Business Valuations for Buy-Sell Agreements
A buy-sell agreement is a formal legal document that details business succession plans if an owner or partner decides to leave the business or suddenly dies or becomes disabled and can no longer fulfill their business leadership role.
The agreement gives other owners and partners the right of first refusal to acquire the departing, deceased, or disabled partner’s shares and spells out the specific terms and conditions under which these shares may be acquired.
Buy-sell agreements usually detail how a partner’s ownership shares are to be valued. For example, it may include a designated share price or a formula for determining the price of the shares. In this case, the formula or price must be updated periodically, such as with a rolling annual value.
Buy-sell agreements are usually funded with cash value life insurance policies purchased by each owner on the other owners. These policies typically require a specific valuation clause regarding how the business valuation will be performed and who will perform it. Valuation clauses that are too nebulous can lead to disagreements about how the valuation is to be performed and even lawsuits in some circumstances.
OP Business Valuations works closely with clients to ensure that valuation clauses within buy-sell agreements are clearly written so there’s no ambiguity or confusion and valuations are performed according to the client’s wishes. This usually involves establishing the appropriate standard of value, the procedures that will be used to determine the business’ value, the appropriate valuation method to be used, and any premiums or discounts that should be applied.
We can provide annual or recurring valuations for buy-sell agreements or review a buy-sell agreement from a valuation perspective and make suggestions. If a buy-sell agreement includes a two or three appraiser process for determining value upon a triggering event, we can be named the first, second, or third appraiser.
If a buy-sell agreement ends up being challenged in court, OP Business Valuations can provide litigation support by serving as expert business valuation witnesses.
The agreement gives other owners and partners the right of first refusal to acquire the departing, deceased, or disabled partner’s shares and spells out the specific terms and conditions under which these shares may be acquired.
Buy-sell agreements usually detail how a partner’s ownership shares are to be valued. For example, it may include a designated share price or a formula for determining the price of the shares. In this case, the formula or price must be updated periodically, such as with a rolling annual value.
Buy-sell agreements are usually funded with cash value life insurance policies purchased by each owner on the other owners. These policies typically require a specific valuation clause regarding how the business valuation will be performed and who will perform it. Valuation clauses that are too nebulous can lead to disagreements about how the valuation is to be performed and even lawsuits in some circumstances.
OP Business Valuations works closely with clients to ensure that valuation clauses within buy-sell agreements are clearly written so there’s no ambiguity or confusion and valuations are performed according to the client’s wishes. This usually involves establishing the appropriate standard of value, the procedures that will be used to determine the business’ value, the appropriate valuation method to be used, and any premiums or discounts that should be applied.
We can provide annual or recurring valuations for buy-sell agreements or review a buy-sell agreement from a valuation perspective and make suggestions. If a buy-sell agreement includes a two or three appraiser process for determining value upon a triggering event, we can be named the first, second, or third appraiser.
If a buy-sell agreement ends up being challenged in court, OP Business Valuations can provide litigation support by serving as expert business valuation witnesses.
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Business Valuations for Buy-Sell Agreements
Our valuation professionals are fully accredited and credentialed by the National Association of Certified Valuators and Analysts (NACVA) and the American Institute of Certified Public Accountants (AICPA) to perform all types of business valuations.
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