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This post provides a discussion of several implications of the definition of the standard of value known as fairmarketvalue. We focus first on the definition of fairmarketvalue. We then look at the implications for the so-called “marketability discount for controlling interests.”
Further, while the statute defines “fairvalue” to eliminate the marketability and minority discounts typically associated with “fairmarketvalue” valuations, courts in Illinois have found that “fairmarketvalue” is a relevant factor to be considered when determining “fairvalue.”
If you're looking to deepen your understanding of business appraisal standards, this article dives into the significance of Revenue Ruling 59-60 and USPAP. Discover how these key guidelines help appraisers achieve accurate, fair, and legally defensible valuations. H2: How does USPAP affect business appraisal?
” And the answer holds regardless of any certifications appraisers might hold. Procedural Guidelines (PG) are designed to provide more detailed guidance for consideration by business appraisers than found in the base standards themselves. The value of the underlying enterprise or asset, if applicable.
My most recent post, titled FairMarketValue and the Nonexistent Marketability Discount , generated quite a discussion when posted on LinkedIn. The post provided a solid rationale that there is no such thing as a marketability discount for controlling interests of companies.
In Mercer’s Musings #2, we discussed the old and cold data on restricted stock transactions that have been misused by appraisers for decades. This conclusion applies to all appraisals, including those prepared for the Internal Revenue Service. In other words, value is a function of expected cash flow, growth, and risk.
This includes reviewing business information and assessing equity risk in order to produce a value conclusion addressing those risk factors. Valuation discounts are essentially the difference between fairvalue and fairmarketvalue. Declare/pay shareholder dividends. Influence and control the board.
The value of a partial interest is the net value discounted to reflect the effects of some or all of the following: Minority – discount for lack of control (aka DLOC); minority owner cannot effect compensation; strategic and operational business decisions; dividend and distribution policy; and divestiture alternatives.
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