Service Fee Guidelines

Service Fee Guidelines For the Appraisal
of an Ownership Interest
Closely Held Investment Partnership
Investment Limited Liability Company
Investment Trust or Other Organization

The following are typical service fees for the valuation of an equity interest in a passive investment partnership, limited liability company, C-corporation, S-corporation, investment trust, or other organization. Pricing for multiple entities (like-kind or similar in form and holdings – as a cluster formation or holding company formation) is discounted.

One appraisal, typical service fee $6,500 – this is our typical base service fee.

Two appraisals, $10,400 (20% discount on second entity)

Three appraisals, $13,650 (30% overall discount)

Four appraisals, $15,600 (40% overall discount)

Five appraisals, $17,875 (45% overall discount)

Six appraisals, $19,500 (50% overall discount)

We often encounter a closely held organization (partnership or limited liability company) that owns an interest in another closely held organization (corporation, limited partnership, or limited liability company). For example, a family owned investment company, Loalbo Family Limited Liability Company, owns a one-half interest in the Gibbs-Loalbo Company. We must value the Gibbs-Loalbo Company in order to value the Loalbo Family Limited Liability Company. Be sure to let us know if you have this structure.

Revaluation within two years from date of prior engagement contract, for passive investment organizations, is typically $3,500.

Onsite visits, onsite discovery, and/or for strategic planning/compliance – Extra.

Priority work – usually no extra in service fees, but there is a requirement that all of the fee be paid in advance. There is an additional charge of $500 – $1,500 if the work has a turn-around time of from 3 to 5 days.

Our engagement will be documented by a written contract. You will have no financial obligation to us until we are engaged. You will know what services we are to provide, the cost of our service, and our time commitment. All information provided to us pre-engagement will be strictly confidential. We would rather have too much information up-front than not-enough.

Turnaround commitment is four weeks from the day we receive all of the information we need to complete our study.

The most difficult task in our valuation work (for you and for us) is getting all the information we need.

Our valuation methods will emphasize the use of math and statistics to determine the present value of all predictable future economic benefits that an owner will realize over the holding period of his or her investment. In valuing investment companies, we need to know exactly what assets the company owns and the income that is produced from each asset. We must determine the most probable future growth rate for each asset because future capital gains will constitute a significant economic benefit. The study is math-heavy and time-value heavy. For this reason, we need the income tax returns filed for the partnerships or company for the most recent five years. We need financial statements prepared in-house or by a CPA. For investment companies, we need brokerage statements, ad valorem tax valuations/renditions, and other annual information that will help us to determine trend lines. We need copies of all organizational documents to identify exit strategies (if any) and to determine the probable holding period of an investment in a partnership or company.

All of this produces a lot of paperwork that you must provide and that we must examine. We will never ask for non-essential information. Our goal for transfer tax valuations is to deter an examination caused by a less-than-thorough valuation study. Likewise, our goal is to avoid potential disputes within a family or other ownership because our valuation did not consider all the facts and all possible outcomes.

Information Needed For Closely Held Investment Companies, Partnerships, Trust

(1) Organizational documents and, if any, buy-sell agreements, separate stock restriction agreements, and a history of prior sale or redemption of equity in the company, partnership or trust.

(2) Five most recent income tax returns for the organization. If the organization is a start-up, we need a reliable history of the earnings from the investments contributed to the organization. We may ask for the individual’s personal tax returns to obtain information regarding income and expenses generated by the assets prior to their transfer into the newly organized entity.

(3) A schedule of owners and shares/percentages of ownership.

(4) We need an exact list of each asset owned by the organization and the fair market value of each asset at or near the valuation date. This list is important. Often, we are required to construct the list from brokerage statements, real estate reports/appraisals, and other loosely organized information. We can easily overlook an asset in a jumble of paperwork. Please help us protect our accuracy by consolidating this information into a list form.

(5) For stocks, bonds and other securities, please enclose brokerage statements for the period closest to the valuation date. Why? We include and emphasize the potential for appreciation (growth) as a component of value. Stocks in a portfolio have the historical potential for greater appreciation than bonds. Other investments have the potential for depreciation over time. A brokerage statement will help us determine the over-all growth potential for the combined portfolio and the income producing capacity of the portfolio.

(6) As a general rule, real estate (or any interest in real estate) owned by the organization should be appraised by a competent real estate appraiser. This is important if the transaction that requires this business valuation has a high tax audit profile and in buy-sell transactions. Tax District appraisals can sometimes be used if the Tax Appraisal District is required by law to follow the Uniform Standards of Professional Appraisal Practice and if the Appraisal District is current with regard to their field appraisals for determination of fair market value.

(7) Please identify any property in which the organization has a partial ownership interest. The marketability and liquidity of partial interests in property are typically very impaired.

(8) The fair market value of an interest in a partnership/LLC/Company equity may be impaired if the assets of the organization are substantially appreciated. Anyone who buys into the entity dollar for dollar will lose value if he/she must pay a capital gains tax as the result of the sale of an appreciated asset. The impairment represented by built-in unrealized capital gains will be given no weight unless we have the income tax basis of each asset so that we can measure the exact impact.

(9) Similar to partial interests in tangible property, the value of ownership interests in other companies and joint ventures may be seriously impaired. Here is where we often find the clutter in the balance sheet and almost no information. Provide us with the information that you have – such as – K-1 statements, tax returns if the partnership/entity provides copies to owners, recent correspondence and the name and telephone number of anyone we might contact for details. If the value of the partnership/LLC interest (or an interest in a corporation) is very big, we recommend that the underlying entity be appraised if you have the control to require an appraisal.

Service Fee Guidelines For the Appraisal
of an Ownership Interest in an Active
Closely Held Partnership
Limited Liability Company
Corporation (C-Corp, S-Corp)

Small Active Company ($2,000,000 to $15,000,000 in Average Annual Revenues) – Our typical service fee is from $15,000 to $22,500 depending upon the complexity of the company, its revenue structure, its operating structure, or ownership structure. This pricing does not include onsite visits & discovery or work with regard to existing or expected shareholder contests. Companies who own and actively manage real estate are considered to be active companies, not passive investment companies.

Larger Companies – We have worked with a number of large to very large companies in valuation and associated planning. We will need to examine the financial information before we set a fee. These assignments almost always require an on-site visitation and one or more interviews with management. In keeping with our standing policy, we will not charge a fee until an engagement contract is signed. When the assignment is very big, we may contract for a feasibility study (initial analysis and interviews) before we price the assignment. Perhaps the following history will give you some idea of the valuation fees we have charged in other cases.

Bank holding company, the bank and 36 subsidiary companies ($32 million revenues).

Fixed Fee: $50,000

Additional fees in preparation for trial testimony: $34,000.

Company owning and operating a regional chain of discount sporting goods stores, annual gross revenues of $600 million.

Fixed Fee: $32,000

There are significant variables in valuing larger companies. We perform an extensive market search for comparable companies. The companies are large enough so that the market guideline approach is meaningful and relevant. The time and cost of the search varies. We almost never have a problem in getting good financial information from larger companies. This represents a saving of time that moderates the cost of our service fee.

National long-haul freight transport company with $250,000,000 in gross revenues.

Initial Fixed Fee: $25,000

Annual fee for updates (heavy market analysis): $15,000

Two limited liability companies in the business of mining bentonite and lignite and the valuation of family owned and controlled limited partnership.

Fixed Fee: $25,000

The company and its owners have since updated the business appraisal multiple times to support a continuation of ownership and business succession planning. This included an onsite visitation and the use of a consulting independent geologist.

We employ consulting experts in complex technical matters, including biotechnology (Professor Bill Kurtin, Ph.D., retired Chair of the Biochemistry Department of Trinity University, and our Science Advisor), geology, electrical engineering, and environment science.