Business valuation and lawyers

As a general rule, the legal system is not the best place to determine business value. Even so, the courts are often called upon to provide a definitive answer. This happens if the value of a business is a matter of dispute. Some common cases are divorce, gift or estate taxes or property tax situations.

Lawyers act as advocates for their clients. As such, they do not necessarily look for an objective measure of business value. If a business is valued for gift tax purposes, the client’s lawyers would like a number that is as low as possible. On the other hand, the government lawyers will argue for the highest amount they can support. In this situation neither side is really interested in getting at a fair market value for the company. What ends up happening in court is some form of compromise between the parties.

In this sense, the legal system is not designed to come up with actual values. Rather, the court is expected to pronounce a judgment that both sides have to accept. This is unlikely to be the same as an impartial business appraisal.

In the final analysis, business value can be determined in the market place. That is not the setting for most legal disputes. If you need to determine what a business is really worth, consider the legal system as the last resort.

See Valuation Tour