When high-stakes disputes arise involving businesses, partnerships, or substantial personal assets, the valuation of those assets often becomes central to litigation outcomes. Whether you face a partnership breakup, a contested corporate transaction, a contentious divorce, or a complex trust and estate matter involving business interests, understanding valuation litigation can significantly impact your financial future.

When Do Valuation Proceedings Occur?

Valuation proceedings arise under specific circumstances defined by New York law, notably:

• Partnership disputes: When partners withdraw voluntarily, wrongfully, or due to retirement or death, partnership law often requires an appraisal of their interests. Disputes frequently hinge on whether the partnership is "at will" or subject to specific agreement terms.
• Corporate litigation: Shareholder disagreements, particularly in cases alleging oppression or dissenting from corporate actions like mergers or changes in corporate structure, can trigger statutory appraisal rights under New York's Business Corporation Law.
• LLC disputes: Members withdrawing from LLCs, or dissenting from mergers or seeking judicial dissolution, frequently end up litigating the value of their interests.
• Trust and estate and matrimonial litigation: When estates or marital estates in divorce include ownership stakes in businesses, litigation often involves contested valuations, significantly influencing equitable distribution.

Understanding "Value" vs. "Fair Value"

The terms "value" and "fair value" might appear similar but there are critical legal distinctions that matter to your bottom line:

• "Value" under Partnership Law usually results in lower figures since it excludes factors like goodwill and may include discounts for lack of control or marketability.
• "Fair value" in corporate and LLC contexts typically means evaluating the business as a going concern, excluding discounts for minority positions and sometimes disallowing discounts for lack of marketability.

Valuation Methods: Tailored to Your Business Needs

Courts consider three primary methods for business valuation:

1. Asset approach evaluates a business based on net assets minus liabilities, ideal for real estate or holding companies.
2. Income approach determines value from projected net operating income or discounted cash flows, suitable for service-oriented or active operating companies.
3. Market approach compares similar business sales transactions or public company market data, though often less applicable due to the uniqueness of privately-held businesses.

Expert appraisers often normalize financial statements, removing anomalies like excessive owner compensation or one-time events, ensuring accurate reflection of the business's ongoing value.

Key Factors Influencing Valuation

• Valuation date: The specific date on which assets are appraised dramatically impacts outcomes and varies by legal context (e.g., date of partner withdrawal or shareholder vote).
• "Known or knowable" information: Courts only consider information available at the valuation date, not speculative future events. This includes excluding hypothetical "synergistic" value from potential strategic buyers.

Important Considerations: Discounts

Certain discounts may apply depending on your situation:

• Discount for Lack of Marketability (DLOM): Reflects reduced value due to illiquidity. Courts have discretion to apply this, especially when ownership has no genuine intention to sell.
• Discount for Lack of Control (DLOC): Permitted primarily in partnership cases; prohibited for corporate and typically LLC valuations to ensure fair treatment of minority interests.
• Goodwill Discount: Exclusive to wrongful partnership withdrawals; courts exclude goodwill value explicitly under certain partnership disputes.

The Importance of Expert Guidance

Ultimately, business valuation litigation involves substantial judicial discretion due to the absence of rigid statutory formulas. Success depends significantly on selecting experienced, credible appraisers and attorneys skilled in navigating these nuanced proceedings.

At our litigation firm, we focus on protecting the interests of clients facing complex valuation disputes across business, employment, matrimonial, and trust and estate matters. If you are facing concerns related to a similar issue, please feel free to contact us here.

To learn more about these topics, you may want to review our information provided on these pages: Business Litigation, Breach of Contract, Business Divorce and Dissolution. You may learn more about us and how we operate by visiting these pages: About Us and What Sets Us Apart.

This post is not intended as legal advice, but rather for educational purposes.