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Minority Investors in LLCs: Preemptive Rights, Expulsion, Freeze-Out Mergers, and Other Key Provisions

Protecting Minority Interests, Choice of Entity in Litigation, Implied Covenants, Contractual Discretion, and More

Recording of a 90-minute CLE video webinar with Q&A

This program is included with the Strafford CLE Pass. Click for more information.
This program is included with the Strafford All-Access Pass. Click for more information.

Conducted on Thursday, June 9, 2022

Recorded event now available

or call 1-800-926-7926

This CLE course will guide counsel advising LLC planners, managers, and investors. The panel will discuss recent cases involving contractual waivers of fiduciary duties, the implied covenant of good faith and fair dealing, and contractual discretion by the managers.


Minority owners in an LLC are, in many ways, subject to the whim of the majority, with limited statutory and common law protection. Those considering investment in an LLC, negotiating the operating agreement, in disputes with other members, or contemplating litigation should be aware of the limitation of protection for minority members.

Most state LLC statutes do not provide minority LLC owners with preemptive rights unless their operating agreement provides for them. Likewise, many LLC operating agreements give the majority the right to make capital calls and provide for potentially severe consequences if the minority members fail to meet those capital calls.

Some LLCs have provisions in their operating agreement that allow for the expulsion of members in certain circumstances, such as, for example, upon a majority or supermajority vote of other members. In some states, including those states adopting the Revised Uniform LLC Act, an LLC can request that a court expel a member based on a finding of wrongful conduct, willful and persistent breach of the operating agreement, or that it is not reasonably practicable to continue the LLC with that member.

A freeze-out merger is a combination of transactions in which the majority owners cause the entity, through a written agreement or plan of merger, to merge with and into a new entity, with a minority owner of the original entity receiving no ownership interest in the new entity, and the ownership interest being extinguished and exchanged for cash. While the majority owner must offer the frozen-out minority fair value for their interest, if the minority disagrees with the amount offered, the only remedy is an appraisal proceeding to determine by the court the fair value of the minority owner's interest.

Listen as our panel discusses recent cases involving contractual waivers of fiduciary duties, contractual discretion, and best practices in protecting the interests of minority owners and challenging managers' actions.



  1. Operating provisions that limit minority owner rights in LLCs
  2. Delaware law and recent cases involving contractual waiver of fiduciary duties
  3. Issues for minority investors in challenging management decisions
  4. Avoiding pitfalls and protecting minority interests in LLCs


The panel will review these and other critical issues:

  • Negotiating operating agreement provisions for minority owners
  • Methods to protect minority investors in LLCs
  • Challenging LLC transactions and management decisions through litigation
  • Choice of entity considerations from management and investor perspectives


McDaniel, Jay
Jay R. McDaniel

Weiner Law Group

Mr. McDaniel is an experienced business litigator and counselor who focuses his practice on business divorce, corporate...  |  Read More

Paul, Marshall
Marshall B. Paul

Saul Ewing

Mr. Paul focuses his practice on counseling businesses, healthcare concerns and professionals with respect to limited...  |  Read More

Sluka, Peter
Peter J. Sluka

Farrell Fritz

Mr. Sluka represents a broad range of individuals and entities in all phases of complex commercial litigation,...  |  Read More

Wender, Edward
Edward L. Wender

Potomac Law Group

Mr. Wender has over 35 years of experience in commercial real estate and general business representation, representing...  |  Read More

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