The value of an ownership interest in an LLC or partnership is not necessarily its percentage share of the entity’s total value. A buyer acquires the rights attached to a particular interest: rights to income and distributions, participation in management, access to information, and the ability to sell or transfer that interest. Those rights can differ substantially among members and partners.

Brookline Valuation Services, Inc. prepares independent valuations of LLC membership interests, general and limited partnership interests, and interests in family investment and real estate holding entities. These valuations may be needed for gift tax filings (Form 709), estate tax filings (Form 706), ownership transfers, buyouts, and disputes. Mark Shifrin, ASA, works directly with clients and their attorneys and accountants to identify the interest being valued and develop a supportable conclusion for the intended purpose.

How We Value the Interest

We begin with the entity and its underlying economics. Depending on what it owns and how it operates, the analysis may consider its earnings and cash flows, comparable market evidence, or the value of its assets less liabilities. For an entity holding real estate or investments, reliable values for the underlying assets can be especially important. For an operating business, its earnings, risks, and prospects may be central.

We then examine what a hypothetical buyer would actually receive. An LLC operating agreement or partnership agreement may grant one owner management authority while limiting another owner to economic rights. The agreement may also govern distributions, transfers, redemptions, or liquidation. We consider these provisions alongside the entity’s actual practices and the circumstances as of the valuation date.

Factors That May Affect Value

• The interest’s size and class: A general partner, managing member, and passive minority owner may hold different rights.
• Voting and management rights: The ability to appoint managers, approve major transactions, or influence business policy.
• Distributions: The entity’s capacity and history of distributing cash, and who decides when distributions are made.
• Transfer and redemption terms: Consent requirements, rights of first refusal, buy-sell provisions, and any realistic path to liquidity.
• Underlying assets and liabilities: Their current values, earnings potential, debt, and other obligations.
• Entity performance: Historical results, expected cash flows, concentration risks, and financial condition.
• Other owners and governing arrangements: Ownership concentration, voting thresholds, and practical limits on an interest holder’s rights.
• Valuation purpose and standard of value: The assignment’s governing requirements can affect how the interest must be analyzed.

A discount for lack of control or lack of marketability may be appropriate, but neither is automatic. We first identify the level of value indicated by the valuation methods and then determine whether those methods already reflect the interest’s limitations. Any additional adjustment must address a distinct economic issue and be supported by the facts. Learn more about discounts for lack of control and marketability.

Need an appraisal of an LLC or partnership interest? Contact Brookline Valuation Services to discuss the entity, the interest being valued, the effective date, and the intended use of the report.