Legal Question in Business Law in California

Re: how to determine the worth of shares

When a corporation sells an asset, its books will reflect a credit to the account in which the asset was carried and a debit to cash, if was sold for cash, or to accounts receivable if it was sold on credit. If the sale price was higher or lower than the value at which the asset was carried, there will be an additional entry or entries to reflect the gain or loss on sale and possibly a capital gains tax liability.

All of this will probably have some impact on the corporation's net asset value per share, which is arrived at by subtracting liabilities from assets and dividing by the number of shares outstanding.

A more meaningful valuation of a corporation must usually be made by a trained and experienced appraiser, and would take into account historical and prospective future cash flow and earnings, as well as the current balance sheet situation.

All the foregoing are accounting concepts, not legal.

I don't know what you mean by "distributed" in your question. If you mean "how is the cash generated by selling an asset distributed," the answer is that, as at all other times, declaring dividends or making distributions is up to the sound discretion of the board of directors, operating within certain limitations imposed either by the corporation's contracts, bylaws or by law. Sales of assets do not necessarily trigger an obligation to distribute the proceeds nor to use them in a particular way. The corporation may simply decide to reinvest the cash in its business, or to reduce its debt.

Generally, a corporation cannot pay dividends that exceed its accumulated earnings. If the corporation is going out of business, it must pay all its creditors and employees to the extent of its ability to do so before any cash or property can be paid or distributed to insiders in any way. Insiders would include directors, officers and shareholders.

If this question is being asked with respect to a particular transaction, or if the foregoing doesn't provide the answer you were looking for, please contact me with the details of your situation. However, it does appear that you may need a business appraiser or accountant with respect to valuing the business in question.