Valuation Engagement Review: Partnership Disputes

Sun Business Valuations conducts business valuations for a wide variety of purposes. These reasons include negotiating a sale, securing financing, settling a legal dispute, and for a shareholder buyout to name a few.

The following will provide insight into one of our recent engagements involving a partnership dispute and buy-out.

Industry:

Media Production Company of videos and commercials used in website marketing

Purpose:

Sun Business Valuations was engaged to perform a business valuation relative to a partnership dispute. There were four equal shareholders and the objective was for three of the shareholders to acquire the shares of the departing shareholder. The challenge; however, was that the parties did not have a buy-sell agreement that defined valuation in the event of a buyout. The parties were at an impasse and could not reach an agreement as to the fair market value of the 25% interest.

Sun Business Valuations was called in by the firm’s CPA to perform a business valuation to be used for the following purposes:

  1. Help the shareholders better understand the fair market value of the Company.
  2. Present the valuation conclusion to the remaining shareholders to ensure a thorough understanding of its conclusion and justification of the determined opinion of value.

Conclusion of Value:

In this particular case, we were able to bring the feuding shareholders together, culminating in an agreement between the parties and an amicable buyout.

Valuator’s Summary of Engagement:

Shareholder buyouts (as well as shareholders buying in) occur frequently in closely held companies. It is critical that departing, remaining, or incoming shareholders believe they are being treated fairly in a transaction between the parties.

Sun Business Valuations performs many valuations relative to Buy/Sell Agreements between shareholders. In the event a Buy/Sell Agreement does not exist, a well documented professional valuation is critical toward enabling the Shareholders to reach an amicable negotiated agreement.

A third party valuation serves as a great foundation to negotiate and facilitate an agreement that appeases all parties involved in a shareholder transaction. With a professional business valuation, shareholders are more likely to negotiate successful transactions and avoid costly, distracting, and time consuming disputes.

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