VALUATION Corp. Provides Business Valuation Services in Moscow and Russian Regions

Business as Valuation Subject

Business is a legal activity, usually associated with production and sales of goods or services, aimed at making profit. In Russia legal forms of doing business can vary – business can be operated as a sole proprietorship or as some form of legal entity (joint-stock or limited liability company, partnership or other form of incorporation).

As a rule, business of a sole proprietor is difficult (often impossible) to separate from its owner (many intangible business assets of a sole proprietorship are inseparable from an individual) and therefore such business is usually hard to sell as an operating business. Usually, a sole proprietor can only sell his separable business assets but these separable assets might not be enough to transfer his current business “as is” to the new owner.

If business enterprise is incorporated and operated as a company, then there are no limitations to transfer it to a new owner by selling company stock (shares, equity).

So, formal subjects in business valuation for purposes, implying that the business will change hands, are:

• for incorporated business - company stock (shares, equity);
• for sole proprietorships – all business assets separable from the owner.

If business valuation purpose does not imply that the business will be sold or otherwise change ownership (valuation for consulting purpose, for example), then it is possible to value the business itself as a legal profit-making economic activity.

Valuation of a business enterprise as legal profit-making economic activity and valuation of the company operating the business have some important difference. Since value of the business depends mainly on its future projected profit, any assets, which might be in possession of the company, but are not used (not needed) for doing business (surplus assets), do not increase the value of the company’s business, but they do increase the value of company stock. Therefore, valuation of business as profit-making economic activity, unlike valuation of company, does not take into consideration any surplus assets.