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A quick refresher on evaluating private stock

Although a previous post here discussed how to put a value on a private business for probate purposes, some Saint Paul, Minnesota, residents might not know about how business valuation relates to placing a price on shares of stock in a private company. In any event, a quick refresher might be helpful, especially since many probate litigation issues are the result of disputes over estate valuation, particularly when the item in question is hard to put a price tag on.

When someone in Minnesota dies and leaves shares of a publicly traded stock that is sold on one of the major stock exchanges, determining the value of each share is in most cases is simply a matter of looking up the price of the stock on the day the person died. There are enough people trading the stock to presume the going market rate is an accurate price.

With a private company, which can include a family farm or other small business, valuation can be more difficult since stock is not traded widely enough to establish a going market price. However, a Saint Paul resident who needs a ballpark estimate of value can look to the stock price a public company that shares a lot of the characteristics of the private company in question.

"Rule of thumb" statistics are also available for a variety of industry types. A person can use these tables to estimate the value of a company by looking at its annual revenue and industry type. Of course, these are only estimates. Once Minnesota residents have an estimated value of the business, they can estimate the value of a basic share of stock by taking the total business value and dividing by the number of share of stock.

While placing an exact value on a business, including taking account of depreciation, is usually the work of a financial expert, being able to estimate the value of a business can help Minnesota residents decide whether or not, and to what extent, they should pursue probate litigation.

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Mason & Helmers
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