Fairness and Solvency Opinions

A Fairness Opinion is an independent qualified third-party financial expert’s statement as to the “fairness”, from a financial point of view of a specified financial transaction, based on professional judgment supported by collected data. The “fairness” is from the standpoint of a certain designated party or parties (the company or majority shareholders), usually vis-à-vis minority shareholders.

Fairness opinions are established on the basis of a valuation report and require an in-depth analysis of the companies involved and the terms and conditions of the transaction. Fairness opinions are used to support decision making by corporate leadership and to assist shareholders or affected parties in evaluating the terms of such a proposal.

In rendering a fairness opinion, the author evaluates:
 The value of the business or assets transferred or exchanged.
 The value and form of consideration received or paid.
 Available alternatives offering greater value than the proposed transaction, determined by different approaches, including a testing of the market.
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Goodwill as Measured by Customers

Goodwill is the value of a business entity not directly attributable to its assets and liabilities, i.e., a general term for all the intangibles that go into making a realistic valuation. Simply stated, Goodwill is the difference between the quantitative financial elements of a valuation and the soft, qualitative, image elements that are part and parcel of every company or brand.

Goodwill as Measured in Financial Statements

Goodwill in financial statements is an intangible asset that arises when a buyer acquires an existing business. Goodwill represents assets that are not separately identifiable.

Goodwill does not include:

• Identifiable assets that are capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability regardless of whether the entity intends to do so.
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Intellectual Property Appraisals are essential for valuing:

● Marketing-related Intangibles o Trademarks & Trade names
o Brand names & Logos

● Goodwill-related Intangibles o General Business Going Concern Value
o Professional Practice Goodwill
o Institutional Goodwill
o Personal Goodwill of a Professional
o Celebrity Goodwill
o Right of Publicity

● Technology-related Intangibles o Websites and Web Properties
o Social Media and SEO
o Process Patents & Patent Applications
o Technical Documentation
(Laboratory Notebooks, Technical Know-how, etc.)
o Trade Secrets

● Computer-related Intangibles o Proprietary Computer Software
o Software Copyrights
o Automated Databases
o Integrated Circuit Masks and Masters

● Engineering-related Intangibles o Industrial Design
o Product Patents
o Trade Secrets
o Engineering Drawings and Schematics
o Blueprints
o Proprietary Documentation
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Buy-Sell Agreements: establish a Plan and a Business Value between the Business Owners of a business that details what is to occur upon the death of one of the Business Owners. (Can also deal with the situation where one of the Business Owners becomes disabled, goes bankrupt, retires, divorces, or wishes to sell their interest in the business.)

When is a buy-sell needed or useful?

• A buy-sell agreement is a necessity if a business (including a professional practice) is owned by more than one person.
• Also works between a single Business Owner and key employees.
• A properly drawn, valued and funded buy-sell agreement can prevent a disaster, such as a forced sale or years in court.

What to expect:

Overall, the buy-sell agreement gives everyone comfort and security that they will receive maximum benefit from the business that they worked a lifetime to establish. Other specific benefits are that it:

 Provides that the surviving Business Owner will purchase the deceased or withdrawing Business Owner’s share of the operation.
 Provides funds to hire a replacement for the deceased employee.
 Provides funds to the widow or widower to replace the salary of the deceased.
 Provides assurance to the surviving Business Owners that the business will continue in a successful manner, while providing the deceased Business Owner’s heirs with funds that will
enable them to meet their needs and pay estate tax and administration costs.
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