When you're considering the dissolution of partnership, a corporation or a marriage, you're often dealing with parties that have their own interests at heart rather than in the interest of the business. The person leaving the union wants to get the best possible price, while the individual that is remaining wants the lowest possible price so they can pay it off and continue to operate the business as best they can. How can both sides be dealt with fairly? One way to start down the right path is to use the proper valuation method for equipment values.
How a Machine Appraisal Helps During a Dissolution of Partnership
As part of the larger business appraisal process, a machinery appraisal provides you with a good idea of what equipment in your company is worth. If you base your business' value on the value of its assets, using tax records that depreciate machinery using a standardized table can give you an incorrect value. If your machinery is in particularly good condition, a standard depreciation can undervalue your equipment, giving the partner who is leaving less than the partner who remains. On the other hand, if the machinery must be used hard or in poor conditions, the standard depreciation may estimate too high a value, providing more money to the partner leaving and leaving the remaining partner without sufficient assets to keep the business in operation successfully.
Methods of Appraisal During Dissolutions
Fair Market Value
When appraisals are performed for the sake of a dissolution, the most common method used to value equipment is based on fair market value. This is a value determined by a qualified valuation specialist based on the condition of the equipment and the market at the time of sale. It is often considered the most equitable way to determine value when a piece of equipment is to remain in production after the dissolution is completed.
Fair Market Removal Basis
But what if the parties want to sell off the machinery or assets? If there is at least some amount of time before the dissolution, there may be time to sell the equipment piece by piece. Fair market removal is the fair market value minus the cost of removing the equipment from the premises.
Liquidation Value Basis
When both parties want to dispose of all assets quickly and then divide the funds from that sale, liquidation value is used. This will provide the lowest possible value, the value raised during a fast liquidation where there may not be time to find an optimal buyer and the sellers will settle for the scrap value of the assets.
Other Basis for Valuation
In some situations, such as a divorce, there may be legal requirements to the type of valuation basis used to determine equipment values. In these situations, having an equipment appraiser who is familiar with the law and who will provide the legally required valuation basis is important.
Dissolution of partnership is never an easy process, but having a qualified equipment appraiser provide you with a machinery valuation can help ensure that everyone gets a fair shake out of the deal.