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Standards of Value. Theory and Applications. 2nd Edition. Wiley Finance

  • ID: 2240242
  • Book
  • May 2013
  • 458 Pages
  • John Wiley and Sons Ltd
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Expert guidance on the major standards of value

As a legal matter, the value of an asset may depend to a significant degree on the standard of value applied in specific circumstances. Different circumstances that could determine the standard of value include different types of disputes or proceedings, different venues, or varying applicable laws. Experienced practitioners know that even a difference that seems merely semantic to the layperson, such as "fair market value" vs. "fair value," could have major implications in determining value.

Standards of Value, Second Edition presents an up–to–date, comprehensive guide to the key distinctions and considerations used in valuation processes. To accomplish this, the coverage offers a detailed look at valuation theory and how its concepts have been applied. Practitioners will find a useful survey of case law, publications, statutes, and judicial rulings showing how standards of value are used across all fifty U.S. states and the District of Columbia.

Fully revised and updated with the latest developments in the field, Standards of Value, Second Edition spans four practice areas, including estate and gift taxation, shareholder dissent and oppression, divorce, and financial reporting. New and updated material in this Second Edition includes:

  • Discussion of new case law concerning divorce, personal good will, and estate and gift tax
  • A new chapter on standards of value for buyouts from general partnerships, limited partnerships, limited liability partnerships (LLPs), and limited liability companies (LLCs)
  • Coverage of newly issued financial standards and GAAP codification
  • And more

Attorneys, appraisers, and other professionals who deal with valuation will find Standards of Value, Second Edition an essential reference for both the reasoning behind these standards, as well as the intricacies of their practical use.

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Foreword xiii

Preface xvii

Acknowledgments xxi

About the Authors xxv

Introduction 1

Purpose 1

Every Appraisal Is Unique 3

Fair Value versus Fair Market Value 4

Historical Perspective 5

Chapter Preview 8

Chapter 1: Common Standards and Premises of Value 8

Chapter 2: Fair Market Value in Estate and Gift Tax 8

Chapter 3: Fair Value in Shareholder Dissent and Oppression 9

Chapter 4: Standards of Value for Partnership and Limited Liability Company Buyouts 10

Chapter 5: Standards of Value in Divorce 12

Chapter 6: Fair Value in Financial Reporting 13

How Standard of Value Can Affect the Ultimate Conclusion of Value 13

Chapter 1 Common Standards and Premises of Value 17

Common Standards and Premises 17

Price, Value, and Cost 17

Defining a Standard of Value 19

Premises of Value 20

Common Standards of Value 21

Fair Market Value 21

Fair Value 23

Investment Value 24

Intrinsic Value 25

Book Value 27

Common Operational Premises Underlying the Standard of Value 28

Going Concern 28

Liquidation Value 29

Fair Value in Alternative Contexts 30

Fair Market Value in Alternative Contexts 31

Standards of Value in the International Context 32

Summary 33

Chapter 2 Fair Market Value in Estate and Gift Tax 35

Introduction 35

Common Definitions of Fair Market Value 36

History of Fair Market Value 37

United States v. Fourteen Packages of Pins 38

Elements of Fair Market Value 41

Price at Which a Property Would Change Hands 42

Willing Buyer 44

Willing Seller 54

No Compulsion to Buy or Sell 59

Reasonable Knowledge of Relevant Facts 63

Common Discounts 80

Summary 87

Chapter 3 Fair Value in Shareholder Dissent and Oppression 89
Gilbert E. Matthews and Michelle Patterson

Fair Value as the Standard of Value in Dissent, Oppression, and Entire Fairness Cases 89

The Appraisal Remedy for Dissenting Shareholders 94

History and Overview of the Appraisal Remedy 94

Appraisal Rights Today 97

Appraisal Rights in Publicly Traded Corporations: The Market Exception 99

Fair Value Can Be Less Than Arms –Length Price 102

The Oppression Remedy 106

Development of the Oppression Remedy 106

Context of Oppression Remedy 107

Dissolution as a Remedy for Oppression 110

Shareholder Buyouts as an Alternative Remedy 110

Examples of Oppression 116

Fair Value Is the Standard of Value in Appraisal and Oppression in Almost All States 121

Fair Value as Defined by Various Authorities and Statutes 121

The Valuation Date Before the Effectuation of the Corporate Action to Which the Shareholder Objects 125

Valuation Date in Appraisal Cases 125

Valuation Date in Oppression Cases 126

Customary and Current Valuation Techniques 130

Fair Value in Delaware 139

Delaware Fair Value Standards 139

Entire Fairness in Delaware 140

Components of Fair Value in Delaware 144

Ohio s Unique and Unfavorable Standard of Value in Appraisals 155

Fair Value Normally Excludes Discounts and Premiums 157

Most States Now Reject Minority and Marketability Discounts 157

Levels of Value 159

Discounts at the Shareholder Level 160

The Implicit Minority Discount 163

No Premiums Are Applicable to DCF Values 167

Discounts at the Corporate Level 168

Control Premiums at the Corporate Level 169

Some States Permit Considering Extraordinary Circumstances in Determining Whether to Apply Discounts 171

Court Decisions Have Moved toward Rejecting Discounts 172

Equitable Adjustments to Fair Value 188

Consideration of Wrongdoing in Calculating Fair Value 188

Damage Claims 193

Summary 194

Chapter 4 Standards of Value for Partnership and Limited Liability Company Buyouts 197Noah J. Gordon

Introduction 197

Buyout upon Dissociation 198

Buyout in Lieu of Dissolution 199

Dissenters Rights 200

Partnerships and Limited Liability Partnerships (LLPs) 200

Limited Liability Partnerships 201

General Partnership Standard of Value Cases 212

Limited Partnerships 216

Limited Liability Companies, Generally 222

Uniform Acts 223

Buyout in Lieu of Dissolution 224

Withdrawal and Buyout 228

Dissenters Rights 231

Professional LLCs 232

LLC Decisions 232

Summary 235

Chapter 5 Standards of Value in Divorce 237

Introduction 237

Marital Property: General Background and History 240

Identification of Marital Property and Separate Property 242

Relationship between Valuation and Identification of Intangible Assets 244

Appreciation on Separate Property 246

Premises and Standards of Value in Divorce 249

Premises of Value 249

Standards of Value 250

Premises of Value Revealed through the Valuation of Insurance Agencies 255

Concepts of Value under the Two Premises 257

Standards of Value in Divorce among the 50 States 258

Lack of Statutory Insight 258

Revealing Standard of Value through Case Law 260

Toward a Standard of Value Classification System 265

Value in Exchange 274

Goodwill 274

Lack of Control and Marketability Discounts under Value in Exchange 290

Fair Value 293

Buy Sell Agreements under Value in Exchange 299

Value to the Holder 304

Goodwill 304

Double Dipping 315

Shareholder–Level Discounts under the Value to the Holder Premise 317

Fair Value 317

Buy Sell Agreements under Value to the Holder 318

Summary 320

Chapter 6 Fair Value in Financial Reporting 323
Neil J. Beaton

Introduction 323

Fair Value in Financial Reporting: What Is It? 324

Application of Fair Value 325

History of Fair Value in U.S. Accounting Literature 328

Application of the Fair Value Standard to Business Combinations 333

Application of the Fair Value Standard to Asset Impairment Tests 336

Interpretation of Fair Value Compared to Other Standards of Value 339

Fair Value in Financial Reporting versus Fair Value in Dissenters Rights Cases 339

Fair Value in Financial Reporting versus Investment Value 339

Fair Value in Financial Reporting versus Fair Market Value 340

Audit Issues 342

Summary 343

Appendix: Sources of Information 344

Appendix A International Business Valuation Standards 347

Introduction 347

International Valuation Standards Council 347

Valuation Organization 348

Broad Definitions 350

Approaches to Valuation 351

Types of Property 352

Toronto Valuation Accord 353

Mission and Objectives 354

Definitions 355

Fair Value Measurement 356

Conclusion 357

Royal Institute of Chartered Surveyors 358

International Financial Reporting Standards 358

Appendix B Chart Fair Value in Dissent and Oppression 359

Appendix C Standards of Value in Divorce Classifications by State and Standard of Value 377

Index 443

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JAY E. FISHMAN, FASA, is coauthor or contributing author of seven professional books. He is a managing director of Financial Research Associates, a regional business valuation and forensic accounting firm. He has conducted hundreds of business valuations and has qualified as an expert witness and provided testimony in several federal and state courts.

SHANNON P. PRATT is one of the most successful and respected authors in the field of business valuations. He has written many industry standard texts. Over a distinguished career spanning more than four decades, he has performed valuation engagements for M&As, ESOPs, and numerous other purposes. Dr. Pratt is CEO of Shannon Pratt Valuations, a business valuation firm located in Portland, Oregon.

WILLIAM J. MORRISON, CPA, ABV, CFF, is a partner at WithumSmith+Brown, a regional mid–Atlantic CPA firm, and is frequently appointed by the courts as a valuation expert. He has published articles on forensic accounting and valuation. He is a former FBI agent and has conducted thousands of forensic accounting investigations and business valuations of closely held companies.

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