✈ April 26, 2017, Avicor Aviation Inc.
Over the past two weeks, we have discussed five key reasons for knowing the value of your aviation business. To summarize, we have discussed the following:
This week we will look at two more key reasons.
Throughout the life of a business, there can be a number of times when the ownership of the company changes. An existing partner may decide to leave to pursue other interests or investments. A new partner is added. Additional investment is required in order to expand the business. A divorce necessitates a division of ownership. Another business is acquired and its owner becomes part of your ownership group. The reasons are many and varied.
But each time there is a change in ownership, it is important to know what the value of the aviation business is. If a business has been growing for a number of years and a partner decides to leave, everyone will need to agree what the value of the business is in order to buy that partner out. If a new investor is to be added, they want to know what share they will receive for their investment, again necessitating an agreement on the value of the business. An independent valuation of the business allows for an unbiased determination of the company's worth. In fact, most well designed buy/sell and partnership agreements include a provision for an independent valuation f the company when such changes are about to take place.
Sometimes the change in the ownership of an aviation business is a transition between generations of a family. It may not involve a purchase, but rather a gift from parents to children, or between friends.
When a business, or shares in a business are gifted, whether it involves family members or not, the IRS requires that the fair market value of the company is determined by an independent party that is certified to carry out business valuations.. In fact, the valuation report is part of the documentation that the IRS requires along with other forms that must be filed. The independence of the valuator is an important part of its requirements. And the IRS requires that the valuator be certified.
Next week we will wrap up our series on key reasons to find out the value of your aviation business.
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