Finance Monthly May 2019 Edition

38 www.finance-monthly.com SPECIAL FEATURE - STOCKHOLDER DISPUTES t the heart of all too many, such disagreements will be the valuation of each party’s interest in the money and property at stake, just as it is in the case of most disputed divorces. The struggle to value equity holdings for which there is no public market can wreak havoc among stockholders, much like a heated clash over marital assets can generate acrimony. A lawyer’s effectiveness in resolving a business divorce will depend in part on their ability to understand the people at the centre of the dispute (often family members and friends), the anxiety and stress suffered by all parties, and the longstanding damage to relationships and business prospects that a protracted litigation will cause. At the root of every valuation dispute is the inherent illiquidity of closely held stock. The classic definition of fair market value is the price that an informed buyer will pay to a willing seller. But this basic economic principle may not have any bearing on the price of stock in a closely held There’s a reason that contentious disputes among stockholders in closely held corporations are referred to as ‘business divorces’. Even where relationships among the founders and other principals have not yet soured, a stockholder’s exit can easily prompt a range of damaging, even ugly, quarrels among formerly cordial colleagues. Here Euripides Dalmanieras, Partner at Foley Hoag, argues that once the parties mobilise to protect their own interests (whether prompted by one stockholder’s desire to move on or, worse, the dissolution of the entity itself), the threat of litigation will cloud their negotiations, exacerbating already frayed relations among family and colleagues and damaging once profitable businesses. A STOCKHOLDER DISPUTES: WHY SOMETIMES BREAKING UP IS HARD?