{"id":11096,"date":"2018-11-03T17:11:20","date_gmt":"2018-11-04T00:11:20","guid":{"rendered":"https:\/\/www.keytlaw.com\/azllclaw\/?page_id=11096"},"modified":"2018-11-04T15:06:31","modified_gmt":"2018-11-04T22:06:31","slug":"fixed-price-valuation","status":"publish","type":"page","link":"https:\/\/www.keytlaw.com\/azllclaw\/fixed-price-valuation\/","title":{"rendered":"Buy Sell Agreements Should Avoid Fixed Price Valuation Methods Like the Plague"},"content":{"rendered":"<p style=\"text-align: justify;\">by <a href=\"http:\/\/www.keytlaw.com\/attorneys-staff\/richard-keyt\/\" target=\"_blank\" rel=\"noopener\">Richard Keyt<\/a> and <a href=\"http:\/\/www.keytlaw.com\/attorneys-staff\/richard-c-keyt\" target=\"_blank\" rel=\"noopener\">Richard C. Keyt<\/a>, Arizona LLC attorneys who have formed 10,000+ Arizona LLCs and have 406 five-star <a href=\"https:\/\/birdeye.com\/keytlaw-llc-147983304225680\" target=\"_blank\" rel=\"noopener\">reviews on Google, Facebook &amp; Birdeye<\/a><\/p>\n<p style=\"text-align: justify;\">A lot of Buy Sell Agreements use a common valuation method called the &#8220;fixed price&#8221; method.\u00a0 It&#8217;s the easiest valuation method because the owners pick a number out of thin air and agree on a fixed value.\u00a0 The agreed on number determines the buy out price after a triggering event.\u00a0 Most Buy Sell Agreements state that the owners will review and update the value every year, but in reality few companies ever update the value.<\/p>\n<p style=\"text-align: justify;\">People like <a href=\"http:\/\/mercercapital.com\/professional\/chris-mercer\/\" target=\"_blank\" rel=\"noopener\">Chris Mercer<\/a> and me who understand how Buy Sell Agreements work or more often than not don&#8217;t work in the real world do not like fixed price valuation methods.\u00a0 Here are the reasons I do not recommend people use the fixed price valuation method:<\/p>\n<ul>\n<li style=\"text-align: justify;\">Unless the value is determined by an experienced appraiser the owners have no clue as to what the actual value of their company is.\u00a0 They are just guessing the company&#8217;s value.\u00a0 Do you really want your loved ones to be paid an amount for the company after your death that is based on a guess by a group of nonappraisers?\u00a0 The fixed value method always means that somebody is going to pay too much or too little and somebody else is going to be paid too much or too little.<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\">Once the value is agreed to and the Buy Sell Agreement signed, the chances are slim that the owners will review and revalue the company annually or whenever the value of the company changes significantly.\u00a0 See\u00a0Chris Mercer&#8217;s article called &#8220;<a href=\"http:\/\/valuationspeak.com\/buy-sell-agreements\/fixed-price-buy-sell-agreement-poster-child-new-york\/\" target=\"_blank\" rel=\"noopener\">Fixed Price Buy-Sell Agreement Poster Child<\/a>&#8221; in which he discusses a great bad example case where the owners of a company never updated the fixed price and it resulted in two lawsuits that took over ten years to resolve.\u00a0 The failure to update the value means that even if the original value was in the ball park the actual value of the company years later won&#8217;t even be close to the company&#8217;s real value.<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\">The Buy Sell Agreement needs to have an alternate valuation method that applies after a period of time such as one year, but many Buy Sell Agreements (not mine) lack this feature.<\/li>\n<\/ul>\n<p style=\"text-align: justify;\">Buy Sell Agreement expert Chris Mercer says this about fixed price valuation methods:<\/p>\n<blockquote>\n<p style=\"text-align: justify;\">&#8220;In my opinion, for most situations, fixed-price buy-sell agreements should be avoided like a contagious disease.\u00a0 However, if you have a fixed-price agreement, you must have the discipline to update the price periodically.\u00a0 And you must amend the agreement to include a workable appraisal process in the (likely) event that you fail to update it.&#8221;<\/p>\n<\/blockquote>\n<p style=\"text-align: justify;\">If your Buy Sell Agreement has a fixed price valuation method I urge you to follow my advice listed below:<\/p>\n<p style=\"text-align: justify; padding-left: 30px;\">1.\u00a0 The owners must revalue the company not less than once a year and more often if something causes the value to increase or decrease substantially.\u00a0 It is not sufficient that the language of the agreement requires revaluations at least once a year.\u00a0 One or more owners must insist that all the owners actually revalue the company.<\/p>\n<p style=\"text-align: justify; padding-left: 30px;\">2.\u00a0 Make sure the Buy Sell Agreement has language that says: (i) the fixed price is eliminated after a period of time (such as one year) unless the owners agree that the price remains good or agree to a new price, and (ii) if the owners do not update the fixed price within the specified period the document contains a workable alternate valuation method.<\/p>\n<p style=\"text-align: justify; padding-left: 30px;\">3.\u00a0 Use an alternate valuation method that requires an experienced appraiser to determine the value as of the valuation date specified in the Buy Sell Agreement.<\/p>\n<h2><strong>Hire the Keyts to Prepare a Buy Sell Agreement for Your Arizona LLC<\/strong><\/h2>\r\n<p style=\"text-align: justify;\">We prepare Buy Sell Agreements custom drafted specifically to meet the desires of the members of Arizona LLCs.\u00a0 Our Buy Sell Agreement is the end result of Richard Keyt preparing this type of business agreement many times since practicing law in Arizona since 1980.<\/p>\r\nWe have two prices for our custom drafted Buy Sell Agreement.\u00a0 The prices are:\r\n<ul>\r\n \t<li style=\"text-align: justify;\">$1,294 if we formed the LLC within the last 90 days or you are also buying an Operating Agreement for $797.<\/li>\r\n<\/ul>\r\n<ul>\r\n \t<li style=\"text-align: justify;\">$1,994 if we formed the LLC more than 90 days ago or if we did not form the LLC.<\/li>\r\n<\/ul>\r\nHere\u2019s the sequence of events when somebody hires us to prepare a Buy Sell Agreement for their Arizona LLC:\r\n<p style=\"text-align: justify;\">1. The purchaser completes and submits our online\u00a0<a href=\"https:\/\/azllc.com\/bsaq\/\" target=\"_blank\" rel=\"noopener noreferrer\">Buy Sell Agreement Questionnaire<\/a>.<\/p>\r\n<p style=\"text-align: justify;\">2. The purchaser pays for the Buy Sell Agreement with a credit card in our secure online store at one of the following links:<\/p>\r\n<p style=\"padding-left: 30px; text-align: justify;\">a. <a href=\"https:\/\/keytlaw.infusionsoft.com\/app\/orderForms\/bsa1\" target=\"_blank\" rel=\"noopener noreferrer\">$1,294 Buy Sell Agreement Order Form<\/a>\u00a0if we formed the LLC within the last 90 days.<\/p>\r\n<p style=\"padding-left: 30px; text-align: justify;\">b. <a href=\"https:\/\/keytlaw.infusionsoft.com\/app\/orderForms\/bsa2\" target=\"_blank\" rel=\"noopener noreferrer\">$1,994\u00a0Buy Sell Agreement Order Form<\/a>\u00a0if we formed the LLC more than 90 days ago or if we did not form the LLC.<\/p>\r\n<p style=\"padding-left: 30px; text-align: justify;\">c. <a href=\"https:\/\/keytlaw.infusionsoft.com\/app\/orderForms\/oabsa-llc\" target=\"_blank\" rel=\"noopener noreferrer\">$2,091\u00a0Buy Sell Agreement &amp; Operating Agreement Order Form<\/a> if we did not form the LLC and you are purchasing a Buy Sell Agreement and an Operating Agreement for $797.<\/p>\r\n<p style=\"text-align: justify;\">You can also pay by calling my legal assistant Amanda Duran - 480-664-7846 and giving your credit card information over the phone or by sending a check payable to KEYTLaw, LLC, 7373 E. Doubletree Ranch Road, Suite 135, Scottsdale, Arizona 85258.<\/p>\r\n<p style=\"text-align: justify;\">3. After paying and completing our Questionnaire Richard Keyt will prepare the Buy Sell Agreement within 3 \u2013 5 business days and email it to the LLC\u2019s contact person along with a\u00a0<a href=\"https:\/\/www.keytlaw.com\/azllclaw\/bsa-letter\/\" target=\"_blank\" rel=\"noopener noreferrer\">letter of explanation<\/a>. These documents are in digital (pdf) format for distribution to all members for their review and input.<\/p>\r\n<p style=\"text-align: justify;\">4. Members review the Buy Sell Agreement, mark text to be changed and make a list of questions about provisions and additional issues to ask KEYTLaw business and contracts attorney and former CPA\u00a0<a href=\"http:\/\/www.keytlaw.com\/attorneys-staff\/richard-c-keyt\" target=\"_blank\" rel=\"noopener noreferrer\">Richard C Keyt<\/a>. The members can email their changes to Richard or call Richard at 480-664-7472 and schedule a phone conference or a conference at our office for Ricky to answer questions about the BSA and determine what changes, if any, the members want to make to the BSA.\u00a0 The BSA comes with one hour of attorney time to discuss the agreement with the members and modify it per the members\u2019 instructions at the meeting. Attorney time incurred beyond one hour will be charged at $295\/hour.<\/p>\r\n<p style=\"text-align: justify;\">5.\u00a0 Richard C. Keyt will revise the Buy Sell Agreement and send it to the contact person as an Adobe pdf file for the signatures of the members. Ricky will also send a pdf version of the agreement that shows the changes we made to the first draft of the BSA.<\/p>\r\n<p style=\"text-align: justify;\">6. Members can sign the agreement the old fashioned way or we can arrange for digital signatures for no additional cost.<\/p>\r\n<p style=\"text-align: justify;\">We constantly tell members of multi-member LLCs that the most important company document is the company\u2019s Buy Sell Agreement because it is the only way to plan for the orderly future \u201cdivorce\u201d of a member. Without a Buy Sell Agreement, the members are stuck with each other forever unless they are fortunate to agree on who will go, who will stay and how much, if any, the remaining members will pay the selling member.<\/p>\r\n\r\n<h2><strong>Our Fee Includes Attorney Consultation &amp; Revision Time<\/strong><\/h2>\r\n<p style=\"text-align: justify;\">Our fee includes one<strong>\u00a0hour of attorney time<\/strong>\u00a0conferring with members, modifying the agreement and drafting custom provisions. Few of our LLCs exceed the allotted attorney time to finalize their Buy Sell Agreement. We want the final agreement to contain all of the provisions desired by the members of each LLC. Some LLCs need more custom drafting of provisions for the Operating Agreement or need more conference time with members to discuss the agreement and make changes. We bill the LLC for any excess attorney time at $295 per hour.<\/p>\r\n\r\n<h2><strong>How to Hire the Keyts to Form Your New LLC<\/strong><\/h2>\r\n<p style=\"text-align: justify;\">To hire us to form your Arizona LLC compare the contents of our three LLC packages (<a href=\"https:\/\/azllc.com\/contents\" target=\"_blank\" rel=\"noopener noreferrer\">$497 Bronze, $897 Silver &amp; $1,397 Gold [the confidential LLC])<\/a>\u00a0and complete our\u00a0<a href=\"https:\/\/azllc.com\/llcq\" target=\"_blank\" rel=\"noopener noreferrer\">LLC Formation Questionnaire<\/a>.\u00a0 See the <span style=\"color: #ff0000;\"><strong>six reasons<\/strong><\/span> <a href=\"https:\/\/www.arizona-wills.com\/gold-llc\/\" target=\"_blank\" rel=\"noopener\">Why You Should Buy a Gold LLC with a Confidential Trust<\/a>. This article includes\u00a0a list of people who won\u2019t inherit your assets unless you provide for them in a will or a trust.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A lot of Buy Sell Agreements use a common valuation method called the &#8220;fixed price&#8221; method.\u00a0 It&#8217;s the easiest valuation method because the owners pick a number out of thin air and agree on a fixed value.\u00a0 The agreed on number determines the buy out price after a triggering event.\u00a0 Most Buy Sell Agreements state that the owners will review and update the value every year, but in reality few companies ever update the value. People like Chris Mercer and me who understand how Buy Sell Agreements work or more often than not don&#8217;t work in the real world do not like fixed price valuation methods.\u00a0 Here are the reasons I do not recommend people use the fixed price valuation method: Unless the value is determined by an experienced appraiser the owners have no clue as to what the actual value of their company is.\u00a0 They are just guessing the company&#8217;s value.\u00a0 Do you really want your loved ones to be paid an amount for the company after your death that is based on a guess by a group of nonappraisers?\u00a0 The fixed value method always means that somebody is going to pay too much or too little and somebody else is going to be paid too much or too little. Once the value is agreed to and the Buy Sell Agreement signed, the chances are slim that the owners will review and revalue the company annually or whenever the value of the company changes significantly.\u00a0 See\u00a0Chris Mercer&#8217;s article called &#8220;Fixed Price Buy-Sell Agreement Poster Child&#8221; in which he discusses a great bad example case where the owners of a company never updated the fixed price and it resulted in two lawsuits that took over <a href=\"https:\/\/www.keytlaw.com\/azllclaw\/fixed-price-valuation\/\"> [&#8230;]<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"om_disable_all_campaigns":false,"footnotes":""},"class_list":["post-11096","page","type-page","status-publish","hentry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.7 (Yoast SEO v27.9) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Buy Sell Agreements Should Avoid Fixed Price Valuation Methods Like the Plague - Arizona LLC Law<\/title>\n<meta name=\"description\" content=\"An LLC lawyer who&#039;s formed 6,200+ LLCs explains why Buy Sell Agreements should not state a fixed value of the company. A fixed value method is a mistake.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.keytlaw.com\/azllclaw\/fixed-price-valuation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Buy Sell Agreements Should Avoid Fixed Price Valuation Methods Like the Plague\" \/>\n<meta property=\"og:description\" content=\"An LLC lawyer who&#039;s formed 6,200+ LLCs explains why Buy Sell Agreements should not state a fixed value of the company. 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