Owner disputes many times involve a minority shareholder or business partner who disagrees with decisions made by a controlling owner. These disagreements can become significant and unable to be resolved without time consuming and expensive litigation. This can become a major distraction for company management and have a negative effect on business value. Often this will only be resolved by the minority shareholder or business partner leaving the company.
Most shareholder or business owner disagreements often could have been resolved before litigation had a buy and sell agreement been in place. Business valuation professionals can play a significant role in helping business owners and their attorneys draft provisions in these agreements that can be helpful in resolving disputes and preventing the likelihood of time consuming and expensive litigation.
Key business valuation provisions in these agreements would describe the following:
1. Establish procedures to determine share or owner value.
2.Describe situations when a shareholder or owner is allowed or required to buy out the the shares of another shareholder or owner.
3. Set guidelines for the hiring of and outside business appraiser and specify business valuation components such as standard and premise of value, the date of valuation, and the use of valuation discounts.
Each of the above components can have a significant impact on the conclusion of value when applied in an inconsistent manner and having them clearly defined in an agreement can minimize the likelihood of a disagreement over share or owner value
Be aware that when a properly prepared buy and sell agreement is not in place, shareholder and owner disputes can continue for months and years due to complex statutes and case law in states where a business operates.