Recent changes to the Ohio Revised Code streamlined the process for relief and clarified the rights of dissenting shareholders of corporations formed in Ohio. The changes clarify the appropriate standard of value to be applied in dissenting shareholder rights disputes.
Defining Fair Cash Value
One of the items clarified from a valuation perspective was Ohio’s measurement of ‘fair cash value.’ According to Ohio law, ‘fair cash value’ is defined as, “the amount that a willing seller who is under no compulsion to sell would be willing to accept and that a willing buyer who is under no compulsion to purchase would be willing to pay, but in no event shall the fair cash value of a share exceed the amount specified in the demand of the particular shareholder.
Ohio law goes further in defining the measurement of ‘fair cash value’ by dictating that the valuation date must be on the date immediately prior to any indication of shareholder dissent or prior to any indication of the significant event that is cause for the dissent (e.g. merger or conversion).
Calculating Fair Cash Value
Calculating the monetary component of ‘fair cash value’ is measured differently for interests in publicly-traded and privately-held corporations. Dissenting shareholders of public corporations must use the closing price on the national exchanges where the shares are traded, and closely-held corporations should utilize traditionally recognized valuation methodologies for valuing privately-held interests. The revised definition of ‘fair cash value’ also takes the privately-held valuation one step further by requiring the final valuation to be absent any consideration of premiums or discounts for control or lack of marketability.
Many would argue that the value of a dissenting shareholder’s minority interest in a closely-held corporation would be substantially less than ‘fair cash value’ given reasonable estimates for the length of time and cost of disposing such an interest. Recent changes, however, do not permit consideration of such adjustments under the new statutory language that expressly disallows the use of discounts for marketability and control. Given the significance of this revision, all parties to a dissenting shareholder dispute need to be sure that the ‘fair cash value’ of an interest is consistent with the new standard of value defined in the statute so that value is properly measured.
Have questions about the changes to the Ohio Revised Code? Post a comment below or contact our Valuation & Litigation Advisory Services Group by calling 440-449-6800.