Financial Resources Management, Inc.,
provides authoritative valuations for all your business appraisal needs including buy/sell, estate planning, litigation, and others as well as economic analysis in commercial litigation.
Business Appraisals and Forensic Economics


    The LLC has several advantages when compared to the limited partnership because of the ability to provide limited liability to all parties with one entity rather than two (or more). However, the LLC has not been an appropriate vehicle for estate planning in some states because those states have a Default Provision in the state codes which provides that a member can dissociate with written notice (as little as 30 days in the case of Montana) and receive the fair value of the member's interest (See Montana Code Annotated at 35-8-802(k)(3) and 35-8-602 for an example of these provisions). "Fair Value" has generally been interpreted as the prorata share of the Net Asset Value. While the operating agreement may try to restrict this withdrawal, the IRS ignores anything more restrictive than the Default Provision under Section 2704. Therefore, such an interest may not be eligible for any discounts for lack of control or marketability. There would be a distinction between this situation and Barudin in that a member can obtain his or her prorata share of net asset value with little cost. California had similar provisions (only requiring 6 months notice). However, a recent change in the California Corporations Code provided by S.B. 141 has made the LLC a vehicle for estate planning purposes in California. Prior to the change, the Code allowed a member to withdraw with six (6) months notice and receive the "fair value" for his or her shares. The new provision states that if a member withdraws and the LLC is not dissolved, then the interest is converted to a non-membership economic interest. With that the withdrawing member is only entitled to the economic distributions which are available under the operating agreement; i.e., a withdrawing member cannot force a distribution of his or her prorata share of the net asset value but can only receive the same distributions as everyone else. As with the family limited partnership, the family LLC is affected by the status of the interest and the management arrangement. However, valuing an interest in an LLC would be similar to that for any other corporation; i.e., a nonmarketable position on either an enterprise or minority basis with appropriate discounting for lack of control and lack of marketability.