As more and more business owners are forming limited liability companies ("LLC's") to operate their businesses, familiarity with the statute that governs limited liability companies (which in New Jersey is the New Jersey Limited Liability Company Act (the "LLC Act")) is important. Most provisions of the LLC Act can be preempted by the LLC's Operating Agreement, which is the agreement among the members of the LLC that governs its conduct and affairs. If the LLC's Operating Agreement does not address a particular issue, the LLC Act governs.
Sections 42:2B-38 and 39 of the LLC Act, which addresses what happens if an LLC resigns, often takes LLC owners by surprise. These provisions provide that unless a limited liability company's operating agreement provides otherwise, a member of an LLC can resign upon providing at least six months' prior written notice, and upon the member's resignation, the member is entitled to receive, within a reasonable time after resignation, the fair value of his limited liability company interest as of the date of the resignation, less all applicable valuation discounts.
These provision are essentially a "put", meaning that any member of an LLC can resign from the LLC and require the company to pay the member for his or her ownership interest.
Many owners of LLC's are surprised by these provisions, since, especially in the context of a closely-held company that is being operated by its members, the owners do not expect that one owner can merely resign and get paid the value of his or her interest.
Unless the members of an LLC intend for this provision of the LLC Act to apply, they should make sure that in drafting their Operating Agreement, a specific provision is included which expressly provides that no member has a right to resign and be paid the fair value of his or her limited liability company interest.