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