I often have people referred to me say, "I want to get my
business valued. What will it cost?" That's a fair
question. To which I usually respond with three more.
Question 1 – Why do you need a valuation?
The client responses could range from:
"I want to transfer
shares to a trust for my kids."
"One of my partners
wants to retire and we want to buy him out at a fair
"I don't get
along with my uncle anymore. He is hurting the business and I want
to buy him out. My lawyer tells me this will likely go to
"We are buying a
business and there will be outside funding. The lender has told us
we will need a Comprehensive Valuation Report."
These four situations are very different. In the first case,
there may not be any transfer of wealth from the family group, but
there will be for tax purposes. In the second case, it may be a
friendly transaction, with no minority discount for a
non-controlling interest. In the third scenario, it may or may not
be friendly or go to trial. In the last case, the financier knows
the difference between a Calculation Valuation Report (the lowest
level of assurance), an Estimate Valuation Report and a
Comprehensive Valuation Report (the highest level of assurance).
The purpose of the Valuation Report is a large determinant of the
amount of work required and, therefore, the cost of the valuation.
Question 2 – What line of business are you
in? Again there could be a variety of responses:
"Our company owns
two commercial buildings."
"We have a
profitable local hardware store, but a big-box retailer is coming
to town. Will that make a difference to your valuation?"
"Our parent company
is doing well, but one of our U.S. subsidiaries is losing a fair
amount of money. We are thinking of closing it, but we have
significant lease obligations."
The amount of work required to value a group of operating
companies would likely be more than the amount of work required to
value a company which owns two commercial buildings.
Question 3 – Is there a shareholders'
agreement? Often a well written shareholders'
agreement stipulates how shareholders deal with each other upon the
death of a shareholder, disability of a shareholder, when a
shareholder wants to leave or wants you to leave. Many
shareholders' agreements, however, state that the value to be
used among shareholders is to be a certain multiple of the average
of the last three fiscal years' earnings. While this approach
may be relatively simple, it may result in unintended consequences
if, for example:
There are losses in any of the years
A huge contract has been signed for next year
As stated above, a big box retailer is coming to town
Key people depart
There is a significant change in the local economy
The Valuation Date doesn't align with the company's
To advise on the type of Valuation Report (such as a
Comprehensive Valuation Report), the appropriate Valuation Date,
the types of appraisals required from other professionals (e.g.
real estate appraisals or Phase 1 Environmental Assessment) or to
address if minority interests are even an issue, we would likely
ask to see:
The most recent year-end financial statements for the
The most recent interim financial statements
Projections or budgets
The most recent income tax return
Any shareholders' agreements
After reviewing all of the above we would be in a position
Address issues of confidentiality
Identify what else we need to get started
Plan when appraisals or other reports will be available to
Identify a date for us to deliver a draft report for your
Identify a date for us to deliver a final report
Give an estimate or a quote with respect to our fees
All of the above, plus other information, would be covered in an
engagement letter that we would ask you to sign. Then we get
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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