Marcum LLP
Newsletters

ESOP Advisor - August 2018

 

Control v. Non-Controlling Level of Value

Share:

The discussion regarding the concluded level of value is centered on a topic that is clouded because of what the DOL has proffered in recent investigations and court cases. Regardless, we cannot ignore the Fair Market Value (“FMV”) standard of value, i.e., hypothetical willing buyer and hypothetical willing seller, the DOL’s regulatory defined standard of value.

A discount for lack of control (“DLOC”) for what would otherwise be considered a controlling interest, or not adjusting owner/officer compensation (or other control-related adjustments) to market, is not only counter-intuitive but is potentially a violation of FMV and professional standards. And then, of course, we find ourselves creating a special form of ESOP FMV which is not supported by professional standards or governmental regulations, including those of the DOL. As it relates to compensation, perhaps there needs to be more board/management/trustee interaction prior to encountering a situation where the CEO or president can simply pay him/herself a hefty bonus or increase their own compensation, even if it is completely warranted; in other words, setting parameters proactively to reward management for their contributions in increasing value to the participant-shareholders.

The accepted levels of value in the business valuation profession look something like this:

Accepted levels of value in the business valuation profession

*Source: AAML Annual Meeting - November 2-5, 2016 Renaissance Hotel, Chicago, IL

This is certainly not the only circumstance where FMV is applied differently for the U.S. government. And are we losing the forest for the trees? Are we, as valuation professionals, supposed to look at this differently for transactions versus annual updates for purposes of calculating participant value for redemptions?

Stay tuned for additional commentary in our September newsletter.

 
Related
Kenneth Pia, Jr, Partner - Business Valuation Industry Leader, Valuation & Litigation Support

Partner - Business Valuation Industry Leader
Valuation & Litigation Support
New Haven, CT
 






 
 
HAVE A QUESTION? ASK MARCUM
 
STAY IN TOUCH.

SIGN UP TODAY FOR MARCUM'S NEWSLETTERS.

ABOUT MARCUM LLP

Marcum LLP is one of the largest independent public accounting and advisory services firms in the nation, with offices in major business markets throughout the U.S., as well as Grand Cayman, China and Ireland.

Learn More

CONNECT WITH US
OFFICES

Headquarters
750 3rd Avenue, 11th Floor
New York, NY 10017

Find an Office

(855) MARCUM1
info@marcumllp.com

FOUNDATION

Marcum Foundation

AFFILIATIONS

Leading Edge Alliance

Privacy Policy

This website uses cookies to learn how visitors interact with our website so that we can improve our services and your online experience. By using this website, you agree to our privacy policy.