There are times when a membership interest in a Limited Liability Company (LLC) needs to be valued. These include: 1) a member wanting to sell interest or transfer interest, 2) death of a member, 3) bankruptcy, among others.

How is the member’s interest valued?

First step is to look at how the LLC’s operating agreement declares the interest be valued. Usually there are provisions for a CPA to give the value, with a party-member having the right to get a second opinion, followed by a 3rd party selection by the two CPA’s making a final determination using the two opinions.

If you don’t have an operating agreement, then in North Carolina (NC) you default to the NC General Statutes provisions of Chapter 57D (for corporations see NCGS Chapter 55).

But let’s do a basic example (this is an example & not exclusive) of how an LLC owning real estate would be valued to determine a member’s interest.

1st, a real estate appraiser would appraise the total value of the real property owned by the LLC. 2nd A business appraiser or CPA would appraise the selling-transferring member’s percent (%) Membership Interest using the real estate appraised values for an asset based value.  

3rd The business appraiser should also consider the income produced by the LLC to determine an income based value.  

4th The business appraiser needs to calculate the capital account balances as though a liquidation of the LLC was occurring. This is because each Member would be entitled to receive their respective capital account balance first then the remaining asset value would be divided based on the percentages of the Membership Interests.

The above example is just one way of looking at a valuation and does not in any way exclude other ways. This is a starting point for you to consider.

To discuss your LLC matters or Corporate matters, contact Kirk Sanders at Hendrick Bryant at 336-723-7200. Our firm has handled many buy-outs, stock transfer agreements, asset transfer agreements, mergers, and dissolutions. Including lawsuits over corporate and LLC endeavors.