How to tackle a business valuation dispute

8th November 2019

No one goes into business expecting to fall out with their business partners or shareholders. But if circumstances change, relationships can become strained and disagreements can set in – before you know it, you’re heading into legal action to determine the value of your business. In this article we share tips on how to prevent share valuation disputes arising and what to do if the worst happens.

What causes valuation disputes?

Disputes commonly arise when there is a fall out between shareholders or family members in a family business.

Divorce, separation and death or critical illness of a shareholder are all reasons why shares would need a valuation, which could subsequently lead to a dispute over the amount a business is worth. In other words, any situation likely to result in a shareholder leaving or a business partner moving on.

Unless you are of a litigious mindset, very few of us ever want to get into a dispute over the value of shareholdings.

Disputes can be a very time consuming and expensive process that drains all parties concerned and often negatively impacts the performance of the company itself.

Top tips for preventing disputes

However unlikely a future dispute might feel, it’s worth planning for all eventualities to avoid problems later on.

These tips can help you avoid costly disagreements:

• Make sure you have good articles of association from the beginning, which set out a clear process in event of dispute. This is particularly important for growing businesses that expect to take on staff, premises and other assets and liabilities.

• Wherever possible, avoid a 50:50 share ownership partnership as this easily produces a deadlock, making your business more vulnerable to disputes. In some cases, the only way to break a deadlock in a 50:50 share ownership is to liquidate what might otherwise be a successful business.

• Undertake regular outline valuations and share the results with family members and/or shareholders. These valuations can either be done by your in-house accountant or an external adviser to give your business a direction of travel and set expectations. Even a light touch valuation can help make sure everyone’s expectations are broadly aligned should a sale become necessary.

What if a dispute occurs?

If you’re heading into a valuation dispute, a very efficient and economical way out is to use an Expert Determination.

This is where an independent expert (Determiner) reports a valuation that – at the outset – all parties concerned commit to as being final.

Expert determiners are often brought in by lawyers during a legal case, but bringing in an expert determiner much earlier in the process can significantly reduce the financial and emotional cost of a dispute, which can otherwise become protracted, and often acrimonious.

HB&O director, Phil Ewing, is well versed and experienced in this process and has helped many businesses agree an independent valuation and move on successfully.

“Independent valuations can cut through a dispute and help all parties reach a satisfactory conclusion more quickly. As well as helping resolve a legal case, an expert determination can stop a dispute in its tracks and also works well alongside mediation”.

If your business would benefit from an outline valuation or an independent expert determination, please contact Phil on phil.ewing@hboltd.co.uk