Things to Consider When Using Business Valuation to Resolve a Shareholder Dispute
Since business valuation plays a pivotal role in resolving shareholder disputes, it is important to consider a number of factors to ensure that your conflict does not lead to time-consuming and expensive litigation.
Often, shareholder disputes occur when minority shareholders feel that their rights were violated or when majority shareholders attempt to squeeze them out. If you need assistance with resolving your shareholder dispute in Georgia, speak with our Atlanta business litigation attorney at Carroll Law Firm.
Consider Drafting a Buy-Sell Agreement
As a threshold matter, it is worth noting that a large percentage of shareholder disputes can be prevented or mitigated with the help of buy-sell agreements. An experienced shareholder dispute attorney can help you draft a buy-sell agreement or include provisions in your existing agreement to minimize the risk of litigation.
Since many disputes between shareholders are caused by the shareholders’ disagreements about the value of shares, the buy-sell agreement should include provisions for the valuation of shares. In most cases, this means outlining a valuation formula.
Also, many shareholder disputes are caused by majority shareholders’ attempts to buy out the shares of minority shareholders. For this reason, a buy-sell agreement must include mechanisms for how and when shareholders are allowed to buy out the shares of other shareholders.
When shareholders do not have a buy-sell agreement or the agreement does not include provisions for the valuation of shares, a shareholder dispute is likely to enter litigation.
Things to Consider When Using Business Valuation During Shareholder Disputes
While most shareholder disputes can be resolved amicably through negotiations, some disputes can lead to expensive business litigation. When disputes occur due to disagreements about the value of shares, shareholders may hire business valuation experts to provide an independent and unbiased valuation of the shares.
Before hiring business valuation experts, shareholders must identify and agree upon the appropriate standard of value if the buy-sell agreement does not include a valuation formula.
Failure to choose the appropriate standard of value could lead to more disputes. Several standards of value are used in the vast majority of buy-sell agreements. These include:
- Fair market value
- Fair value
- Investment value
Different standards of value may result in disparate value conclusions, which may trigger new disagreements among the shareholders. That is why identifying and agreeing upon the appropriate standard of value is important before proceeding with the appraisal.
Shareholders may benefit from hiring attorneys who would help them identify the most appropriate standard of value for their unique situation and in their particular state. Shareholder rights laws differ from one state to another, which is why it is vital to consult with a Georgia partner/shareholder dispute attorney if you are dealing with internal conflicts in your company, corporation, small LLC or partnership, or other type of business in Georgia.
Contact our business litigation lawyer in Atlanta, Stacey Carroll, to schedule a consultation about your particular situation. Call at 404-816-4555.