What is DLOM and how does it affect the value of my shares?

DLOM stands for Discount for Lack of Marketability. It reflects the difficulty and time required to sell shares in a private company compared to a publicly traded one. In shareholder disputes, the value of a minority stake is often reduced by 15-35% due to DLOM, unless the shareholders' agreement explicitly forbids such discounts.

Can a Georgian court appoint its own independent appraiser?

Yes. Under the Civil Procedure Code of Georgia, if the valuation reports presented by the opposing parties differ drastically, the judge has the authority to appoint an independent forensic expert or a private audit firm to determine the objective fair market value of the business.

What if the majority shareholder refuses to provide financial documents?

If financial documents are deliberately withheld, your lawyers can file a motion in court to compel their disclosure. In the meantime, forensic valuation experts can use indirect methods, industry benchmarks, and market data to reconstruct the company's likely revenues and prove that profits have been concealed.

How are shares valued during a mandatory Squeeze-out in Georgia?

Under Georgian corporate law, during a squeeze-out (where a 95%+ shareholder forces the buyout of minority shares), the law dictates a "fair price." This is generally interpreted to mean a pro-rata share of the enterprise value, without applying a Discount for Lack of Control (DLOC), to ensure the minority is not penalized for the forced sale.

Valuation for Shareholder Disputes | Legal.ge

What is Business Valuation for Shareholder Disputes?

Business valuation for shareholder or partnership disputes is a highly specific, legally sensitive, and complex financial and analytical process. Its primary goal is to determine the objective and fair market value of a company, or a specific fractional interest within it, during situations of conflict. In Georgia, as corporate relationships evolve and disagreements among partners—regarding share buyouts, dividend distributions, or strategic business management—become increasingly common, the role of an independent expert appraiser is crucial. Unlike a standard valuation, a report prepared for a dispute is frequently submitted to a court of law (or an arbitration tribunal) as definitive expert evidence. Consequently, it requires the highest level of precision, impartiality, and methodological rigor, as the opposing parties (e.g., majority and minority shareholders) typically have radically different expectations regarding the business's worth. The appraiser must accurately apply and justify complex adjustments, such as Control Premiums and Discounts for Lack of Marketability (DLOM).

What Does This Valuation Service Cover?

Business valuation for shareholder disputes is a multi-step process involving an in-depth investigation of financial, operational, and legal details. The service covers the following core areas:

Full Enterprise and Equity Valuation: Determining the fair market value of 100% of the company's equity using internationally recognized methods (Discounted Cash Flow - DCF, market multiples, and net asset value).
Isolating the Value of Minority or Majority Stakes: When the dispute concerns a specific block of shares (e.g., 15% or 30%) rather than the entire business, the appraiser calculates the value of that specific block, which is rarely a simple pro-rata (straight mathematical) percentage of the whole company.
Application of Discounts and Premiums: The most critical and heavily debated part of the process involves calculating the Discount for Lack of Control (DLOC) and the Discount for Lack of Marketability (DLOM). If a minority shareholder lacks influence over management and the shares cannot be easily sold on a public exchange, their stake is worth significantly less.
Forensic and Normalization Analysis: In disputes, minority shareholders often accuse majority owners of inflating expenses or hiding profits. The expert normalizes the financial statements by adjusting for excessive salaries, non-operating expenses, and off-market transactions with related parties.
Expert Witness Testimony: Providing a robust defense of the valuation report in court or arbitration, delivering well-reasoned answers during cross-examination by judges and opposing legal counsel.

When is Business Valuation Necessary in Conflict Situations?

Business valuation becomes critically necessary when trust between partners breaks down, and they cannot agree on the company's worth. Common real-world scenarios include:

Partner Exit (Buyout): When a partner wishes to leave the company (due to retirement, a conflict of interest, or moving to another business) and demands fair compensation for their share from the remaining partners.
Squeeze-out of Minority Shareholders: When a majority shareholder (typically holding 95% or more of voting rights) legally demands to buy out the remaining shares. To protect the minority, the law requires a strict determination of a "fair price."
Triggering Shareholders' Agreements: When deadlock resolution clauses, such as the "Texas Shootout" or "Russian Roulette," are activated, parties need to know the objective value of the business to make an informed offer.
Divorce and Asset Division: When spouses separate and their joint marital property includes an operating business (an LLC or JSC), an appraisal is required to fairly divide the co-owned assets.
Allegations of Shareholder Oppression: When minority shareholders sue management or majority owners, claiming that their actions have deliberately diminished the company's value (e.g., by selling assets below market value).

Georgian Legal and Regulatory Framework

During shareholder disputes, business valuation and the dispute process itself are regulated in Georgia by several crucial legal acts. The primary regulator is the Law of Georgia on Entrepreneurs, which protects the rights of both majority and minority shareholders. According to the law, during the mandatory buyout of minority shares (Squeeze-out, Article 248), the majority shareholder is obligated to pay a "Fair Price." Determining this price legally requires the involvement of an independent auditor/appraiser. If the minority shareholder disagrees with the proposed price, the case is taken to court. In such disputes, the Civil Procedure Code of Georgia is also vital, as it governs the rules for appointing forensic experts and admitting their reports as evidence. The appraiser is strictly obligated to follow the International Valuation Standards (IVS) (specifically, IVS 200 - Businesses and Business Interests). This ensures that the report is methodologically flawless and can withstand aggressive cross-examination by opposing lawyers and counter-experts in court.

The Valuation Process and Methodological Challenges

The valuation process in a litigious environment is characterized by high tension and issues regarding access to information:

Discovery Process (Information Gathering): Often, a minority shareholder does not have full access to the company's financial documents. The appraiser, working with lawyers, formally requests necessary documents (balance sheets, bank statements, contracts) through court orders or partnership agreements.
Financial Normalization: The expert cleanses the balance sheet of hidden or inappropriate expenses to determine the true profitability (EBITDA) of the business. For example, if a majority owner pays themselves a salary three times higher than the market rate to reduce official profits, that excess amount is added back.
Methodology Selection: DCF and Market Approaches are utilized, but with extreme caution, ensuring that the assumptions do not unfairly prejudice either party.
Defending the Report: The final certified report is submitted to the parties, the court, or the arbitration tribunal. The appraiser must provide a detailed justification for every coefficient used, especially the highly contested DLOM and DLOC discounts.

Why is Legal.ge the Best Platform to Find an Expert?

A business valuation conducted during a shareholder dispute is not a simple financial calculation; it is a piece of legal evidence upon which millions of Lari and the outcome of a trial depend. In such high-stakes situations, you do not just need a standard appraiser; you need a professional with experience in Forensic Valuation who can robustly defend their report during cross-examination. Legal.ge connects you with the most highly qualified, licensed appraisers and audit firms (including forensic experts) operating in Georgia. The platform allows you to review their track record in corporate litigation, read client testimonials, and select a specialist who is objective, principled, and methodologically flawless. Find your expert on Legal.ge to ensure the maximum protection of your financial interests in any legal dispute.