applying the statute to an LLC).
Although using the BCA’s valuation date method would remedy the RULLCA’s silence on the date and methods of valuation, the Appellate Division has held the opposite in other cases. In Denike v. Cupo, the Court ruled that the repealed Limited Liability Company Act (LLCA) did not give a trial “court any discretion to determine [a] valuation date, and in that regard differs from the oppressed shareholder statute” which the trial court there relied on. 394 N.J. Super. 357, 380-81 (App. Div. 2007), rev’d on other grounds, 196 N.J. 502 (2008). Denike rejected the trial court’s reliance on the BCA for the equitable power to change the date. Id. at 380-81.
The LLCA was repealed and the RULLCA was enacted in 2013, six years after Denike was decided. In Tutunikov v. Markov, the Appellate Division analyzed the issue post-RULLCA adoption, expressly referencing Denike in holding that “the BCA’s oppressed shareholder provisions have no application to an LLC.” 2013 N.J. Super. LEXIS 1935 at *23 (App. Div. Aug. 1, 2013). The Court reasoned that the RULLCA included an oppressed member provision, N.J.S.A. 42:2C-48(a)(5)(b), which allows an oppressed member to apply to the Superior Court for dissolution of the company if the member can prove oppression. Id. at 22-23.
This Appellate Division split is a hazard for LLCs seeking to avoid dissolution due to a dispute among members. Kiely is more recent and completely ignores the Appellate Division’s previous ruling in Tutunikov, but Tutunikov relied on published case law.
What Can You Do to Avoid This Issue?
The New Jersey Legislature and courts provide no clear guidance on when to value LLC membership interests in the event of a buyout. Members need to understand that New Jersey courts are split on the valuation date issue, with some applying the BCA’s oppressed minority shareholder provision and others finding it inapplicable to an LLC. This creates uncertainty when a minority member is evaluating whether to bring an oppression action. The difference is costly, as a court may apply any number of valuation dates or compel the LLC’s dissolution, a remedy that may not be in the members’ interests.
The best defense against this uncertainty is to ensure your LLC has a strong operating agreement that specifies how to value a member’s interest in various circumstances where a member either voluntarily or by force leaves the LLC.
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