Most ownership disputes end in a buyout. Which means most ownership disputes are really arguments about one number.
That number is rarely as fixed as the person offering it claims. Two competent professionals valuing the same company on the same date routinely land far apart, because valuation involves a series of judgment calls, and each one moves the result.
The Law Offices of Aaron Resnick, P.A. handles Florida ownership exits and buyout disputes, and has practiced in Miami since 1998.
Start with the document
Before any methodology matters, read the operating or shareholder agreement.
Many contain a buy-sell provision that controls: a formula, a stated valuation method, an appraisal procedure, or a fixed price nobody updated in a decade. If a binding mechanism exists, the fight usually shifts to whether it was properly triggered and followed.
> Stale formulas cut both ways. A price set years ago can badly undervalue a company that has grown, or overvalue one that has not. Whether it still binds depends on the language and on the conduct of the parties since.
The three approaches
Income. Value based on expected future earnings, discounted to present value. Most common for profitable operating companies. Highly sensitive to the discount rate and the growth assumption.
Market. Comparison to sales of similar businesses or public company multiples. Straightforward in concept, difficult in practice for small private companies where genuine comparables are scarce.
Asset. Net value of what the company owns. Usually the floor, and most appropriate for holding companies or businesses that do not generate meaningful earnings.
Where the real money is argued
Normalizing compensation. If the majority owner has been paying themselves well above market, earnings are understated and the company looks less valuable than it is. Add the excess back and the value moves substantially. This single adjustment is often the largest item in dispute.
Add-backs. Personal expenses run through the business, one-time costs, and discretionary spending get restated to show actual operating performance.
Discount for lack of control. A minority interest cannot direct the company, so it is often discounted. Whether that discount applies at all can depend on the context of the buyout.
Discount for lack of marketability. No ready market exists for shares in a private company. Also frequently contested, and the percentage applied is a matter of expert judgment rather than arithmetic.
Diverted value. If assets or opportunities were moved out before the valuation date, that value may need to come back in before any multiple is applied.
Valuation date. Which date controls can matter enormously in a company whose performance has shifted, and it is often set by the agreement or by the nature of the claim.
Who pays for it
Frequently disputed and sometimes addressed in the governing document. Common arrangements include each side retaining its own expert, the parties jointly retaining a neutral, or the company bearing the cost. Where the agreement is silent, this becomes a negotiating point of its own.
Expect a real expense. A credible valuation of an operating company is not a small engagement, and a cheap one that cannot withstand cross-examination is worse than none.
Challenging the number you were given
If a partner has presented a valuation and a deadline, the useful questions are specific:
- Who prepared it, and are they independent of the person offering the price
- Which approach was used, and why that one
- What discount rate and growth assumptions were applied
- Was owner compensation normalized to market
- Were discounts applied, at what percentages, and on what basis
- What date was used, and why
- What underlying financial records did the appraiser actually receive
That last question matters most. A valuation is only as reliable as the books it was built from, and in a dispute where one side controlled the books, that is precisely what is in question.
Common questions
Can I challenge the valuation my partner used to buy me out? Generally yes, unless a binding buy-sell mechanism was properly triggered and followed. Even then, whether it was followed is often contestable.
How is a partner buyout price calculated in Florida? By the governing document if it specifies a method, otherwise by accepted valuation approaches applied to the company's actual performance.
How do I value my minority stake in a private company? Start from enterprise value, then address whether control and marketability discounts apply to your situation.
Who pays for the business valuation in a partner buyout? It depends on the agreement and on what gets negotiated. There is no default rule that applies to every case.
The number is negotiable because the assumptions are
A buyout offer arrives sounding like a fact. It is a position built from choices, and each choice can be examined. Before accepting a price or a deadline, have the assumptions behind it reviewed.
Call the Law Offices of Aaron Resnick, P.A. to discuss a business valuation or buyout dispute.
