When it comes to business valuation principles in contested appraisal proceedings, I’d say the 50 states have far more in common than separates them. Certainly this is true in cases applying the fair market value standard deriving not from state law but from generally accepted appraisal doctrine as embodied in a number of IRS revenue rulings. But even in cases applying the statutory fair value standard, which is derived purely from state law governing buyouts in dissolution and dissenting shareholder proceedings, there is much to be learned by examining cases from other states.
Below I’ve selected five recent business valuation cases decided by appellate courts in five different states. Not surprisingly, the main area of dissension in four of the five cases concerns the applicability of discounts under both statutorily and contractually imposed standards of value. Each case contributes a little bit to our understanding of how courts and appraisers grapple with the difficulty of placing values on interests in closely held business entities for which no ready market exists.
Louisiana: Court Distinguishes “Fair Value” from “Fair Market Value” in Refusing to Tax-Effect S Corporation’s Accounts Receivable
Last month, in Kolwe v Civil and Structural Engineers, Inc., No. 18-398 [Ct. App. La. Feb. 21, 2019], an intermediate Louisiana appellate court upheld a trial court’s determination of the statutory fair value of a one-third stock interest in a professional engineering firm that elected pass-through taxation as an S corporation. Both sides’ experts used a net asset value approach. The company challenged the lower court’s $871,000 award principally on the ground that the company’s accounts receivable should have been tax-effected to reflect the tax liability that would accrue on their collection. Continue Reading A Cross-Country Tour of Five Recent Stock Appraisal Cases