Overview

CE 119

THE VALUATION OF A
CLOSELY HELD BUSINESS

Life insurance professionals who have owners of closely held businesses as clients must have an understanding of the techniques used to value this type of business. The closely held business is often a substantial portion of a client's wealth and a major reason for the purchase of life insurance. Since a closely held business is often an unmarketable asset, a substantial amount of life insurance is generally needed to create liquidity in the business owner's estate. The amount of insurance is a function of the value of a business. The value of a business (or a method for determining the value of the business) is a necessary component of the agreement and dictates the amount of insurance needed to fully fund the agreement.

This course provides a discussion of (1) the basic principles of business valuation, (2) the methods used by valuation appraisers, and (3) the valuation methods typically suggested for buy-sell agreements between co-owners of a business.

CONTINUING EDUCATION CREDIT

The completion of this course will earn continuing education credit for life insurance agents in most states. This course is also eligible for credit under PACE, the joint continuing education program of The American College and the American Society of CLU & ChFC. In most cases continuing education credit will also be granted by other professional designation programs.

To determine the acceptability for continuing education credit as well as the number of credits that are granted, see the enclosed continuing education credit guide.

SPECIAL NOTES TO STUDENTS

This publication is designed to provide accurate and authoritative information about the subject covered. The American College is not engaged in rendering legal, accounting, or other professional service. If legal or other expert advice is required, the services of an appropriate professional should be sought.
The material in this course guide was current on the date it was prepared for printing, but some material may have changed by the time you complete the course. If you are planning to earn continuing education credit by taking the course examination, the examination package explains the examination policy of The American College regarding information that may have changed since the course guide was prepared.
If you have any questions, call The American College's Office of Student Services (610-526-1490).

ACKNOWLEDGMENTS

This course was written by Ted Kurlowicz, JD, CLU, ChFC, professor of taxation at The American College. It is based on material written for HS 331, Planning for Business Owners and Professionals, a course in the College's CLU/ChFC curriculum. The reading is taken from Planning for Business Owners and Professionals, 4th ed. Bryn Mawr, Pa.: The American College, 1992.

Copyrightc 1995
The American College
All rights reserved
June 1995 edition

CONTENTS

How to Use the Course Guide		v
Part 1	Course Objectives	1.1
Part 2	Course Reading	2.1
Part 3	Time Schedule/Course Outline	3.1
Part 4	Study Questions	4.1
Part 5	Answers to Selected Study Questions	5.1
Part 6	Review Questions and Answers	6.1
Part 7	Key Terms	7.1
Part 8	Quick Quiz	8.1
Part 9	Evaluation Forms	9.1

HOW TO USE THE COURSE GUIDE

For each continuing education course The American College prepares a course guide that is designed to assist you in becoming thoroughly familiar with the material. The course guide can be used if you earn continuing education credit either by self-studying and taking the course examination or by attending a classroom presentation of the course material.

Self-Study with Examination

If you self-study, use the following parts of the course guide:

•	Part 1--Course Objectives	These objectives tell you what you will be able to do after you have completed the course.
•	Part 2--Course Reading	This is the material you must understand in order to pass the continuing education examination for the course.
•	Part 3--Time Schedule/Course Outline	This is an outline of the material in the reading. It serves as a review of the major points covered in the course.
•	Part 4--Study Questions	Answer the study questions. They are a key to the important concepts and a basic testing of the material in the course reading. Each question has a page reference to the course reading and space for notes or answers.
•	Part 5--Answers to Selected Study Questions	Using the page references in part 4, you should have no difficulty verifying your answers to the questions. However, some questions may be in the form of case studies, fact patterns, or mathematical problems. These questions are answered in part 5.
•	Part 6--Review Question and Answers	These true-false questions will give you an indication of whether you have mastered the course material and should proceed to take the course examination. Each question has a page reference to the reading. Answers and an explanation of all false items appear at the end of the section.
•	Part 7--Key Terms	These terms consist of new vocabulary specific to thhe subject matter. There is space to define each term.
•	Part 8--Quick Quiz	Ten questions to test your mastery of the course in a nutshell, with answers to all questions.
•	Part 9--Evaluation Forms	Questions that give you an opportunity to critique the material and suggest changes.

When you have completed the course guide, take the multiple-choice examination that is contained in the separate examination package. You must follow the examination rules precisely in order to receive continuing education credit.

Classroom Attendance

If you are attending a classroom presentation of the course material, use the following parts of the course guide:

•	Part 1--Course Objectives	These objectives tell you what you will be able to do after you have completed the course.
•	Part 2--Course Reading	This is the material you must understand in order to pass the continuing education examination for the course. You may want to read it before you attend the presentation of the course material or use it to reinforce your understanding of the material after the presentation.
•	Part 3--Time Schedule/ Course Outline	This is an outline of the material that will be presented. Opposite each page of outline material is a blank page to take notes on.
•	Part 6--Review Questions and Answers	These true-false questions will give you an indication of whether you have mastered the course material and should proceed to take the course examination. Each question has a page reference to the reading. Answers and an explanation of all false items appear at the end of the section.
•	Part 7--Key Terms	These terms consist of new vocabulary specific to the subject matter. There is space to define each term.
•	Part 8--Quick Quiz	Ten questions to test your mastery of the course in a nutshell, with answers to all the questions.
•	Part 9--Evaluation Form	Questions that give you an opportunity to critique the material and suggest changes.

When you have completed your review of the course guide, take the multiple-choice examination that is contained in the separate examination package. You must follow the examination rules precisely in order to receive continuing education credit.

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