Fair Market Value As Per LLC
My Lawyer who is pretty good at most things seems to be confused as to the term Fair Market Value as its outlined by my LLC operating agreememt.
In it it states: ......For purposes hereof, the fair market value shall be the "book value" of the company as then determined by its accountant or other individual who prepares its income tax returns, using generally accepted accounting principals.......I've had the lawyer that is representing the estate of my deceased partner say "we have to get a new appraisal and determin the new fair market value." However two accountants say that the BOOK value will be the purchase price plus any improvements. (seems like my LLC lawyer also are saying this, and aying thats the good thing about an LLC death transfer ) My lawyer seems to be non plused. Anyone here ever have to deal with this?
Hey,
When dealing in RE, Fair Market Value and Book Value have nothing to do with one another.
FMV is the current value of the properties minus loans (there are some other items, but lets keep this simple).
Book is the purchase price of the properties minus depreciation minus loans (there are other things also).
Since you mentioned deceased partner, I have to presume you are paying out that partners ownership in the LLC. What exactly is going on?
Hi Bruce, thank you so much for your post! Yes ,My partner passed away a few weeks ago and the operating agreement states that I have the option of buying her interest for 1/2 of its fair market value which is defined above. It then says "The member (s) shall have the right to assign such option to the company" I'm not really sure of what that means yet. This seems like a good situation for me in that it seems like I can buy the property for 1/4 of the fair market value. Her only heirs are very distant and have had no real connection to her and her bussiness so I don't feel so bad about it. The only problem is figuring all this out (quickly) and doing the purchase. Another factor which I'm not sure about is that I have put most of the money in this property over the last 15 years which has been pretty substantial. This building only started to have a positive cash flow in the last several years but it has greatly increased due to improvements in the building and a renaissance of the town. I would really like to keep it. I'm guessing to turn over original mortage and sed E's to a CPA? Any more thoughts? Hollis
While I agree with Bruce that Quote: When dealing in RE, Fair Market Value and Book Value have nothing to do with one another. The current situation is not exactly "dealing with RE". Your LLC agreement has a definition of FMV which is at variance with reality and as the word is usually used. But that is the definition in the agreement. I'd stick to your guns. FMV means what you and your now-deceased partner agreed it meant when you drafted the agreement. Yes, this should represent a substantial discount to the actual FMV but it could have been that you would be the one in a box now and the definition in the agreement would have cut against you. This is why your LLC agreement begins with a set of definitions-- those words mean what they are defined to mean in the agreement.