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Written Valuation Agreements Are Critical For All Closely Held Businesses

In representing closely held and family owned businesses for the last 25 years, I have been involved in too many ugly, acrimonious disputes among people who had previously valued each other’s skills and hard work.

Privately owned businesses have the same profile as a family-owned business. The relationships and expectation among the owners become very personal and quickly influence business operations and expectations.

Relationships too often descend into – Mirror, mirror on the wall, who is responsible for our success, most of all? You, of course.

I recently helped resolve a dispute where business partners each separately incurred a Quarter-Million Dollars in legal fees arguing over a Quarter-Million Dollars in assets. The process provided full employment for the lawyers and nothing but frustration for the litigants.

An Insurance Policy exists to avoid all ownership issues and disputes.

It’s called a Valuation Agreement. The owners of the business agree in writing to the value of the business as to all ownership transactions among the owners. The Valuation Agreement requires the owners to agree in writing to a value every year after the financial results for the year are in. Help from CPAs or certified valuation professionals at least every other year is essential. Agreeing to a value for a startup business is essential to get the owners focused on the process and can generally be done without professional help. When owners invest in valuation professionals they begin to appreciate the value of the process and commit themselves to living up to the terms of the agreement.

When no Valuation Agreement exists, disputes arise, each party hires their own valuation professional, the dispute is litigated and the owners wind up providing full employment for lawyers and unacceptable outcomes for themselves.

I can help you put together a Valuation Agreement for a tiny fraction of the cost if you don’t.

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