news/legal expert 11 Two bites of the cherry?
With divorce, family businesses can be an area of substantial complexity and dispute. Shareholdings in a business cannot be ignored ... but to what lengths do you have to go to determine the value? asks Sian Davies of Glanvilles
The following gives an overview of the ways businesses can be valued within financial proceedings following divorce.
What is the issue then?
It cannot be disputed that business shareholdings have to be considered as part of the ’pot’ of money on divorce. It can be argued though that a shareholding is both a capital asset, and an income stream. So can a spouse have two bites of the cherry? Are they entitled to both a share of the capital and an income? A comprehensive valuation of the business can determine the capital value and the projected income.
How do you determine the value?
It is essential to make sure an accountant’s valuation is obtained in respect of a business if there is any dispute as to its value. A single joint
expert should be appointed who will consider the following types of valuation:
• Dividend yield method: This is commonly used to value minority shareholdings. A minority shareholder can only rely on dividends for his or her return. A minority shareholder would not normally be in a position to direct the affairs of the business.
• Net assets method: This method ignores the future performance of the business. Instead, it values its assets less its liabilities. The value will be based on one of two scenarios ie (a) break up basis – assuming a forced sale of the assets, or (b) a going concern – valued upon an open-market basis between willing seller and willing buyer.
This method is used most commonly when a company is
Sick pay reforms could force micro-businesses to close
From April 6, businesses are to lose the right to reclaim any statutory sick pay (SSP) which could result in some small businesses having to close, warns Baker Tilly.
Currently, employers pay a worker who has been signed off as sick £86.70 per week in SSP, and pay a replacement worker to cover the absence. Once the SSP exceeds 13% of the total National Insurance bill for the period, employers can
recover it under current rules known as the Percentage Threshold Scheme (PTS). This was designed as a disaster relief scheme for small employers who cannot afford to bear the SSP cost when too many workers are off sick.
However, from April 6, employers will have to pay the replacement worker’s wages and the SSP with no right of recovery, as the PTS is being abolished.
Coffin Mew moves to new offices
Law firm Coffin Mew is to make key appointments with its move to prestigious new offices in the business heart of Southampton.
The investment forms part of the company’s growth plan on the Solent coast, which has led it from strength to strength with strong financial results and a string of industry awards.
Its new base, Cumberland House at Cumberland Place, will create a second new centre of excellence
after the opening of impressive, modern offices at Lakeside in Portsmouth.
The Southampton relocation will also create roles for a new head of commercial property, as well as for key specialisms in corporate, family practice, residential property and new homes.
Managing partner Miles Brown said: “These are exciting times as we build a modern business for continued success going forward.“
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – APRIL 2014
to be wound up and the assets sold piecemeal; or when a going concern is asset rich. It is also used when losses have been incurred and future maintainable earnings cannot be quantified with reliability.
• Future maintainable earnings method: This will establish the amount of earnings (calculated by the profits before tax) a company can sustain for the foreseeable future. This sum is then multiplied by a figure representing the number of years’ earnings which a purchaser might consider acquiring.
It is possible to calculate future earnings on a profit-after-tax basis. This method is often used when (a) the company is a going concern; (b) there is a record of profits over a number of years; and (c) the company is not asset rich.
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The most appropriate method will depend on the business itself and will be determined by the expert. Whatever the nature of the business, an independent valuation may prove essential in the family proceedings to ensure the correct distribution of the assets. Due to its complexity, legal advice should also be obtained.
Details: Sian Davies 023-9249-2300
Sian.davies@glanvilles.co.uk www.glanvilles.co.uk
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