Not surprisingly, business divorce litigation can be quite costly. Whether this cost is “worth it” is not always so easy to figure out. If a minority shareholder or LLC member in New Jersey has an interest valued at $600,000, spending $50,000 – $100,000 in legal fees may be warranted to achieve a buy-out. Obviously, if that same interest is worth only $60,000, then the same expenditure of fees would be outrageous, even though the things that drive legal fees (facts, number of witnesses, etc.) may be exactly the same.
So, what is a minority business owner to do if he or she is not sure of the value of his or her shares? Even attorneys who handle shareholder oppression cases with some frequency are not valuation experts, and they should not imply that they are by opining on value. However, an experienced attorney does know how to find a valuation expert who will not only be able to write an excellent valuation report that will stand up in court, but will be able, at the very outset, to help determine at least a rough range of values for the client to take into account.
In one recent case, a client was told by his accountant that his shares were worth a substantial amount. However, a more experienced valuation expert, who is used to valuing start-up companies, made it clear that finding significant value based upon rosy projections and no actual track record was a very risky proposition. Based on this informal value estimate, the client chose to negotiate a new shareholder agreement instead of filing suit and pursuing all-out war. Even if you know your shares are worth enough to justify a fight, you will likely at some point be weighing a settlement offer from the other side, hopefully before you have to spend a fortune for a full-blown valuation report. Having an expert who will work with you to get an informal understanding of value – even if it is simply a draft report – before spending the money required for a formal valuation report is almost always valuable information to have.
If you have any questions about this post or any other related matters, please contact me at dcroberts@norris-law.com.