Valuation Dispute Lawyers
Upon dissolution of business, parties often engage in prolonged disputes over the value of each party’s interests in the business. Whether the business is a corporation, partnership, or other form of business arrangement, there are numerous valuation methods that can be employed to value a business interest.
The choice of valuation method is dependent on variety of factors: the size of the business, whether the interest is a majority or minority interest, the industry, the balance sheet, the value of interest holder’s particular skills to the success of the business, etc. In each instance, the methodologies used to determine value will be tailored to the specific business, and the purpose for which the interest is being valued.
The three most common approaches to business valuation are the asset approach, the income approach, and the market approach.
The asset approach is used when a business is no longer a going concern, i.e. the business is in financial distress and the assets are being liquidated for the benefit of creditors and shareholders. Liquidation value represents the money left over after an orderly disposition, or forced sale, of all assets (often made in a manner that would minimize loss and/or tax expense), less the repayment of all liabilities.
The income approach determines value by assessing a present value of a business’s future earnings. These future earnings are determined by projecting the earnings of the business and then adjusting them for changes including growth rates, taxes, and cost structure.
The market value approach business valuation is a process where a value is assigned to a business based on market forces in comparable situations. The comparable situation here can be either a prior transaction involving the same business, an ownership transfer transaction involving a comparable (public or private) company, and/or a market quote of listed securities of a comparable public company.
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