Ohio LLC Dissenters’ Rights – The Time to Get Out is Running Out

Business Litigation Update

Date: December 03, 2021

Dissenters' rights, also known as appraisal rights, are designed to provide an equity owner an easy way out of a company by ensuring that the owner can sell his/her interest if a company takes certain action (e.g., merger, consolidation or conversion) with which the dissenting owner disagrees. Dissenters' rights currently are guaranteed under Ohio law, permitting equity owners of Ohio corporations, partnerships, limited partnerships and limited liability companies to leverage their buyout by “dissenting” against the company action and demanding to be paid the “fair cash value” of his/her equity interest.[1] 

With regard to Ohio LLCs, if the company’s operating agreement provides a reasonable basis for determining and paying fair cash value, that process controls the company’s forced redemption. If not, and if the dissenting member and the company cannot agree on value, then the equity owner may commence a statutory special proceeding in which the Court of Common Pleas determines value[2] and whether the member is entitled to recover interest and apportion costs of any court-ordered appraisal. Either way, the member withdraws and is paid by the company for his/her equity.

That is about to change. Effective February 11, 2022, Ohio’s Revised LLC Act, Chapter 1706 et seq., will repeal the current Act, Chapter 1705 et seq., and in doing so eliminate dissenters’ rights. The Revised LLC Act contains no dissenters’ rights provisions, nor an alternative process for members to exit and force the company to cash out their equity. It is unclear why the Ohio Legislature chose to single out LLCs to remove dissenters’ rights; however, that change is consistent with other amendments in the Revised Act further providing that LLCs are creatures of private agreement subject to minimal government regulation.[3] 

Accordingly, for members of Ohio LLCs seeking to assert derivative rights, the time to do so is running out. For companies that want to avoid a member asserting dissenters’ rights and possibly starting costly litigation, wait before executing a merger, consolidation or conversion.

FOR MORE INFORMATION

For more information, please contact:

Thomas Wyatt Palmer
614.469.4781
Thomas.Palmer@ThompsonHine.com

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[1] R.C. 1701.84-85; 1776.76-78; 1782.435-437; 1705.40-42

[2] The value of an LLC member’s equity interest is defined using the market value test, what a willing seller who is under no compulsion to sell would be willing to accept and that a willing buyer who is under no compulsion to purchase would be willing to pay.

[3] For example, Revised Code 1706.08 allows all fiduciary duties to be eliminated other than the implied covenant of good faith and fair dealing, compared to Revised Code 1705.081 stating a prohibition against eliminating the duties of loyalty and care owed by members.