Purpose: To assist boards of directors in making reasonable judgments about business transactions and to provide protection under the business judgment rule.

A fairness opinion is an opinion that a transaction is “fair, from a financial point of view.” It is not an opinion that the transaction is fair from a legal point of view, nor does it determine whether the transaction is a prudent business decision. Rather, a fairness opinion assists directors and shareholders in making reasonable business judgments. It provides a board of directors protection under the business judgment rule, which requires the board meet standards of (1) due diligence, (2) independent and objective decision-making, (3) good faith and (4) absence of abuse of discretion. A fairness opinion can minimize the risk of litigation, correct misunderstandings and provide comfort to the board of directors and shareholders. Fairness opinions are beneficial when a company:

• Enters into a transaction with a related party;
• Receives competing bids that are different in price and/or structure;
• Sells material assets, stock, divisions or assets for cash and/or securities;
• Is offered common, preferred, convertible preferred or other securities in a public or private company as consideration;
• Acquires material assets, stock, a division or a subsidiary;
• Is concerned that some stakeholders might not understand the financial intricacies of a transaction;
• Receives a single bid and when the board has not solicited competing bids; or
• Repurchases outstanding securities.