What is Valuation for Shareholder Disputes?

Shareholder disputes are often initiated by a non-controlling or minority shareholder who believes they are being disadvantaged by majority holders, management or the board of directors.   Some of the factors that contribute to this are:

  • Different levels of financial knowledge and background
  • Different levels of involvement in the financial management and responsibilities of the company
  • Frustration about different levels of compensation or questions about the validity of compensation paid
  • Questions about the level or form of distributions from the entity
  • Different expectations regarding the price and potential dilution from a transaction or investment fund raising

The key in a shareholder dispute is not the claim but the successful use of facts to resolve issues in the case.  VFP works for both plaintiffs and defendants in these cases and is also sometimes hired to serve as neutral in mediation or settlement negotiations.   The key to shareholder disputes is to get them the settled if at all possible in order to avoid the distractions, destruction of company value, and personal frustration of all parties involved in these disputes.

Valuation in shareholder disputes is often complicated by a number of variables like the ones listed below.

  • Lack of discovery / access to records
  • Lack of cooperation by the parties
  • Need for financial forensics (see VFP’s blog Financial Forensics for Shareholder Disputes)
  • Lack of understand of the realities – the costs and tradeoffs – of litigated shareholder disputes

The starting point for any valuation is the standard of value which defines the assumptions that are the foundation for the principals and approach in valuation.  In shareholder disputes, the standard of value is not consistent.  It may be determined by a shareholder agreement or by a state statute for shareholder buyout and/or shareholder oppression (see our blog on Standards of Value in Shareholder Litigation).

Some of the valuation services VFP has provided in these matters are outlined below.

  • Valuation of a private company that successfully facilitated a transaction between family members who had widely different expectations of value for a controlling shareholder interest.
  • Valuation of private companies on both a fair value and a fair market value basis in litigated shareholder dispute.
  • Financial neutral task with reviewing the valuation reports produced by opposing experts in mediation over the disputed value of a private company interest.
  • Valuation of a private company for a shareholder buyout in settlement of a dispute over competition and non-compete violation claims.

If you would like to read more about VFP’s valuation services visit What is Valuation?Tax Valuation & Planning; Fairness Opinions; Buying & Selling a Business; and How is VFP Different? in the Valuation section.  For more information on shareholder disputes visit Shareholder Disputes in Financial Forensics and Litigation Support sections.