Process buy-sell agreements are buy-sell agreements involving the use of one or more business appraisers in processes specified for determining value. Mercer Capital professionals have been involved in many valuation processes for determining price (valuations) for buy-sell agreements.
Many buy-sell agreement templates call for an appraisal process to resolve the price (i.e., the valuation) for transactions under companies’ agreements upon the occurrence of specified trigger events. We call such agreements process agreements. Quite often, the descriptions of the valuation processes are quite short.
The best time to think about what happens if the business or the relationship between the business owners doesn’t work out is when the business is being formed and business owners are happy.
Several other issues related to valuation should appropriately be addressed in your buy-sell agreements. The following discussion is by no means exhaustive, but includes items that are helpful in minimizing problems or uncertainties with the operation of process buy-sell agreements.
The interests of shareholders (or former shareholders) and corporations (and remaining shareholders) often diverge when buy-sell agreements are triggered.
Many buy-sell agreements are funded, in whole or in part, by life insurance on the lives of individual shareholders, who may be key managers, as well. Life insurance is a tidy solution for funding when it is available and affordable. It is important, however, to think through the implications of life insurance from a valuation perspective whether you are a valuation expert, a business owner or both.
Buy-sell agreements exist in many, if not most, closely held businesses having substantial size and/or value. And they exist between corporate joint venture partners in many thousands of enterprises.
I have been an expert witness in the business valuation and corporate damages areas for many years. When I wrote my first book, Valuing Financial Institutions, in 1992, I explained the steps I took before each testimony experience to assure, to the extent possible, that the outcome of each testimony was successful.
The Wandry case is a boon not only for business owners but also wealthy families with family limited partnerships or entities holding publicly traded stocks.
Mercer Capital’s review of Estate of Giustina v. Commissioner
This important decision contains lessons for business appraisers and users of business appraisal services.
The case of Astleford v. Commissioner is noteworthy for a number of reasons.
The Estate of Charlotte Dean Temple in United States District Court (No. 9:03 CV 165(TH) was adjudicated on March 10, 2006.
Estate of Noble v. Commissioner was filed on January 6, 2005. This articles notes two important issues that are raised by Noble.
The Family Limited Partnership (“FLP”) has been a common estate planning technique for the nation’s wealthy. For years it allowed families to avoid some tax liability when transferring assets to heirs by first placing those assets in a FLP.
The Tax Court’s decision in Albert J. and Christine M. Hackl v. Commissioner has provoked a lively discussion about how to achieve discounts to net asset value and still qualify for the annual exclusion.
On January 18, 2000, the U.S. District Court for the Western District of Texas issued an opinion in the first limited partnership case to be tried in federal court.