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The Center for Financial, Legal & Tax Planning, Inc. |
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Advisories
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SHOULD
I CONSIDER GETTING MY BUSINESS VALUED Introduction
Knowing the value of a business is
important to anyone who has an ownership interest in a company. Valuing a business is often overlooked
until the last minute. At this point, the
business owner realizes how vital a valuation is for making important business
decisions. Business valuations play a
major role in facilitating the accomplishment of satisfying the objectives of
business owners in various situations.
Some of the major reasons for getting your business appraised are
discussed below. When a
Valuation is Crucial
1) Determine Gift and Estate
Taxes: When the owner of a business transfers an
interest in a company, either as a gift or at death, the IRS requires a
valuation to be done in order to access the proper estate and gift taxes. The objective in the valuation process is
to minimize the tax burden. 2) Fair and Enforceable Buy-Sell
Agreements: Buy-Sell agreements
are used in businesses to provide for liquidating the interest of a
withdrawing or deceased shareholder. Under
this type of an agreement, it is important for both parties to receive a fair
and equitable value for their interest in the business. 3) Buying and Selling Shares in a
Company: Many times the company or a stockholder may
wish to buy or sell some shares. A
sound valuation can ensure a semblance of fairness to all parties involved. 4) Implementing an Employee Stock
Ownership Plan (ESOP): An ESOP is a form of retirement plan that
enables employees to own an interest in a company. This type of ownership is usually
established through investing the company’s stock into an Employee Stock
Ownership Trust (ESOT). When an
employee retires or dies, their interest is either paid or transferred to his
decedents. The value of the stock must
be determined annually for these purposes. 5) When a Shareholder Wants to
Dissolve Their Shares in the Company: When a shareholder wants to
leave or “disassociate” themselves from the company, the ability to arrive at
an equitable price is vital in resolving the issue. 6) When a Divorce Occurs: In the
event of a divorce, the value of the business itself is required for a
property settlement. Sometimes both
parties will agree to an independent appraiser. More commonly, however, the parties will
each hire their own experts and the matter will either be settled or decided
in a court of law. 7) Mergers or Acquisitions: When a
company merges with another, the shareholders of the merged company must be
paid either cash or stock of the acquiring company. In this situation it is essential for both
companies to be valued. 8)
Compensatory Damages Cases: In lawsuits involving breach
of contract, loss of business opportunity, antitrust, condemnations, or other
legal issues, the business appraiser must provide expert testimony to aid the
court in reaching a reasonable value to justify any damage awards. Conclusion
From this discussion, it is easy to see
why the need to hire a competent business appraiser is essential. If we wait until after these events occur
to determine the worth of a business interest, we put ourselves at a major
disadvantage. Knowing the worth of
your company can facilitate business decisions, minimize tax burdens, and
establish a fair value for many purposes such as a divorce settlement or buyout
price. The ability to know your
company’s worth changes the old cliché from “what you don’t know, can’t
hurt you” to “what you don’t know, can hurt you. If you
have any questions about having your business valued please feel free to
contact Bart, the valuation experts, at The Center for Financial, Legal &
Tax Planning, Inc. (00-03) To receive the Advisory by e-mail,
please send your address to lacie@taxplanning.com |
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The Center for
Financial, Legal and Tax Planning, Inc. |
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Satellite
Office: Longboat Key, FL |
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(618) 997-3436 Fax: (618) 997-8370 © Copyright 2005. All rights reserved. |
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