Owners of a closely-held corporation or a small business are quick to know the current value of their home, cars, fine jewelry, or even a cherished painting. But they tend to pay much less attention to the current value of their business – at least until it is time to sell.
However, there are many reasons to have a firm grasp on the fair market value of your company. Here are just a few examples of matters which may require a reliable and up-to-date business valuation:
- Tracking the growth and performance of your business
- Strengthening leverage with creditors
- Attracting potential investors
- Business succession
- Family estate planning
Just as a business valuation may be critical during a divorce proceeding in accounting marital assets, market valuations have become increasingly important in business litigation, such as shareholder disputes. Recent case law has paved the way for Indiana trial courts to freely determine a company’s value based on the analysis of expert witnesses. But what’s more, in reviewing a freeze-out case involving minority shareholders’ claims against the majority owner, the Indiana court of appeals held that a trial court was right to consider the same forward-looking factors – e.g., market factors, prospective business expansion, and increased efficiencies – which a business valuator would use to determine the fair value of a company outside of a litigation context. Lees Inns of America, Inc. v. Lee, 924 N.E.2d 143 (Ind. Ct. App. 2010).In that case, the trial court had rejected the majority shareholder’s argument that a valuation of the minority shareholder’s interest should be devoid of speculation and thus confined to an analysis of the company’s historical financial performance. Id. at 156.
Indiana law generally disfavors an award of damages that are deemed too speculative in nature. So, the Indiana court of appeals’ endorsement of the trial court’s use of financial projections and future elements in a discounted cash flow approach to business valuation in the Lees Inns case is an important one to keep in mind when approaching disputes between shareholders. This may apply to litigation involving freeze-out or squeeze-out claims, a shareholder’s breach of fiduciary duty, and minority shareholder dissenter’s rights claims.
Robert Means, LLC represents closely-held corporations and their individual owners in disputes arising amongst shareholders or between minority shareholders and the company itself, whether or not a lawsuit has been filed or is imminent. As a small firm, Robert Means, LLC is able to provide cost-effective legal advice and the level of responsive service that small business owners expect and deserve. Please feel free to call us today at (317) 353-3600 or contact us via email to discuss your case.