Sunday, April 10, 2016

A Proper Method of Evaluating Minority Closely-Held Stock Valuation

"Hypothetical market value" is the value a sensible buyer would pay for stock. Establishing this value is a matter of positive analysis. The hypothetical market is often value different for majority and minority stock resulting from the various conflict interests between majority and minority shareholders whereas the "fair value," which is the final goal of the judicial judgment of how much the buyer should pay for the minority stock in the case of a takeover or appraisal. It fair is a matter of normative analysis. In most legal proceedings in relation to positive and normative analysis, the decision is mixed or rather confused. 

Hypothetical Market Value Is Prejudiced
Both the hypothetical market value and the fair value are distinct and related concepts. For Instance if courts adopt an opinion of fair value, it will be reflected at least partially if not completely-in hypothetical market value. In other words, what a reasonable buyer will pay will take into account what the courts have determined to be fair value. 
The hypothetical market value is prejudiced not only by the state of the company, but also by the state of the law. Lawful shapes the value. Although the hypothetical market value likely differ from the fair value, but serves as a useful starting point in knowing the interests of majority and minority shareholders. 

Fair Value:  A Slippery Concept
Fair values differ depending on the theory creating the values. For instance, there can be different notions in cases of buyout or turnover thus; one must distinguish between positive analysis and normative analysis as Positive analysis considers the conflicts of interest among shareholders, and the hypothetical market values of the minority stock and the majority stock.

One must consider which value is the most persuasive to seek an "objectively correct" valuation. Seek help of Foxboro Consulting Group in order to make a fair choice in matters of Gift & Estate Tax valuation, Closely-held stock valuation and other business related terms. For more information contact

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