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What is a Closely Held
Business/Privately Held Business?
There is a
natural inclination when one hears the term "closely held business"
or "privately held business" to envision a relatively small company
when measured in terms of total revenue or total assets.
However, a closely held business can range in size from a relatively
small corner business to an extremely large, complex entity with
sales in excess of $ 1 billion. The common characteristics of
this wide size range of companies are that they are owned by a
relatively small number of stockholders (or partners), and their
stock is not publicly traded.
There are several types of valuation methods used in valuing
closely held companies.
1.Income Approach
- Capitalization returns methods.
- Discounted future returns methods.
2.Market Approach
- Value multiples involving comparative company data
3.Asset Based Approach
It takes an
experienced skillful professional to decide which valuation approach
to use in valuing any private company.
Reasons for Business Valuations of a Closely Held Company:
1.Selling or Buying An Interest In a Business
2.Mergers/Acquisitions
3.Divorce
4.Buy-Sell Agreements
5.Employee Stock Ownership Plans (ESOPs)
6.Estate Planning
7.Gift, Estate, and Inheritance Taxes
8.Obtaining Finances
9.Preparing Personal Financial Statements
10.Breach of Contract Suits For Determining Damages
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