Union Business Appraisers, a division of Union Resource Group, Inc.
Providing business valuations
and technical legal advice
Specializing in the valuation of closely held companies and partnerships and technical support for attorneys and other professionals in estate and business planning.
Frequently Asked Questions [faq]
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How do you charge for a business valuation study and report?
If we have two or more partnerships to be valued, will your pricing include a special rate because of the similarity?
You request a lot of information. Is all of this information necessary?
Will you let me know if you see a problem area with the organizational documents or funding?
What are some of the planning/preparation/funding problems you commonly see?
Can organization documentation be signed and gifts made of the partnership or limited liability company units/shares on the same day, before the certificate of organization is filed with the state registrar and before property is transferred to the partnership or company?
How long does it take for you to produce a business valuation study and report?
Must we have a valuation report before transfers of units/shares can be made?
Question: How do you charge for a business valuation study and report?
Union: We price our services on a fixed fee basis. We also charge for special delivery expenses. A "base rate" applies to almost all of our limited partnership valuations. Exceptions: Two or more partnerships/companies are to be valued; the partnership or company is tiered (owns subsidiary partnerships or companies that are to be valued separately); the partnership owns stock in a family corporation . the company must be valued separately; the partnership/company has a preferred class of ownership that must be valued. For the exceptional cases, send us the information for each separate partnership/company and we will price the assignment before you make a commitment.
Question: If we have two or more partnerships to be valued, will your pricing include a special rate because of the similarity?
Union: We usually discount our price for two or more "similar" partnerships. This depends upon the quality and organization of the information we receive.
Question: You request a lot of information. Is all of this information necessary?
Union: Yes. If there is no risk of an audit by the government or risk of other contest, you simply do not need our firm for a valuation. Union's objective is to produce a study and report that is so substantive that it will not need to be rewritten if your transaction is audited. If the study and report is strong in detail and analysis, the government just might not classify the return for audit.
Question: Will you let me know if you see a problem area with the organizational documents or funding?
Question: What are some of the planning/preparation/funding problems you commonly see?
Union: We review some instruments that limit the fiduciary duty of a general partner or manager. The Service has taken the position that estate planning gifts/sales of partnership units are not complete gifts of a present interest because there is no real transfer of benefits. We recommend that a partnership instrument emphasize, not diminish, the fiduciary obligations of a general partner or a manager. A general partner should not have the unlimited discretion to retain earnings. Requirements for accounting to limited partners should be stronger than those usually included in commercial partnerships. Avoid special allocations of partnership income and expense. As a general rule, avoid using the name "XYZ Family Limited Partnership" for your partnerships. The Service thinks that the family limited partnership is raw tax abuse. The bankruptcy courts and divorce courts also suspect that the family limited partnership is motivated to hinder or defraud creditors/in-laws. Why beg the question?
There are two funding issues of concern:
(1) Avoid contributing personal use property (for example, a home) to the partnership unless the property is leased by the person who is to use/occupy the property. This was the central problem with the taxpayer loss in Estate of Charles Reichardt v. Commissioner, 114 T.C. 9 (March 1, 1999, Judge Colvin for the Tax Court). Judge Colvin concluded that Mr. Reichardt's continued personal use of a home he contributed to his partnership amounted to a retained life estate under Section 2036. This led to his conclusion (questionable) that there was an implied family agreement that Mr. Reichardt would have all of the economic benefits associated with all the partnership property. To negate the "implied family agreement" attack, consider making pro rata distributions to all partners to build your partnership history.
(2) Be very careful in contributing stock of a family controlled corporation to a family partnership or limited liability company. The Service takes the position that the contributor retains voting rights (Section 2036) if he or she is directly or indirectly associated with the trust or corporation that serves as general partner.
See our website (under "Selected Resources" and the article "Audit Issues" for additional information about drafting, funding and compliance issues.
Question: Can organization documentation be signed and gifts made of the partnership or limited liability company units/shares on the same day, before the certificate of organization is filed with the state registrar and before property is transferred to the partnership or company?
Union: A federal District Court held that there was a valid limited partnership even though the certificate had not been filed at the time of the founder.s death and the partnership was not funded until several months after her death. Estate of Elsie J. Church v. United States, ___ F. Supp. ____ (WD Tex. 2000 - Docketed as Cause No. SA-97-CA-0774-OG). It cost the family over $400,000 to litigate the Church case. Why raise the issue if your client is in good health? Safe harbor planning suggests that transfers of equity be made only after the certificate has been registered, a tax identification has been acquired, and the partnership or limited liability company has been fully funded.
Question: How long does it take for you to produce a business valuation study and report?
Union: We are usually able to produce a first draft of the study and report in about six weeks if the information you provide is complete. There are some periods of time (vacation periods, year end, tax deadlines) when the press of work and staff absences slow us down. Please note that we have some work that has been in process for over six months because we simply did not get sufficient information to complete the assignment. Submissions of information provided piecemeal over time is a real problem for us.
Once we have the information you provide, we will prepare an engagement letter. We begin our work upon receipt of the signed contract and retainer.
Question: Must we have a valuation report before transfers of units/shares can be made?
Union: No. Some of you prefer that to have the valuation report before transfers are made. Otherwise, many practitioners use a formu directive."I give to my daughter, Sarah, that number of units or fraction thereof in XYZ Capital Limited Partnership, that are equal in value on [date] to $350,000." We calculate the number of shares/units transferred as a part of our service. For more information about the validity of formula gifts, read our article "Transfer Strategies". The great advantage of formula transfers is that the urgency is removed from the assignment.