Drafting Valuation Provisions for Closely Held Businesses in Buy-Sell Agreements and Governance Documents

Methodologies and Adjustments: Accounting for Real Estate Assets, Goodwill

Recording of a 90-minute CLE video webinar with Q&A

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Conducted on Thursday, April 7, 2022

Recorded event now available

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Course Materials

This CLE course will examine practical and legal issues in determining a closely held entity's value when facing a sale of a portion or the entire ownership interests. The panel will discuss the various forms of valuation methodology and how to incorporate these terms into governance documents and buy-sell agreements, as well as address future adjustments and the implications of valuing real estate and goodwill assets.

Description

Corporate counsel that represents a closely held entity, whether a corporation, LLC, or partnership with a small number of owners and not publicly traded, can be difficult to discern the business' value. Whether the owners are looking to sell a portion of the company or the entire enterprise, creating a framework for valuation early in the corporate legal development can alleviate future disputes.

There are numerous valuation methodologies and advantages and disadvantages to using each. Some methodologies favor particular industries and whether conflicts of interest exist or where a fiduciary duty is present. Drafting these provisions can also forestall future disputes among owners.

Outside of governance documents, corporate counsel might consider drafting buy-sell agreements that include methodology and adjustment provisions. However, counsel must consider when and how to incorporate an entity's real estate, whether it should be part of a single-asset sub-entity, and how and when to address goodwill as part of business value.

Listen as our authoritative panel discusses best practices for drafting valuation provisions in corporate governance documents and buy-sell agreements. The panel will address the various valuation methodologies and how corporate documents can anticipate adjustments and fixed value of all assets, including real estate and goodwill.

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Outline

  1. Valuation methodology
    1. Net asset value
    2. The earnings approach
    3. Dividend-paying capacity
    4. The market approach
  2. Valuation adjustments
    1. Lack of marketability
    2. Minority interests
    3. Loss of a key person
    4. Built-in capital gain
  3. Buy-sell agreements and fixing value
  4. Attribution of value
    1. Real estate assets
    2. Goodwill as asset

Benefits

The panel will review these and other key issues:

  • How should counsel assist in determining the value methodology in corporate governance documents and buy-sell agreements?
  • When should value adjustments be made to corporate documents to reflect business growth?
  • When should a buy-sell agreement address fixed value?
  • How can counsel work with appraisers, accountants, and other professionals to determine or calculate business assets, including real estate and goodwill? When should real estate be spun away from other assets in determining value?

Faculty

Jacobson, David
David C. Jacobson

Partner
Meltzer Lippe Goldstein & Breitstone

Mr. Jacobson's practice encompasses all aspects of estate planning and has considerable expertise in minimizing the...  |  Read More

Povlich, Todd
Todd G. Povlich, CFA, ASA

Managing Director
MPI

Mr. Povlich has determined the value of closely held securities of companies and partnerships in many industries for a...  |  Read More

Rappaport, Matthew
Matthew E. Rappaport, Esq., LL.M.

Vice Managing Partner
Falcon Rappaport & Berkman

Mr. Rappaport counsels clients on technical and complex tax issues. He works closely with closely held business owners,...  |  Read More

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