Partnership Dispute Business Valuation
A Partnership Dispute Business Valuation is a formal, independent appraisal of a business or ownership interest prepared in connection with disagreements between partners or shareholders. These valuations are commonly used in disputes involving ownership percentages, buyout terms, withdrawals, dissolutions, or alleged inequities in business value.
Partnership dispute valuations provide an objective and well-supported determination of value based on the company’s financial performance, ownership structure, and governing agreements. The valuation is designed to assist parties and their advisors in understanding the economic issues involved, facilitating negotiations, settlements, or other dispute resolution processes.
METHODOLOGY
The valuation methodology is selected based on the nature of the business, the quality of available financial information, and the circumstances of the dispute. One or more generally accepted valuation approaches may be applied, including the Income Approach (capitalization of earnings and discounted cash flow analysis), the Market Approach (guideline transaction method and market multiple analysis), and, when applicable, the Asset-Based Approach (adjusted net asset value). The selected approaches and their relative weighting are fully explained in the valuation report and tied directly to the valuation issues relevant to the dispute.
The selected methodology and weighting of approaches are fully explained in the valuation report, with conclusions tied directly to the economics of the proposed transaction
FINANCIAL STATEMENT NORMALIZATION ADJUSTMENTS
Historical financial statements are reviewed and adjusted, where appropriate, to reflect normalized operating results on a market-participant basis as of the valuation date. Because financial statements are often prepared for tax or internal purposes, they may include non-recurring, discretionary, or owner-specific items.
Normalization adjustments may include owner and related-party compensation, discretionary or personal expenses, non-recurring or non-operating items, and related-party transactions (including rent), to reflect market-based terms. The resulting normalized financial results represent the earnings a hypothetical willing buyer and willing seller, neither under compulsion and both having reasonable knowledge of relevant facts, would consider in determining fair market value.
DISCOUNTS FOR LACK OF CONTROL AND LACK OF MARKETABILITY
A critical component of a partnership dispute valuation is analyzing the rights and restrictions associated with the ownership interests in question. This may include reviewing voting rights, distribution rights, transfer restrictions, and any provisions affecting control or economic participation.
When appropriate, valuation discounts such as a discount for lack of control or a discount for lack of marketability may be considered, depending on the characteristics of the ownership interest and the governing documents. The applicability and magnitude of any discounts depend on the specific facts and circumstances of the dispute and are fully explained and supported within the valuation report.
REVIEW OF PARTNERSHIP/OPERATING AGREEMENT
As part of the valuation process, we review the company’s partnership agreement, operating agreement, or shareholder agreement, as applicable. These documents often contain provisions that directly impact value, including dispute resolution provisions, buyout or valuation clauses, transfer restrictions, voting and control rights, and distribution policies. The valuation reflects the contractual rights and obligations of the parties as set forth in the governing agreements.
INFORMATION REQUIRED FROM THE CLIENT
To complete a defensible partnership dispute valuation, we typically request federal tax returns or financial statements for the past three years, the most recent interim financial statements if available, a copy of the partnership, operating, or shareholder agreement, and a completed questionnaire covering the company’s operations, ownership structure, and management. Additional documents may be requested as needed following the initial analysis.
TIMELINE AND DELIVERABLE
Once all required information is received, the valuation process can begin. Most partnership dispute valuations are completed within 2–3 weeks, depending on the complexity of the business and the availability of information. The final deliverable is a comprehensive written valuation report prepared to support settlement discussions, mediation, arbitration, or other dispute resolution proceedings.