Standards of Value

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 197 Noah 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