Article Title: Fair Value in Utah
| Publication year | 2003 |
| Pages | 12-2 |
| Citation | Vol. 2003 No. 12 Pg. 12-2 |
12-2 (2003). Article Title: Fair Value in Utah
December, 2003
Last Update: 15/11/04
Article Title: Fair Value in Utah
Author: Talon C. Stringham & Derk G. Rasmussen
Article Type
Articles
Article
We've all seen it: shareholders who can't get along
So what happens when the shareholders of a private company
can't resolve their differences? In Utah, there are two
statutes that govern these situations. The first, known as a
judicial dissolution statute, applies when shareholders are
deadlocked. This statute allows a shareholder to petition the
court to dissolve the corporation or, pursuant to an
election, allows the corporation to repurchase shares for
fair value. The second, known as a dissident shareholder
action, allows minority shareholders that have been
"squeezed out" to dissent from the corporate action
and receive fair value for their shares
APPLICABLE STATUTES IN UTAH
Utah Code Annotated Section 16-10a-1430 (2) provides grounds
for judicial dissolution by a shareholder in a variety of
circumstances. In these instances, the corporation may elect
to purchase the outstanding shares of the shareholder at
"fair value," under Utah Code Annotated Section
16-10a-1434. Section 1434 does not define fair value, and the
definition of fair value under this statute has not been
interpreted in a reported decision in the State of Utah.
Utah Code Annotated Section 16-10a-1301 provides guidance in
dissident shareholder actions. This statute states:
"Fair value", with respect to a dissenter's
shares, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in
anticipation of the corporate action. - Utah Code Ann.
§16-10a-1301(4) (1992).
THE DEFINITION OF FAIR VALUE
The laws regarding corporations, as well as the laws
governing dissenters' rights and corporate dissolution
are determined at the state level. As such, fair value, as
defined in these statutes is also determined at the state
level.
From an appraiser's perspective, the definitions (or lack
thereof) provided in the statutes leave many unanswered
questions. Because value can mean different things to
different people, it is critical in the performance of a
business valuation to define value prior to the commencement
of the valuation assignment. In the business valuation
profession, this is commonly referred to as identifying the
standard of value.
Fair value is one of several different standards of value
used in the valuation profession.(fn1) Although the business
valuation community has interpreted the various standards of
value, it is nevertheless important to define the standard of
value applied within an appraisal. In fact, the Uniform
Standards of Professional Appraisal Practice require that the
standard of value be stated and defined within the appraisal
report.(fn2) Nevertheless, because the laws surrounding the
"fair value" standard of value have been made and
interpreted by those not necessarily versed in valuation
theory, the exact definition is somewhat unclear, and raises
unique issues that are not as prevalent under other standards
of value. However, we cannot ignore the possibility that the
statutes are purposely vague in order to allow for a
determination of these issues on a case-by-case basis.
The statutes typically leave much to be desired in terms of
providing a clear definition for "fair value" and
the impact of controlling vs. non-controlling shares, and
marketable vs. non-marketable shares. Absent this definition
the appraiser is left to case law and/or his/her own
interpretations regarding the appropriate...
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