1. You are drafting estate planning documents and your client has an interest in a closely-held business. Your client is a successful businessman who wishes to provide for his family without incurring punitive estate or gift taxes. A competent appraiser will work with the attorney to determine what discounts are legitimately available to values so that the appropriate structure can be created in order to achieve the client's goals.
2. Your client owns several revenue-producing properties and, for estate planning and other purposes, you advise to transfer some properties to a pass-through entity such as a Family Limited Partnership. Limited partnership interests therein are either sold to a generation-skipping trust, or gifted. At any rate, a BV appraiser will value the limited interests by applying reasoned discounts to the appraised [by a real estate appraiser] value of the underlying properties. The discounts allow the properties, over time, to pass to the ownership of the designees and minimize the tax due.
3. You represent a private business contemplating an acquisition or wishing to spin off a division. Again, a "bullet-proof" appraisal is important to have even if, for strategic reasons, management decides to hold out for a price in excess of fair market value, or a strategic buyer is forced to pay more than fair market value. The relationship between Fair Market Value and Investment Value must be well understood before a decision can be made.
4. You represent a private business with minority shareholder issues. An appraisal will save your client a good deal of grief by pointing out exactly what the potential litigant is entitled to under state law: Fair Value is a standard loosely defined by state law, and is likely to produce a different result than the tax-based Fair Market Value standard. That standard is also different from the fair value standard as defined by FASB. Shareholders' disputes are often solved by an objective appraisal report.
5. The business you represent is buying a financially-weak competitor. You are concerned that the seller's creditors, who may not be paid in full, will claim that adequate consideration was not received by the seller. You need a Fairness Opinion prior to closing; the opinion is designed to make it considerably more difficult to make that claim. Other situations call for a Fairness Opinion.
6. You represent a financially weakened business in need of strategic planning. The owners need to have a candid assessment of the competitive situation, and of the various valuation-based strategic alternatives.
7. Determination of an exit strategy for the owner of a closely-held business: how do I get my value out ?
8. Drafting of a Buy-Sell or Shareholders' Agreement: The most useful Buy-Sell agreements are those which take the evolving value of a business into account; the very best require periodic input by a business valuation professional in such a manner as to avoid costly litigation and help realize the shareholders' goals.
9. Determination of value for business interruption insurance coverage and appropriateness of coverage generally.
10. Support planned giving involving interests in closely-held businesses.
11. Employees Stock Ownership Plans ["ESOPs".] There are hard tax reasons, as well as practical ones, to sell the family business to an ESOP. Besides creating liquidity for the owners, an ESOP could actually eliminate/postpone all built-in capital gains for the seller under specific circumtances. Besides, if your employees truly are responsible for the success of the business, why not sell it to them? An ESOP can also motivate key people if it creates the right culture. How about an ESOP through an S corporation which would put the business at a significant tax advantage? Employee Stock Options in both public and private companies require focused valuation services. Ask us for advice geared to your specific circumstances.
12. Your client, a C corporation, wishes to elect to be taxed as a sub-chapter S corporation. At that point, its value must be established in order to avoid costly tax problems at a later date.
13. Your client is purchasing a business rich in intangible assets, which could include a high-tech venture or a professional corporation. In order to allocate as much as possible to faster-to-depreciate asset categories, you retain a business appraiser to value those intangible assets: intellectual property, patents, computer software, "masks", in-process research and development, etc. See also item # 18 below for relevant new accounting standard. Price allocation studies under fair value accounting are now required for acquisitions made by all businesses which are audited under GAAP.
14. Certain types of businesses such a law partnerships are difficult to value, but we have the knowledge to do it credibly.
15. Litigation support involves providing the financial and valuation perspective to a lawsuit in order to make it more effective. We work with attorneys and make sure your action stays focused and works towards your financial goals. We often advise about what information to obtain through discovery, then value the interest involved. We can help in particular with Lost Profit Damage proceeedings.
16. You are a family law practitioner and either your client or the opposing party own(s) a closely-held business, a professional practice, options and other complex instruments in connection with a minority stake in a larger busines. You need a specialist to determine, in a credible manner, what the law says is the value; this is significantly dependent on state law - NY is very different from CT for example. The appraisal needs to withstand the scrutiny of the opposing side and its expert, and more importantly needs to convince the judge or jury.
17. When complex valuation issues are at stake in a law suit, it pays to have a Business Valuation professional make sure they are understood by all parties: you need a BV Expert Witness.
18. If the financial statements of your business are audited, generally accepted accounting principles now require that all identifiable intangibles and the residual goodwill acquired be accounted for and periodically tested in a specific manner. Accounting firms now generally advise their clients to support the accounting treatment of an acquisition, of the periodic testing and of an event leading to impairment of intangible assets, by an independent third-party appraisal.
19. Professional corporations present valuation challenges in divorce or buy/sell situations since few financial statements are generally available beyond personal tax records. Further, professional corporations are complex businesses with both a personal and an entity goodwill. Recent statutory, technology and industry [reimbursement] issues greatly influence values for medical practices. We can help.
20. Estates often own secured or un-secured promissory notes. A Business Appraiser will value these assets with appropriate analytical, empirical and factual support so as to minimize the risk of a costly IRS audit.
21. Family Limited Partnerships and LLC's are emerging as the vehicle of choice, when properly structured and valued, to tranfer, over time, portfolios of real estate or securities to your clients' families AND minimize the still very much alive transfer taxes such as estate/gift taxes. Recent case law has revealed hightened levels of IRS scrutiny, but also legitimized the discounts, particularly when real property assets are involved.You must have a business, non-tax reason for these structures, and section 2036 must be followed carefully. We follow the case law and have extensive experience supporting such discounts.
22. Fractional interests in real property are also subject to discounts in estate or gift situations, if you can document the discounts in a reasoned manner consistent with the latest in business valuation theory - which has made strides in recent years - as well as relevant tax case law.
There are several other situations where you should suggest hiring a Business Valuation professional in order to make sure you and your client have the best advice. We have the middle-market and the valuation experience; we have the credentials and take the time to do it right. Call J.L. Pierson, ASA to discuss: 203-325-2703 or jlp@NYNJCT-BV.com or http://NYNJCT-BV.com.
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