What Valuers Should Do While SCOTUS Mulls Connelly
Regardless of how the U.S. Supreme Court rules in the Connelly case, there are some steps valuers can take to better help their client business owners, many of whom could be sitting on ticking time bombs. The issue before SCOTUS is how does corporate-owned life insurance designed to fund the redemption of a deceased shareholder’s stock impact the fair market value of the subject company and the value of the decedent’s gross estate.
Valuation Impact of Corporate-Owned Life Insurance on SCOTUS’ Agenda
The goal of this paper is to inform readers about a valuation issue that is the subject of a petition put before the United States Supreme Court to resolve a circuit split. The issue is how does corporate-owned life insurance designed to fund the redemption of a deceased shareholder’s stock impact the fair market value of the subject company and the value of the decedent’s gross estate. The author examines the applicable U.S. Tax Court, district court, and two appellate decisions so the reader can understand the arguments made and the basis for the legal conclusions.
Jayawardena v. Daka
This case involved a shareholder dispute among four shareholders of a physician practice (Ferncreek Cardiology PA) and two real estate LLCs. There were buy-sell provisions for each of the three entities. As to Ferncreek, the buy-sell provision was essentially an increase in book value provision, as the regular account determined in “good faith.” Payment provisions were also included in the agreement. The two real estate LLCs had a buy-sell provision that provided for either a single agreed-upon appraiser or three appraisers if no agreement was made. The plaintiff made the decision to exit the practice, triggering the buy-sell provisions. The parties were not able to agree on certain provisions as they worked through the buy-sell agreements. The trial court entered partial summary judgments on some claims of both parties. This appeal dealt with these partial summary judgments and was filed by the plaintiff.
North Carolina Appeals Court Affirms Decisions on Value of Businesses Under Buy-Sell Agreements
This case involved a shareholder dispute among four shareholders of a physician practice (Ferncreek Cardiology PA) and two real estate LLCs. There were buy-sell provisions for each of the three entities. As to Ferncreek, the buy-sell provision was essentially an increase in book value provision, as the regular account determined in “good faith.” Payment provisions were also included in the agreement. The two real estate LLCs had a buy-sell provision that provided for either a single agreed-upon appraiser or three appraisers if no agreement was made. The plaintiff made the decision to exit the practice, triggering the buy-sell provisions. The parties were not able to agree on certain provisions as they worked through the buy-sell agreements. The trial court entered partial summary judgments on some claims of both parties. This appeal dealt with these partial summary judgments and was filed by the plaintiff.
Auto Dealerships are Running Hot: Key Valuation Metrics Unique to Auto Deal
Providing a valuation of a business can be a complex process as there are a variety of intricacies that help determine the value. Automobile dealership valuations are a bit more complex because they have unique characteristics that set them apart from other businesses and industries. They involve a deep understanding of the automotive retail industry which includes items such as factory financial statements, franchise multiples, and operational benchmarks of the dealership, to name a few.
Collins v. Tabs Motors of Valley Stream Corp.
In this New York business divorce case, the court held that the shareholders agreement was enforceable, as well as the stipulated value of the buyout price as determined in Schedule B of the shareholders agreement. Claims by petitioners of breach of fiduciary duty and related claims, including a years-old certificate of value, were not sufficient to overcome the unambiguous terms of the buy-sell agreement.
In a New York Business Divorce, a Petition for Dissolution Triggers Buy-Sell Agreements
In this New York business divorce case, the court held that the shareholders agreement was enforceable, as well as the stipulated value of the buyout price as determined in Schedule B of the shareholders agreement. Claims by petitioners of breach of fiduciary duty and related claims, including a years-old certificate of value, were not sufficient to overcome the unambiguous terms of the buy-sell agreement.
Three different court rulings on the use of discounts in the divorce context
Case law matters. Every month, BVLaw analyzes the most noteworthy court decisions dealing with valuation and damages issues. Subscribers should check out digests of three recent divorce rulings different state courts issued. All the cases dealt with the issue of whether it was appropriate to discount the owner-spouse’s interest in a closely held business.
Ohio Appeals Court Approves Use of Fair Value Standard in Valuing Farm Entities
Appeals court upholds valuation of minority interest in farm entities based on fair value standard of value; court notes prevailing expert specifically referenced buy-sell agreements that did not contemplate use of discounts in valuing exiting member’s partial interest.
Tate v. Tate
Appeals court upholds valuation of minority interest in farm entities based on fair value standard of value; court notes prevailing expert specifically referenced buy-sell agreements that did not contemplate use of discounts in valuing exiting member’s partial interest.
Colclasure v. Colclasure
State Supreme Court finds trial court erred in valuing husband’s business interest based on buy-out agreement the parties ignored; on remand, valuation must meet statutory requirement of a fair and just division.
In re Marriage of Gelman
A medical partnership’s exclusive contract to provide anesthesiology services to a hospital is an intangible asset, but since buy-sell agreement limits wife’s interest to $1.00, the court finds she has no ownership interest in the business and the contrac ...
In re Marriage of Restaino
Court of Appeals reverses the trial court’s finding that pay-outs under a law firm dissolution agreement represented income to the husband rather than his equity share in a community asset, to which the wife could claim a portion.
In re Marriage of Kingery
In valuing the husband’s 25% interest in a law firm, the trial court erroneously accepted a valuation that included a “purchase acquisition cost” or “goodwill cost” derived from a buy-out of a former partner.
In re Marriage of Baker
Court of Appeals affirms finding that buy-sell agreement limits spouse’s interest in medical clinic to $1,000.
Wood v. Wood
Appellate court rejects calculation of value of closely held business under buy-sell agreement that did use proper valuation date or standard of value (FMV).
Garman v. Garman
Court rejects doctor’s claims that by departing from medical practice just before divorce, his $15,000 buy-sell payout limits practice value, crediting instead a net asset value, adjusted for routine quarterly bonuses.
Dawyot v. Catawba Capital Mgmt., Inc.
In buyout dispute, court sets aside third-party appraisal performed pursuant to redemption agreement; court says final appraisal report contains at least one “palpable error” related to normalization of earnings that had a significant effect on the valuation; appraiser did not testify at trial.
Hartley v. Hartley
Court of Appeals overturns trial court’s order limiting discovery of law firm records to production of buy-sell agreement, finding the applicable “fair value” standard requires production of all relevant pricing information in divorce.
Brooks v. Brooks
Fair market value standard requires court to consider more than just the appraised values of real estate held by the husband’s minority interest in LLCs; it requires consideration of marketability and minority discounts, plus transfer restrictions.
Mandell v. Mandell
Texas court holds unsigned buy-sell agreement controls value of husband’s medical practice, a privately held professional association, in divorce.
Garcia v. Garcia
Divorce court finds restrictive shareholder agreement not binding on valuation of medical practice, although question of discounts due to restrictions depends on particular facts of the cases.
Nonowner Spouse Signed Buy-Sell: Is She Bound by Its Value in Divorce?
Court finds that when a non-shareholder spouse signs a buy-sell agreement, she is bound by its value in divorce.