Will a court enforce a valuation formula written into the owners’ agreement?
Between the parties to the contract, usually yes, and the starting presumption in Delaware is close to absolute. Section 18-1101(b) of the Delaware Limited Liability Company Act provides that “[i]t is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements,” and §18-1101(a) removes the rule that statutes in derogation of the common law are strictly construed. A price term is an ordinary contract term, and the parties who wrote it are held to it.
The uniform acts take the same approach. The Uniform Partnership Act (1997) (Last Amended 2013), drafted by the National Conference of Commissioners on Uniform State Laws, provides at §105(a) that “the partnership agreement governs” the “relations among the partners as partners and between the partners and the partnership,” and at §105(b) that “[t]o the extent the partnership agreement does not provide for a matter described in subsection (a), this [act] governs the matter,” subject to the list at §105(c) of terms an agreement may not vary. A statutory standard of value is a default that the drafting session displaced. A uniform act is a recommendation and governs nothing until a legislature enacts it, and legislatures repeal as well as enact — Illinois once required a limited liability company to buy out a dissociated member’s distributional interest, but 805 ILCS 180/35-60 and 805 ILCS 180/35-65 were repealed by Public Act 99-637, effective July 1, 2017. What each uniform act supplies where the agreement is silent is set out at how an LLC or partnership interest is valued when a member leaves.
Can a formula price be enforced when it is far below what the business is worth?
Delaware enforced one in exactly that posture. In Nemec v. Shrader, 991 A.2d 1120 (Del. 2010), officers of Booz Allen held stock rights under an Officers Stock Rights Plan giving each retired officer a two-year put at book value, after which the company had the right to redeem at book value at any time. The plaintiffs retired, their put periods expired, and the company redeemed their shares at pre-transaction book value in April 2008 while a sale of its government business to The Carlyle Group was pending; the opinion records that the redemption “added nearly $60 million to the proceeds received by Booz Allen working stockholders.” The Delaware Supreme Court affirmed dismissal “[b]ecause the board exercised an express contractual right.”
The reasoning in Nemec v. Shrader is the part that travels. The court declined to “rewrite the contract to appease a party who later wishes to rewrite a contract he now believes to have been a bad deal,” adding that “[p]arties have a right to enter into good and bad contracts, the law enforces both.” It approved the Chancellor’s observation that “[c]ontractually negotiated put and call rights are intended by both parties to be exercised at the time that is most advantageous to the party invoking the option.” A formula that produces an uncomfortable number is doing what a formula is for; the complaint that the number is wrong is usually a complaint about the drafting.
What limits do good faith and fiduciary duty put on a contractual price?
Real but narrow ones, and in Delaware they are mostly contractual rather than equitable. Section 18-1101(c) of the Delaware Limited Liability Company Act permits a limited liability company agreement to expand, restrict or eliminate duties including fiduciary duties, “provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing,” and §18-1101(e) permits the elimination of liabilities for breach of contract and of duties “provided, that a limited liability company agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing.” The covenant is the floor the drafter cannot remove.
Nemec v. Shrader sets the height of that floor. The Delaware Supreme Court called the implied covenant a “cautious enterprise,” said that “[o]ne generally cannot base a claim for breach of the implied covenant on conduct authorized by the agreement,” and held that terms will be implied only where the asserting party proves the other “acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain that the asserting party reasonably expected,” assessed by the parties’ expectations “at the time of contracting.” It added that the covenant “only applies to developments that could not be anticipated, not developments that the parties simply failed to consider—particularly where the contract authorizes the Company to act exactly as it did here.” Jacobs, J., dissenting and joined by Berger, J., read Dunlap v. State Farm Fire & Casualty Co., 878 A.2d 434, 441 (Del. 2005), to mean that even an unqualified contractual right can be exercised in breach where the counterparty is disadvantaged and “no legitimate interest of the party exercising the right is furthered by doing so.” The decision was three to two.
The fiduciary claim in Nemec v. Shrader fared no better, and the reason is worth reading closely by anyone planning to plead around a formula. The Delaware Supreme Court held that the redemption right “was not one that attached to or devolved upon all the Company’s common shares generally, irrespective of a contract,” but “was solely a creature of contract,” so that the directors’ duties in exercising it “were intended to be defined solely by reference to that contract” and separate fiduciary claims “were foreclosed.” The Court tied that conclusion to “the specific circumstances alleged here” rather than announcing a general displacement of fiduciary duty, and it rested on the first of the Court of Chancery’s two grounds without reaching the second. That allocation is Delaware’s. Another state may put the boundary between contract and fiduciary duty somewhere else, and the forum has to be checked rather than assumed.
Does a shareholders’ agreement price control a statutory fair value buyout?
Not automatically, and New York is the standing illustration. In Matter of Pace Photographers (Rosen), 71 N.Y.2d 737 (1988), a shareholder petitioned for judicial dissolution under Business Corporation Law §1104-a alleging oppression; the corporation elected under §1118 to buy his shares and asserted that the agreement’s formula — half of a stated value that had never been updated — was the price. The lower courts agreed. The Court of Appeals, in an opinion by Judge Kaye, opened by holding that “[i]n a close corporation, the terms of a shareholders’ agreement governing a voluntary sale of stock by a shareholder to the corporation do not dictate the ‘fair value’ of a minority interest under section 1118 of the Business Corporation Law,” and reversed for a hearing on value. The limiting words matter: the holding is about a close corporation and about a forced buyout following an oppression petition.
The holding is narrower and more useful than it is usually cited for, because it turns on what the agreement did and did not say. The court accepted that “[a]s an abstract matter, it may well be that shareholders can agree in advance that an 1104-a dissolution proceeding will be deemed a voluntary offer to sell, or fix ‘fair value’ in the event of judicial dissolution, and that their agreement would be enforced.” What it would not do is extend a voluntary-sale price by implication: “in the absence of explicit agreement a shareholders’ agreement fixing the terms of a sale voluntarily sought and desired by a shareholder does not equally control when the sale is the result of claimed majority oppression or other wrongdoing — in effect, a forced buyout.” The agreement’s buyout provisions were limited on their face to a stockholder who “desires to sell,” and the court noted that the court fixing value “obviously may take into account the shareholders’ agreement provisions regarding value” along with other evidence. The two proceedings the price has to survive are mapped at dissenters’ rights versus an oppression buyout.
Delaware went further and let the statutory remedy itself be contracted away. In Manti Holdings, LLC v. Authentix Acquisition Company, Inc., 261 A.3d 1199 (Del. 2021), decided September 13, 2021, common stockholders who received little or no merger consideration petitioned for appraisal under 8 Del. C. §262, and the corporation invoked a stockholders agreement obliging them to refrain from exercising appraisal rights. The Delaware Supreme Court acknowledged that “there are certain fundamental features of a corporation that are essential to that entity’s identity and cannot be waived,” concluded that an individual stockholder’s right to seek appraisal is not among them, and held “that Section 262 does not prohibit sophisticated and informed stockholders, who were represented by counsel and had bargaining power, from voluntarily agreeing to waive their appraisal rights in exchange for valuable consideration.” Whether a transfer tax authority will accept a contract price for a different purpose is a separate question again, treated at does a buy-sell agreement fix estate tax value.
What happens if the appraisal mechanism breaks down or the parties deadlock on price?
Where a statute supplies the buyout, it usually supplies a court as the backstop, and the backstop runs on its own clock. New York’s was described this way in Matter of Pace Photographers (Rosen) in 1988: “Section 1118 (b) directs that, when petitioner and the corporation cannot agree upon fair value, the court upon application of either party shall stay the 1104-a proceedings and determine fair value as of the day prior to the date on which the petition was filed.” The corporation’s election to buy the petitioner’s shares is made under New York Business Corporation Law §1118(a), which provides that it “shall be irrevocable unless the court, in its discretion, for just and equitable considerations, determines that such election be revocable”; Matter of Pace Photographers (Rosen) adds that, “[g]iven this weighty consequence, the election should be clear and unequivocal.” California builds the machinery into the statute instead: Corporations Code §17707.03(c)(3) directs the court to “appoint three disinterested appraisers,” whose award “when confirmed by the court, shall be final and conclusive upon all parties,” and §17707.03(c)(5) sets the valuation date as “the date upon which the action for judicial dissolution was commenced,” though the same paragraph lets the court “designate some other date as the valuation date” for good cause.
Where the contract supplies the buyout, a statute may still catch a failure of the contractual process — in a state that has enacted one. The Uniform Partnership Act (1997) (Last Amended 2013) sets the pattern at §701: if no purchase agreement is reached “not later than 120 days after a written demand for payment,” §701(e) requires the partnership to pay its own estimate of the buyout price; §701(g)(4) requires written notice that the payment is in full satisfaction unless the dissociated person sues within a further 120 days; and §701(i) lets that person “maintain an action against the partnership … to determine the buyout price,” directs that “[t]he court shall determine the buyout price of the person’s interest, any offset due under subsection (c), and accrued interest,” and permits the court to assess the fees and expenses of appraisers against a party that “acted arbitrarily, vexatiously, or not in good faith.” A uniform act binds no one until the legislature of a particular state adopts it.
Every statute, uniform act and decision cited on this page was read in a primary source on September 15, 2026. Each statute and decision states the law of the single jurisdiction named, and the Uniform Partnership Act is a recommendation that states the law of none; Delaware’s allocation between contract and fiduciary duty and New York’s treatment of a voluntary-sale price are not national rules, and neither is transportable without checking the forum. Nothing here says whether any particular formula will be enforced, what any interest is worth, or what any agreement should have said. The drafting question and the transfer tax question are taken up at Buy-Sell Agreements, and the statutory buyout proceedings at Appraisal & Dissenters’ Rights.