Business valuation

How BC law treats it

No BC statute requires a valuation to be done by a particular professional. Parties to a sale or buyout can agree on any price or formula. Chartered Business Valuators follow the professional standards of the CBV Institute, which are not law but carry weight with courts and the Canada Revenue Agency. The standard of value depends on the context. Fair market value, used for most tax purposes, is the highest price in an open and unrestricted market between informed, willing parties acting at arm's length. A shareholders agreement may instead fix a formula price or a valuation process, which binds the parties. In a court-ordered buyout, the court decides the appropriate measure. Under the Business Corporations Act, SBC 2002, c 57 (BCBCA), a shareholder who validly dissents from certain fundamental changes, such as some amalgamations or the sale of all or substantially all of the undertaking, is entitled to be paid the payout value of their shares under the dissent procedure in ss. 237 to 247. If the company and the dissenter cannot agree, the court fixes the payout value. Under the oppression remedy in BCBCA s. 227, the court can order the company or other shareholders to buy a shareholder's shares and decides the value and valuation date; courts often decline to apply a minority discount where the shareholder was oppressed. For tax, transactions between related parties, such as an estate freeze, must use fair market value, and price adjustment clauses are commonly included so the price can be corrected if the Canada Revenue Agency disagrees.

What it means for your business

Valuation drives the price in a sale, the buyout amount when a partner leaves, and the tax result of a freeze or reorganization. A shareholders agreement with a clear valuation method avoids expensive fights later. In a dispute, competing expert reports can decide the case, so choosing the valuation date and standard of value is a strategic decision, not a technical one. Owners should keep financial statements clean and normalized, since valuators adjust for owner perks and one-time items. Example: A minority shareholder in a Richmond import company proves oppression, and the BC Supreme Court orders the majority to buy her shares at their value as of the date the oppression began, without a minority discount.

Risks and common mistakes

Using a fixed price in a shareholders agreement and never updating it. Confusing fair market value with the fair or payout value a court may order. Choosing a valuation date without thinking about how it changes the result. Doing an estate freeze or related party transfer without an independent valuation and a price adjustment clause. Ignoring normalization adjustments for owner salaries, perks and non-recurring items.