Shareholder Valuation Disputes

Our shareholder valuation dispute services include:

• Shareholder, partner, and member buyouts
• Valuation and financial issues arising in shareholder oppression and fiduciary-duty disputes
• Disputes involving distributions, compensation, or capital accounts
• Valuation under operating, shareholder, partnership, and buy-sell agreements
• Related-party transactions and transfers
• Review and rebuttal of opposing valuation or financial analyses
• Mediation, arbitration, deposition, and trial support

The value of an ownership interest can depend on the purpose of the valuation, applicable standard of value, valuation date, governing agreements, ownership rights, financial condition and prospects of the business, and other facts specific to the dispute.

We identify the appropriate valuation framework in coordination with counsel and analyze the economic characteristics of the specific ownership interest rather than assuming its value is simply a proportionate share of the company's total equity value.

The applicable standard of value can materially affect the valuation of an ownership interest. Depending on the jurisdiction, nature of the dispute, governing agreement, and purpose of the valuation, the assignment may require fair value, fair market value, a contractually defined measure of value, or another applicable standard.

In Illinois, for example, Section 12.56 of the Illinois Business Corporation Act provides for the purchase of a petitioning shareholder's shares as one potential remedy in certain disputes involving non-public corporations. For purposes of subsection (e) of the act, “fair value” means “the proportionate interest of the shareholder in the corporation, without any discount for minority status or, absent extraordinary circumstances, lack of marketability.”

The distinction between standards of value can therefore be particularly important when considering the treatment of control and marketability. A valuation conclusion developed under one standard of value may not be appropriate under another.

Counsel determines the applicable legal standard and its interpretation. Our role is to apply the appropriate valuation framework to the financial and economic evidence.

A business valuation expresses value as of a specific date. The valuation date establishes the point in time at which value is measured and affects the financial information, market conditions, economic environment, and other evidence relevant to the analysis.

The applicable valuation date may depend on the nature of the claim, governing law, or contractual provisions. We coordinate with counsel regarding the appropriate valuation date and perform our analysis based on the facts and circumstances relevant to that date.

Operating agreements, shareholder agreements, partnership agreements, buy-sell agreements, and other governing documents may materially affect the economic characteristics of an ownership interest.

Depending on the assignment, we may consider voting and management rights, distribution rights, transfer restrictions, redemption provisions, buy-sell terms, valuation formulas, and rights upon a sale, liquidation, or dissolution.

Counsel determines the legal effect of these provisions. We evaluate their financial and economic implications for the ownership interest being valued.

The applicability of discounts for lack of control (DLOC) and lack of marketability (DLOM) can be an important issue in shareholder valuation disputes.

Whether a discount is appropriate depends on the applicable standard of value, the characteristics of the ownership interest, and the relevant legal framework. Where discounts are applicable, we analyze the rights and restrictions of the interest, ownership structure, distribution history, transferability, expected holding period, and relevant market evidence.

Because the treatment of valuation discounts can vary based on the applicable legal framework and purpose of the valuation, we coordinate with counsel regarding the governing standard and evaluate control and marketability within the applicable valuation framework.

The financial information underlying a business valuation may itself be disputed, and the financial records in a shareholder valuation dispute may raise issues beyond the valuation itself. We analyze the company's historical financial performance and, where relevant, the financial activity of its owners and related parties. Depending on the facts and circumstances of the engagement, our financial and forensic analysis may include areas such as:

• Tracing funds and transactions
• Analyzing distributions and capital contributions
• Reviewing shareholder or member loans
• Analyzing related-party and intercompany transactions
• Reviewing owner compensation and other payments
• Identifying personal or non-business expenditures
• Reconciling financial statements, tax returns, general ledgers, and bank records

Where these matters affect the company's reported financial performance, we also evaluate potential normalization adjustments and other items relevant to the valuation.

We assist counsel throughout the financial and valuation aspects of shareholder disputes, from discovery and preliminary analysis through mediation, arbitration, deposition, and trial.

Our work may include developing an independent valuation opinion, reviewing an opposing expert's analysis, assisting with financial discovery, and evaluating the assumptions, adjustments, methodologies, and supporting evidence underlying competing valuation conclusions.

When reviewing another valuation, we may consider the standard and premise of value, valuation date, financial adjustments, projections, selected valuation methodologies, discount and capitalization rates, market evidence, and treatment of control and marketability.

When testimony is required, our experts explain complex valuation and financial issues in a clear and supportable manner while remaining within the scope of their financial and valuation expertise.