As business valuation professionals, we are often tasked with determining the value of a block of stock in a company, typically a partial interest, for purposes of gift or estate tax planning, stock option issuance, ESOP compliance, or marital disputes. The appropriate standard of value for such assignments is “Fair Market Value.”
Fair Market Value is defined as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.
Fair market value does not consider the synergies of a specific buyer. Instead, it contemplates an unrelated, third-party buyer and assumes the company continues to operate as a stand-alone business. Valuation professionals must also consider the rights and restrictions specific to the block of shares (or partial interest) that are being valued.[Read more…]