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b.If this approach is utilized, it is important to carefully set for the parameters for determining value; i.e.:  how many appraisers, qualifications, what factors to consider, etc.

3.Periodic Agreed Value.

a.Under this approach the Shareholders agree on a set price, either as a result of an independent appraisal or some enunciated formula, and agree to meet annually to redetermine value of shares.

b.This approach allows for a meeting of the minds, provided that parties actually review the value on a periodic basis.

c.If the parties are related, it is imperative that the basis for the valuation be set forth in writing.

d.Main problem is when owners either don’t meet or fail to agree on a new value. If there is no fall-back position, then most recent value applies which probably doesn’t reflect the true value of the Company.

4.Formula Approach.  This is most practical approach if the formula used is realistic.

a.Book Value

(i)

Book value per share is determined by dividing the entity’s net worth (assets less liabilities) into the number of outstanding shares or units;

(ii)

Book value approach has limited appeal since “book value” is a historic not actual figure, unless assets are adjusted to current value (e.g. marketable securities and real estate should be adjusted to actual value);

(iii)

Book value normally does not take into consideration good will;

(iv)

Book value is normally not a realistic approach for S corporations and limited liability companies since

Scca/99999.008/Doc#82/Speech for Lake County Estate Planning Council

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