Chapter 44. VALUATION OF NONPUBLIC COMPANIES
Allyn A. Joyce
Allyn A. Joyce & Co., Inc.
Jacob P. Roosma, CPA
Willamette Management Associates
DEFINITION OF VALUE
(a) DEFINITION OF NONPUBLIC.
A public company is one whose common stock has widespread ownership and investment interest and such active trading that market quotations ordinarily represent fair market value. In contrast, the common stock of a nonpublic company generally has concentrated ownership and such few trades that the transactions do not provide reliable indications of fair market value.
(a) PURPOSES FOR VALUATIONS.
The need for valuing the common stock of a nonpublic or closely held company arises on many occasions. Among the more important situations requiring the valuation of nonpublic stock are filing estate and gift tax returns, transactions involving estate planning, financial planning, employee stock ownership plan transactions and reports, granting stock options, drawing stock purchase agreements, marital dissolutions, structuring recapitalizations, sales, mergers, and divestitures, and litigation.
(a) FAIR MARKET VALUE.
Briefly stated, fair market value is that value at which a willing buyer and a willing seller, both well informed and neither under any compulsion to act, would arrive in an arm's-length sale of the asset in question. Such value is always determined as of a specific date and is based on all pertinent facts and conditions that are known or reasonably might be anticipated on that date. The existence of ...
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