Feb 19

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New Standard of Value for Appraisal under Louisiana Law

Louisiana has changed the applicable standard of value in its new Louisiana Business Corporations Act. Under the law, shareholders have a right to avoid the effects of certain corporate actions by selling the shareholder’s shares to the corporation, paid in cash.  Under certain circumstances more fully described in the bill, shareholders have such rights in the following circumstances

  1. Consummation of a merger to which the corporation is a party
  2. Consummation of a share exchange to which the corporation is a party as the corporation whose shares will be acquired
  3. Consummation of a disposition of assets
  4. An amendment of the articles of incorporation with respect to a class or series of shares that reduces the number of shares of a class or series owned by the shareholder to a fraction of a share if the corporation has the obligation or right to repurchase the fractional share so created.
  5. Any other amendment to the articles of incorporation, merger, share exchange, or disposition of assets to the extent provided by the articles of incorporation, bylaws, or a resolution of the board of directors.
  6. Consummation of a domestication if the shareholder does not receive shares in the foreign corporation resulting from the domestication that have terms as favorable to the shareholder in all material respects, and represent at least the same percentage interest of the total voting rights of the outstanding shares of the corporation, as the shares held by the shareholder before the domestication,
  7. Consummation of a conversion of the corporation to nonprofit status
  8. Consummation of a conversion of the corporation to an unincorporated entity

The shareholder is afforded an appraisal right under a “fair value” standard in order to establish the appropriate price paid for their shares.  “Fair value” is defined in the law as

“the value of the corporation’s shares determined immediately before the effectuation of the corporate action to which the shareholder objects, using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal, and without discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles pursuant to R.S. 12:1-1302(A)(5).”

The former law had relied instead upon “fair market value”, which is the standard in California and a few other states, as well as in the US Tax Code and in Revenue Ruling 59-60. Fair market value is “the amount at which property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and both have reasonable knowledge of the relevant facts“.

About the author

Renee Howdeshell

Renee Howdeshell is a founding member of Fulcrum Inquiry, an accounting, finance and economic consulting firm that performs damage analyses for commercial litigation, forensic accountings, royalty & distribution audits, financial investigations, and business valuations. Ms. Howdeshell holds a degree in Finance and Marketing from the University of Virginia's McIntire School of Commerce and is a Certified Public Accountant (CPA) and a Certified Fraud Examiner (CFE). She has testified as an expert witness in federal court, CA state court and arbitration regarding the results of her work. She can be reached at (213) 787-4112 and her resume is available at www.fulcrum.com.

Permanent link to this article: http://betweenthenumbers.net/2015/02/new-standard-of-value-for-appraisal-under-louisiana-law/

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