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Robert Hulet, CBA, CVA

Top 11 Types of Litigation requiring Business Valuations


Top 11 Types of Litigation Requiring Business Valuations

Business valuations are often required in various types of litigation, especially in cases where financial interests or asset values need to be assessed. Here are the key types of litigation that commonly involve business valuations:

 

1. Divorce Proceedings (Marital Dissolution)

 

In divorce cases, particularly where one or both spouses own businesses, business valuations are often necessary to equitably divide assets. The business may be considered part of the marital estate, and determining its value is crucial for fair distribution of property or spousal support.

 

2. Shareholder Disputes

 

Valuations are needed in disputes involving minority or majority shareholders. These disputes may arise over buyouts, mergers, or claims of shareholder oppression. The valuation helps in determining the fair market value of the shares in question.

 

3. Mergers and Acquisitions (M&A) Disputes

 

In cases where parties dispute the terms of mergers or acquisitions, business valuations are used to verify or challenge the transaction's value. Disagreements over the fairness of the price paid or received often require expert valuation.

 

4. Bankruptcy and Insolvency Cases

 

During bankruptcy proceedings, the value of a business or its assets must be determined to assess creditors' claims and the feasibility of reorganization or liquidation. This helps allocate assets and liabilities.

 

5. Breach of Contract Disputes

 

In cases where one party breaches a contract involving a business transaction (such as the sale of a company), business valuations are necessary to determine damages or lost profits that result from the breach.

 

6. Partnership or Business Dissolution

 

When partnerships or businesses dissolve, valuations are necessary to divide assets fairly. This is especially important if one partner is exiting or if the company will continue under new ownership.

 

7. Estate and Gift Tax Disputes

 

Valuations are critical in probate or estate planning cases when business interests are transferred as part of a will or gift. Tax authorities may challenge the reported value, leading to litigation over estate or gift tax obligations.

 

8. Intellectual Property (IP) Litigation

 

Business valuations can be crucial in cases where IP is a major asset, such as patent infringement or trademark disputes. Determining the value of the business, which may be heavily dependent on its IP portfolio, helps in assessing damages or compensation.

 

9. Employee Stock Ownership Plan (ESOP) Disputes

 

Disputes may arise in the context of ESOPs regarding the value of a company’s stock. Business valuations are essential to ensure that employee-shareholders receive fair value.

 

10. Tax Disputes

 

When businesses face challenges from tax authorities (such as the IRS or local tax agencies) regarding the valuation of their assets or income, a formal business valuation may be necessary to resolve the dispute.

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In each of these cases, expert testimony and thorough valuations are used to establish or dispute the financial aspects of the litigation, often playing a critical role in the final resolution.

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