If you are a key person and you know you will always be a buyer in buy-sell agreement transactions, this concept of a key person discount might not bother you. But you may well be a seller one day. That’s no time for a big surprise in valuation.
Many buy-sell agreements with valuation processes provide guidance suggesting that appraisers should apply no discounts because of the minority nature of any holding and that there should be no discount for the lack of marketability of shares.
My recommendation is that if your business is housed in a tax pass-through entity, your buy-sell agreement should state that it is to be valued as if it were a C corporation. Here is why ….
As baby boomers age, more and more private businesses will transition to new ownership. We are, to repeat, in the midst of a demographic tsunami. Careful consideration of the “Seven Questions of Highly Effective Business Transitions” can assist business owners, their advisers and all their other stakeholders in creating and implementing successful transitions.
At less than 300 pages I tell colleagues Business Valuation: An Integrated Theory, 2nd Edition is to the valuation community what Harvey Penick’s Little Red Book was to the golfing community.
My advice as to the appropriate consideration of embedded capital gains for tax pass-through entities is that appraisers should not tax affect the gains in valuations for buy-sell agreements. You should discuss this issue with your tax advisor and let him or her walk you through examples of what happens to buyers or sellers under varying assumptions about embedded gains.
Booth Computers, a New Jersey family partnership (“Booth”), was created in 1976. In 1978, a related partnership, HCMJ Realty Ltd. was formed, of which Booth was a limited partner. Interests in Booth were given to James, Michael and Claudia Cohen by their father, Robert. The partnership acquired substantial assets over a period of more than […]
In June 2010, I participated in the video interview series “Conversations with the Masters,” hosted by Brien K. Jones of the National Association of Certified Valuation Analysts (NACVA). In the first part of the interview, filmed at the NACVA/IBA Annual Consultants’ Conference in Miami, Brien and I discuss the growing influence of LinkedIn and how […]
The article referenced is good advice. Don’t wait another day to review your buy-sell agreement.
In the June 2011 issue of The CPA Journal magazine is the article “Buy-Sell Agreements: Business Owners Benefit from Planning Ahead” by yours truly. This is a comprehensive article and one I hope you will read.
