Most entrepreneurs start their entrepreneurial journey 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 shares of 50%/50%, a scenario may occur in which one of them feels disadvantaged. This can happen when an owner or group of owners believes that the control of shareholder decisions affects them negatively. When an owner feels that the odds are against him, he can resort to legal remedy to dissolve the business venture. These resources include litigation, alternative dispute resolution, or judicial resolution. 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 arrive at an equitable solution, such as buying the interest of the other 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 type of knowledge in theory and valuation methods, along with the application of generally accepted valuation principles. Most disputes between business owners are classified and appraisals are prepared according to the value standards identified prior to valuation. Business owner disputes can generally be classified as: dissenting shareholder actions, minority oppression actions, dissociation actions, statutory mergers and valuation rights assessments, matters guided by documents and contracts, 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 landlord disputes are: deceptive practices, embezzlement of corporate opportunity, embezzlement 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 about the business value to their client. This specialist may be asked to identify key assessment issues, assess the magnitude of various aspects of a case, or prepare assessment reports. The business valuation professional is truly successful in identifying the appropriate valuation methodology to be used 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 the 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 assumption is made about the equal or reasonable knowledge of both parties or when it applies to minority blocs. Depending on the case, valuation discounts may be appropriate and applicable. The ideal is to seek legal counsel to determine what would best apply to the situation. Generally, other aspects are the same, value discounts are the main difference between fair value and fair market value.
Disputes between business owners often occur during a period of great stress. And depending on the issues involved, different value standards and discounts may or may not apply. That's why it's critical to use a valuation specialist to safeguard your interests in a business that's being dissolved.
Contact TATICCA — ALLINIAL GLOBAL, which provides integrated auditing, accounting, tax services, corporate finance, Financial Advisory, Risk Advisory, technology, business consulting and training. For more information, visit www.taticca.com.br or email taticca@taticca.com.br. Our company has professionals with extensive experience in the market and has certified methodologies for carrying out activities.
