Most entrepreneurs start their entrepreneurial journeys with the best of intentions, but they don't always agree on everything. Disagreements can often lead business owners to end their relationship and go their separate ways. And in the case of owners who have 50%/50% stakes, there can be a scenario where one of them feels at a disadvantage. This can happen when an owner or group of owners believes that controlling shareholder decisions negatively affects them. When an owner feels the odds are against him, he may turn to legal remedy to dissolve the business venture. These resources include litigation, alternative dispute resolution, or court settlement. Most dissolution disputes focus on the valuation of the business. One of the first steps in the process is the owners' determination to evaluate the business so that they can reach an equitable solution, such as buying the other's interest or selling the business to a third party.
However, assessing an owner's interest in the business is not an easy task because it requires a unique kind of knowledge in theory and valuation methods, along with the application of generally accepted valuation principles. Most disputes between business owners are classified and valuations are prepared according to the value standards identified prior to the valuation. Business owner disputes can generally be classified as: dissenting shareholder actions, minority oppression actions, dissociation actions, statutory mergers and valuation rights assessments, document and contract driven matters, bankruptcy, litigation between partners or shareholders, loss of commercial value disputes, post-merger and acquisition litigation and marital dissolutions. And the most common events in ownership disputes are: deceptive practices, misappropriation of corporate opportunity, misappropriation of income, involuntary dissolution of a company, non-payment of distributions and breach of contract.
The purpose of a business valuation professional is to provide unbiased, third-party opinions on the business value to their client. This expert may be asked to identify key evaluation issues, assess the magnitude of various aspects of a case, or prepare evaluation reports. The business valuation professional really succeeds in identifying the proper valuation methodology to use in each case.
Fair value is generally used when the seller is unwilling and the buyer may or may not be willing, or when the buyer is not obligated but the seller is always under compulsion. It is also used when the impact of proposed transactions is not considered, but the concept of fairness to the seller is a potential consideration. Another possibility: when instead of an equitable price for both, the concept of fairness is considered for the seller due to the inability to keep the stock. Finally, it is also used when no assumptions are made about equal or reasonable knowledge of both parties or when it applies to minority blocks. Depending on the case, trial discounts may be appropriate and applicable. Ideally, consult a legal advisor to determine what would best apply to your situation. Generally, other things being equal, value discounts are the main difference between fair value and fair market value.
Disputes between business owners often occur during a time of great stress. And, depending on the issues involved, different standards of value and discounts may or may not apply. That's why it's critical to use a valuation expert to safeguard your interests in a business that's being dissolved.
Get in touch with TATICCA – ALLINIAL GLOBAL, which provides integrated auditing, accounting, tax, corporate finance, financial advisor, risk advisory, technology, business consulting and training. For more information, visit www.taticca.com.br or e-mail taticca@taticca.com.br. Our company has professionals with extensive experience in the market and has certified methodologies for carrying out activities.