1. The Legal Basis Determines the Valuation Standard and Date
The governing agreement or statute determines the value standard. A negotiated price may differ from statutory fair value.
Shareholder Agreements and Statutory Buyouts
A shareholder agreement may set a pricing formula, appraiser, or dispute procedure. Review its terms alongside applicable law.
Business Corporation Law (BCL) § 1104-a permits qualifying shareholders holding at least 20% of the voting shares in certain nonpublic corporations to seek dissolution for specified misconduct. BCL § 1118 permits the corporation or other shareholders to elect a fair-value buyout. Neither provision covers every departing shareholder.
The Valuation Date Changes with the Proceeding
Under BCL § 1118(b), fair value is generally measured the day before filing the dissolution petition. The filing itself must not affect value, although statutory adjustments may apply.
Under BCL § 623(h)(4), an eligible dissenting shareholder’s appraisal uses the close of business the day before shareholder authorization. A later date may distort the result. Forecasts prepared afterward should be checked for information unavailable on the controlling date.
2. Financial Records Must Support the Valuation Assumptions
Growth, expenses, and risk assumptions can change value. Examine the supporting records.
Cash Flow, Earnings, and Financial Adjustments
Compare tax returns, financial statements, bank records, and forecasts for:
- Owner pay and related-party transactions.
- Nonrecurring income or expenses.
- Projected cash flow and margins.
- Capital spending and working capital.
- Debt, surplus cash, and other assets.
Test cash-flow projections and discount rates against historical records. Reconcile enterprise value to equity value before pricing shares. A forecast prepared for financing may rest on different assumptions than one prepared for litigation.
Comparable Transactions and Intangible Assets
Compare transaction multiples by company size, profitability, growth, and control rights. Check whether the comparison includes assets or liabilities absent from the subject company.
Customer relationships, intellectual property, and goodwill may add value, but must not duplicate projected earnings. Business valuation uses income, market, and asset approaches; their relevance depends on the legal question.
3. Minority and Marketability Discounts Require Separate Analysis
Minority discounts address limited control; marketability discounts address resale difficulty. Their treatment depends on the governing law.
Statutory Fair Value Generally Excludes Minority Discounts
In Matter of Friedman v. Beway Realty Corp., 87 N.Y.2d 161 (1995), the New York Court of Appeals rejected minority discounts under BCL §§ 623 and 1118. Statutory fair value reflects a proportionate interest in the going concern, without a reduction solely for lack of control. Negotiated sales may follow different rules.
Marketability Adjustments Must Reflect Actual Risks
In Matter of Seagroatt Floral Co., 78 N.Y.2d 439 (1991), the Court of Appeals accepted a capitalization rate that already reflected illiquidity, without an additional marketability discount. Compare discount rates and percentage deductions to avoid counting illiquidity twice.
4. Buyouts, Ownership Exits, and Damages Require Different Analyses
A negotiated purchase price does not establish damages. The claim and entity type control the analysis.
Ownership Exits Depend on the Business Structure
Payment terms, debt, and transfer restrictions may change the amount payable in shareholder disputes.
For LLCs, Limited Liability Company Law § 702 permits judicial dissolution when operating under the articles or operating agreement is not reasonably practicable. BCL § 1118 does not automatically provide an LLC buyout right.
Business Damages Require Proof Beyond an Appraisal
A decline in enterprise value alone proves neither liability nor damages. The claimant must link misconduct to proven loss while accounting for unrelated changes. Lost profits and diminished value can overlap; awarding both may duplicate recovery.
5. Nassau and Suffolk Court Procedures Depend on the Claim
Nassau and Suffolk apply New York state law but have different filing and assignment procedures. Federal tax valuation follows separate rules and does not automatically govern state-law buyouts.
Commercial Division Assignment and Electronic Filing
Under 22 NYCRR § 202.70, Commercial Division thresholds are generally $200,000 in Nassau and $100,000 in Suffolk. Qualifying dissolution cases are exempt, but other assignment rules apply.
Nassau generally requires e-filing for new Supreme Court cases, subject to exceptions; Suffolk requires it for Commercial Division matters. Check NYSCEF and the assigned judge’s rules. Filing requirements depend on the proceeding and any applicable exemption.
Statutory Deadlines Require Individual Review
BCL § 1118(a) generally sets a 90-day buyout election period after a qualifying dissolution petition, subject to court extension.
BCL § 623 has separate objection, election, offer, and appraisal procedures. Objections generally precede the vote, with exceptions. Where prior objection is unnecessary, shareholders generally have 20 days after the prescribed notice to elect dissent. Missing a required step can affect appraisal rights.
6. A Document Review Can Identify Specific Valuation Errors
A useful objection identifies an unsupported assumption or incorrect legal standard.
Records That Should Be Preserved
Preserve agreements, financial reports, forecasts, original spreadsheets, calculations, and relevant communications. They show how assumptions and figures developed. Keep versions available on the relevant valuation date distinct from later revisions.
These records may determine the credibility of competing reports in complex commercial litigation.
Questions to Ask before Accepting an Appraisal
- Does the report use the correct valuation date and legal standard?
- Can material earnings adjustments be traced to accounting records?
- Are comparable transactions and intangible assets treated consistently?
- Are minority or marketability discounts legally and financially supported?
- Has the same risk or loss been counted more than once?
- Which notice, election, or filing deadline applies?
A specific, documented error provides a stronger basis for challenging the price.
28 Oct, 2026
