Shareholder Disputes

Business partners do not always agree on the best course of action for a company, or on a reasonable sale price should a shareholder wish to exit the business.  In this case, especially in the absence of a formal buy-sell agreement, an independent business appraisal is often needed to settle disputes on the "Fair Value" of the shares in question.

Hypothetical scenarios that require a business valuation

• An employee who has received a significant portion of his compensation in the form of equity feels that he is being treated unfairly by the controlling shareholder. The employee claims that the controlling shareholder's salary is excessive, and that the salary is one method that the controlling shareholder uses to abuse minority shareholders. Without an existing buy-sell provision in place, a business valuation may be necessary in order for the employee to exit the business.
  
  
• One of two founding business partners has unexpectedly passed away. There were no provisions outlining protocol in the event of shareholder death and thus the shares owned by the deceased were passed along to the widow. The remaining founder does not wish for the widow to be a shareholder in the business and would like to purchase her shares, however, the two disagree on a fair price at which to exchange shares. A business valuation from a qualified, independent business appraiser would determine a fair price at which the shareholders could exchange shares.

Special considerations for stockholder disputes:

Stockholder disputes can arise from many different circumstances. In general, they arise when the minority shareholder feels that their rights have been violated or have been otherwise treated unfairly. In such cases, the minority shareholder may seek to have the business appraised prior to adverse decisions by the majority shareholder.

An important factor to remember is that the standard of value in stockholder disputes is 'fair value' rather than 'fair market value'. The distinguishing factors are that the minority shareholder is often under duress and is essentially being forced to exit the business. Also, rather than a hypothetical buyer, the buyer is typically the majority shareholder.

In a shareholder dispute, both sides may hire their own business appraiser, or both sides may jointly hire a single appraiser. Typically, hiring a single appraiser will reduce the amount of legal fees and allow both parties to find an equitable solution.  As appraisers, we remain independent and unbiased when engaged to appraise the value of a business and always strive to represent the value of the business as fairly as possible.