To buy or sell, what is the agreement? / Calculating economic damage / The interview

• To buy or sell, what is the agreement? In many cases, a company’s shareholders do not want outsiders to have an ownership interest in their company, so they may have restrictions placed on the sale of ownership interests.

  Restrictive agreements are often used to limit the sale of stock to maintain family control and to agree to purchase shares of a deceased or disabled shareholder for a stipulated price. Sometimes buy-sell agreements are used either as an attempt to set the value of the business at an artificially low level to reduce the estate tax liability or for other purposes.

• Common methods for calculating economic damages: When presented with a case that includes anassertion related to economic damages, it is important to realize a financial expert can calculate damage in several ways. The applicable legal theory determines which methods should be used in the calculation of damages. It is not the expert’s job or place to determine the proper theory, rather the expert relies on counsel to provide it.

Once the appropriate theory is determined, the financial expert’s job is to calculate damages to a reasonable degree of economic certainty. In addition, the damage should be reasonably foreseeable and determined based on sufficient facts. Any significant assumptions should also be disclosed.

• The importance of the interview: In the preparation of a proper business valuation, an appraiser may use a number of documents, including tax returns, shareholder agreements, and real estate appraisals. This information only provides a quantitative perspective of the business to be appraised. To properly value a going-concern, an appraiser should look beyond the numbers to the qualitative aspects of a company.