1. Which Valuation Standard Governs a Share Buyout?
Two owners can agree on revenue and still disagree about what one owner's shares are worth. Before debating a valuation formula, identify the rule governing the buyout. A private agreement and a statutory appraisal can lead to different prices.
Separate Contractual Prices from Statutory Fair Value
A buy-sell agreement may specify a price formula, valuation date, or independent appraiser. A statutory appraisal follows the applicable Business Corporation Law (BCL) requirements instead.
| Buyout Setting | Controlling Question |
|---|---|
| Private share purchase | What does the binding agreement require? |
| BCL § 1118 election | What is the petitioner's statutory fair value? |
| BCL § 623 dissent | Does the corporate action trigger appraisal rights? |
Private share purchase
- Controlling QuestionWhat does the binding agreement require?
BCL § 1118 election
- Controlling QuestionWhat is the petitioner's statutory fair value?
BCL § 623 dissent
- Controlling QuestionDoes the corporate action trigger appraisal rights?
Check shareholder agreements for valuation dates, price adjustments, and transfer restrictions. A market-based offer does not automatically satisfy a statutory fair-value obligation.
Distinguish Minority and Marketability Discounts
Fair market value looks to a hypothetical sale under the relevant market assumptions. Statutory fair value instead considers the shareholder's proportionate interest in a going concern.
- Identify any proposed discount for lack of control.
- Separate limited marketability from minority status.
- Test adjustments against the applicable legal standard.
In Friedman v. Beway Realty Corp. (1995), the Court of Appeals rejected minority discounts in BCL §§ 623 and 1118 appraisals. Marketability may still affect value when supported by the evidence.
2. Which Records Support a Share Valuation?
A one-time expense or related-party payment can materially change an appraisal. Owners should look beyond the final figure and examine the underlying financial period. Share rights and ownership records also shape what is being valued.
Reconcile Financial and Ownership Evidence
Sales figures rarely tell the whole story of a closely held business. Compare the appraiser's adjustments with source records and the rights attached to the shares.
- Gather financial statements, returns, and general ledgers.
- Review debt, unusual expenses, and related-party payments.
- Verify share classes, ownership percentages, and restrictions.
A business valuation should explain material earnings and asset adjustments. Tax figures can be useful evidence without determining the statutory buyout price.
Match the Report to the Correct Valuation Date
A company may gain or lose major customers while owners dispute the price. The governing procedure fixes the valuation date, so later developments require careful treatment.
| Procedure | Valuation Date to Check |
|---|---|
| BCL § 1118 | Day before the dissolution petition was filed |
| BCL § 623 | Close of business the day before shareholder authorization |
| Contractual purchase | Date specified by the enforceable agreement |
BCL § 1118
- Valuation Date to CheckDay before the dissolution petition was filed
BCL § 623
- Valuation Date to CheckClose of business the day before shareholder authorization
Contractual purchase
- Valuation Date to CheckDate specified by the enforceable agreement
Under § 1118, the court excludes value created by filing the dissolution petition but may make statutory adjustments. Section 623 requires consideration of the transaction's effects and other relevant factors.
3. When Can a Share Valuation Dispute Reach Court?
Disagreement over price alone does not create an appraisal right. The triggering corporate action or dissolution petition determines the statutory route. A shareholder agreement may provide a separate path for resolving the price dispute.
Distinguish Dissolution Buyouts from Dissent Rights
BCL § 1104-a allows eligible holders of at least 20% of voting shares in qualifying corporations to seek dissolution on specified grounds. Under § 1118, the corporation or other shareholders may elect to buy the petitioner's shares.
- Check the eligibility and grounds for a § 1104-a petition.
- Review the § 1118 election period, generally 90 days unless the court allows later election.
- For § 623, check the qualifying action and whether written objection was timely submitted before the vote, when required.
If a valid § 1118 election leads to a price dispute, the court may determine fair value. Other shareholder disputes may call for different claims.
Confirm Court Assignment and Filing Requirements
Nassau County Supreme Court handles qualifying corporate proceedings. Its Commercial Division generally requires $200,000 under 22 NYCRR § 202.70, subject to exceptions and case-type rules. This is not a minimum share value for every appraisal case.
- Identify the correct proceeding, venue, and relief requested.
- Check NYSCEF requirements and available filing exceptions.
- Preserve expert reports, financial records, and court notices.
New Supreme Court matters generally require NYSCEF filing, while unrepresented litigants may file on paper. The required corporate litigation steps depend on the claim.
4. Frequently Asked Questions
Does an LLC ownership dispute follow BCL § 1118?
Not automatically. LLC interests generally follow the operating agreement and applicable LLC law. Corporate appraisal rights cannot simply be applied to an LLC interest.
Can owners agree to use one independent appraiser?
Yes, subject to their governing documents and applicable law. The agreement should address expert selection, access to records, and how disagreements about assumptions are resolved.
Does an estate-tax valuation control a share buyout?
Not necessarily. Federal tax valuations may use different dates and standards. A contractual or state-law buyout must be assessed under its own controlling requirements.
Can business owners challenge an expert's valuation?
Potentially. They may question financial inputs, valuation methods, or the applicable legal standard. Any contractual objection process or court schedule may limit when challenges can be raised.
5. Discuss Share Valuation Questions with SJKP Attorneys
A buyout disagreement often begins with two reports using different dates or assumptions. Reviewing the governing agreement and source records can reveal why the figures diverge.
SJKP's attorneys can examine buyout provisions, appraisal rights, financial assumptions, and filing requirements. Contact SJKP to discuss the documents and legal issues affecting a proposed share purchase.
20 Oct, 2026
