Standards of Value 2e – Theory and Applications

<p>Foreword xiii</p>
<p>Preface xvii</p>
<p>Acknowledgments xxi</p>
<p>About the Authors xxv</p>
<p>Introduction 1</p>
<p>Purpose 1</p>
<p>Every Appraisal Is Unique 3</p>
<p>Fair Value versus Fair Market Value 4</p>
<p>Historical Perspective 5</p>
<p>Chapter Preview 8</p>
<p>Chapter 1: Common Standards and Premises of Value 8</p>
<p>Chapter 2: Fair Market Value in Estate and Gift Tax 8</p>
<p>Chapter 3: Fair Value in Shareholder Dissent and Oppression 9</p>
<p>Chapter 4: Standards of Value for Partnership and Limited Liability Company Buyouts 10</p>
<p>Chapter 5: Standards of Value in Divorce 12</p>
<p>Chapter 6: Fair Value in Financial Reporting 13</p>
<p>How Standard of Value Can Affect the Ultimate Conclusion of Value 13</p>
<p>Chapter 1 Common Standards and Premises of Value 17</p>
<p>Common Standards and Premises 17</p>
<p>Price, Value, and Cost 17</p>
<p>Defining a Standard of Value 19</p>
<p>Premises of Value 20</p>
<p>Common Standards of Value 21</p>
<p>Fair Market Value 21</p>
<p>Fair Value 23</p>
<p>Investment Value 24</p>
<p>Intrinsic Value 25</p>
<p>Book Value 27</p>
<p>Common Operational Premises Underlying the Standard of Value 28</p>
<p>Going Concern 28</p>
<p>Liquidation Value 29</p>
<p>Fair Value in Alternative Contexts 30</p>
<p>Fair Market Value in Alternative Contexts 31</p>
<p>Standards of Value in the International Context 32</p>
<p>Summary 33</p>
<p>Chapter 2 Fair Market Value in Estate and Gift Tax 35</p>
<p>Introduction 35</p>
<p>Common Definitions of Fair Market Value 36</p>
<p>History of Fair Market Value 37</p>
<p>United States v. Fourteen Packages of Pins 38</p>
<p>Elements of Fair Market Value 41</p>
<p>Price at Which a Property Would Change Hands 42</p>
<p>Willing Buyer 44</p>
<p>Willing Seller 54</p>
<p>No Compulsion to Buy or Sell 59</p>
<p>Reasonable Knowledge of Relevant Facts 63</p>
<p>Common Discounts 80</p>
<p>Summary 87</p>
<p>Chapter 3 Fair Value in Shareholder Dissent and Oppression 89<br /> Gilbert E. Matthews and Michelle Patterson</p>
<p>Fair Value as the Standard of Value in Dissent, Oppression, and Entire Fairness Cases 89</p>
<p>The Appraisal Remedy for Dissenting Shareholders 94</p>
<p>History and Overview of the Appraisal Remedy 94</p>
<p>Appraisal Rights Today 97</p>
<p>Appraisal Rights in Publicly Traded Corporations: The Market Exception 99</p>
<p>Fair Value Can Be Less Than Arms –Length Price 102</p>
<p>The Oppression Remedy 106</p>
<p>Development of the Oppression Remedy 106</p>
<p>Context of Oppression Remedy 107</p>
<p>Dissolution as a Remedy for Oppression 110</p>
<p>Shareholder Buyouts as an Alternative Remedy 110</p>
<p>Examples of Oppression 116</p>
<p>Fair Value Is the Standard of Value in Appraisal and Oppression in Almost All States 121</p>
<p>Fair Value as Defined by Various Authorities and Statutes 121</p>
<p>The Valuation Date Before the Effectuation of the Corporate Action to Which the Shareholder Objects 125</p>
<p>Valuation Date in Appraisal Cases 125</p>
<p>Valuation Date in Oppression Cases 126</p>
<p>Customary and Current Valuation Techniques 130</p>
<p>Fair Value in Delaware 139</p>
<p>Delaware Fair Value Standards 139</p>
<p>Entire Fairness in Delaware 140</p>
<p>Components of Fair Value in Delaware 144</p>
<p>Ohio s Unique and Unfavorable Standard of Value in Appraisals 155</p>
<p>Fair Value Normally Excludes Discounts and Premiums 157</p>
<p>Most States Now Reject Minority and Marketability Discounts 157</p>
<p>Levels of Value 159</p>
<p>Discounts at the Shareholder Level 160</p>
<p>The Implicit Minority Discount 163</p>
<p>No Premiums Are Applicable to DCF Values 167</p>
<p>Discounts at the Corporate Level 168</p>
<p>Control Premiums at the Corporate Level 169</p>
<p>Some States Permit Considering Extraordinary Circumstances in Determining Whether to Apply Discounts 171</p>
<p>Court Decisions Have Moved toward Rejecting Discounts 172</p>
<p>Equitable Adjustments to Fair Value 188</p>
<p>Consideration of Wrongdoing in Calculating Fair Value 188</p>
<p>Damage Claims 193</p>
<p>Summary 194</p>
<p>Chapter 4 Standards of Value for Partnership and Limited Liability Company Buyouts 197<br /> Noah J. Gordon</p>
<p>Introduction 197</p>
<p>Buyout upon Dissociation 198</p>
<p>Buyout in Lieu of Dissolution 199</p>
<p>Dissenters Rights 200</p>
<p>Partnerships and Limited Liability Partnerships (LLPs) 200</p>
<p>Limited Liability Partnerships 201</p>
<p>General Partnership Standard of Value Cases 212</p>
<p>Limited Partnerships 216</p>
<p>Limited Liability Companies, Generally 222</p>
<p>Uniform Acts 223</p>
<p>Buyout in Lieu of Dissolution 224</p>
<p>Withdrawal and Buyout 228</p>
<p>Dissenters Rights 231</p>
<p>Professional LLCs 232</p>
<p>LLC Decisions 232</p>
<p>Summary 235</p>
<p>Chapter 5 Standards of Value in Divorce 237</p>
<p>Introduction 237</p>
<p>Marital Property: General Background and History 240</p>
<p>Identification of Marital Property and Separate Property 242</p>
<p>Relationship between Valuation and Identification of Intangible Assets 244</p>
<p>Appreciation on Separate Property 246</p>
<p>Premises and Standards of Value in Divorce 249</p>
<p>Premises of Value 249</p>
<p>Standards of Value 250</p>
<p>Premises of Value Revealed through the Valuation of Insurance Agencies 255</p>
<p>Concepts of Value under the Two Premises 257</p>
<p>Standards of Value in Divorce among the 50 States 258</p>
<p>Lack of Statutory Insight 258</p>
<p>Revealing Standard of Value through Case Law 260</p>
<p>Toward a Standard of Value Classification System 265</p>
<p>Value in Exchange 274</p>
<p>Goodwill 274</p>
<p>Lack of Control and Marketability Discounts under Value in Exchange 290</p>
<p>Fair Value 293</p>
<p>Buy Sell Agreements under Value in Exchange 299</p>
<p>Value to the Holder 304</p>
<p>Goodwill 304</p>
<p>Double Dipping 315</p>
<p>Shareholder–Level Discounts under the Value to the Holder Premise 317</p>
<p>Fair Value 317</p>
<p>Buy Sell Agreements under Value to the Holder 318</p>
<p>Summary 320</p>
<p>Chapter 6 Fair Value in Financial Reporting 323<br /> Neil J. Beaton</p>
<p>Introduction 323</p>
<p>Fair Value in Financial Reporting: What Is It? 324</p>
<p>Application of Fair Value 325</p>
<p>History of Fair Value in U.S. Accounting Literature 328</p>
<p>Application of the Fair Value Standard to Business Combinations 333</p>
<p>Application of the Fair Value Standard to Asset Impairment Tests 336</p>
<p>Interpretation of Fair Value Compared to Other Standards of Value 339</p>
<p>Fair Value in Financial Reporting versus Fair Value in Dissenters Rights Cases 339</p>
<p>Fair Value in Financial Reporting versus Investment Value 339</p>
<p>Fair Value in Financial Reporting versus Fair Market Value 340</p>
<p>Audit Issues 342</p>
<p>Summary 343</p>
<p>Appendix: Sources of Information 344</p>
<p>Appendix A International Business Valuation Standards 347</p>
<p>Introduction 347</p>
<p>International Valuation Standards Council 347</p>
<p>Valuation Organization 348</p>
<p>Broad Definitions 350</p>
<p>Approaches to Valuation 351</p>
<p>Types of Property 352</p>
<p>Toronto Valuation Accord 353</p>
<p>Mission and Objectives 354</p>
<p>Definitions 355</p>
<p>Fair Value Measurement 356</p>
<p>Conclusion 357</p>
<p>Royal Institute of Chartered Surveyors 358</p>
<p>International Financial Reporting Standards 358</p>
<p>Appendix B Chart Fair Value in Dissent and Oppression 359</p>
<p>Appendix C Standards of Value in Divorce Classifications by State and Standard of Value 377</p>
<p>Index 443</p>