The Meaning of Fair Market Value for Buy-Sell Agreements (Video and Text)

The standard of value of fair market value is very familiar to attorneys and appraisers and often the subject of apparent disagreement. This post looks at the standard definition of fair market value and then breaks it down into its component parts as they relate to hypothetical willing buyers and sellers. Fair market value occurs at the intersection of negotiations between these two sets of hypothetical parties. First, we must understand the meaning of fair market value. Next, we must ask the follow-up question: the fair market value of what? We investigate the relationship of the definition of fair market value and the asset(s) to which the definition pertains.

What Happens if a Formula Buy-Sell Agreement Yields a $ Zero Result?

I’ve said many times that no formula agreement can be written that will provide reasonable valuation calculations over time under all circumstances involving a company, its industry, the national economy, conditions in the financial markets, and more. This week, I review the case, Roth v. United States, 511 F. Supp. 653 (E.D. Mo. 1981) and the appeal to make this point.

A Problem: Formulas to Determine Price for Buy-Sell Agreements

The Solution Lies in a Valuation Process

If your company or your clients’ companies have formula pricing for their buy-sell agreements, the likelihood of future problems is high. It is just not possible to foresee all possible future circumstances when setting a formula today. The solution to these problems lies in a Single Appraiser, Select Now and Value Now valuation process.

A Problem: Fixed Price Buy-Sell Agreements

The Solution Lies in a Valuation Process

Fixed price buy-sell agreement pricing mechanisms are not good and seldom work. The problems with these agreements can be “fixed” if the parties focus on the future and take steps today to solve future problems before they occur. In this post, I discuss two single appraiser processes to help solve these problems.

A Buy-Sell Agreement Story

Introducing the Single Appraiser, Select Now and Value Later Process

The idea for naming the appraiser at the time a buy-sell agreement is signed was not original to me. I first heard of the idea in the late 1980s when I learned that I had been named as the appraiser in a buy-sell agreement that had been signed a few years before.¬†However, since learning of the idea, I’ve adopted¬†it and promoted it widely in my books and articles on buy-sell agreements.

He Bet and “Won” with a Fixed-Price Buy-Sell Agreement

Today I discuss another buy-sell agreement story where shareholders bet on the company’s value upon a trigger event. This story’s protagonist “wins;” unfortunately, the same cannot be said for the other shareholders. While the price was updated annually, incongruent contexts led to a dichotomy in the price of what should have been paid and what was actually paid per the agreement.

Story of a Fixed Price Buy-Sell Agreement with an Unhappy Ending

Don't Bet the Farm or the House or the Business

More than a decade ago, I was writing my first book on buy-sell agreements. While I was working on it, a long-time friend, let’s call him William, who had significant knowledge about the value of businesses, called me to relay a true story about how one buy-sell agreement ended very badly for his family.

The Promissory Note You Receive May Undermine the Fair Market Value of Your Stock

Buy-Sell Agreement Seller Beware | A Lesson via Video

Many buy-sell agreements will fail to deliver the fair market value of interests sold following trigger events, even if the valuation of the interests are exactly on point. I’ve written briefly about this topic before, but provide elaboration here.

How to Avoid Problems with the Definition of “Disability” in Buy-Sell Agreements

A Valuation/Business Lesson on Video

In this post’s video, I briefly address the definition of disability in a real buy-sell agreement, explain why it will not work if there is a trigger event, and offer an objective suggestion to avoid problems with the definition.