Key takeaways
  • Standard valuation adds today’s assets to future profits
  • That logic fits outside investors, not worker-owners
  • In partnerships and ESOPs, future workers claim future gains
  • So the same formula can overstate the current owner’s share

A business is not worth the same thing if tomorrow’s workers own tomorrow’s profits. That is the core claim of this paper: standard ‘fair market’ formulas price a firm as if current owners will keep collecting future residual profits. The paper says those formulas are usually built from two pieces — the firm’s current net asset value and the present value of expected future profits. But that logic fails for partnerships and employee-owned firms such as a 100% ESOP, an Employee Stock Ownership Plan, or a worker cooperative. In those cases, the future worker-members or partners are the residual claimants at those later times, so the future residuals do not accrue to today’s shareholder-residual-claimants. The result is simple but important: any fair market valuation that assumes those future profits belong to current owners is inappropriate. The paper frames this as a distinction between property rights and personal rights, and argues that the usual valuation formulas do not fit these ownership forms.

A firm can look neatly priced on a spreadsheet and still be misread in real life. That is the warning here. The usual market value of a business often adds two things: what the firm owns now, and the profits it may earn later. That sounds harmless. But it hides a big ownership question. Who gets those later profits? If you own shares in a normal company, the answer is often you. If the firm is a partnership or a worker-owned company, the answer can be the people who work there later, not the people who own it now. That difference changes the price story at its root.

Why the usual price tag stops fitting

The paper’s core claim is simple. Standard fair market valuation treats a firm like a bucket of present assets plus a stream of future profit. That works when current owners also hold the future profit rights. It does not work when those rights shift with time. In a 100% ESOP, meaning an Employee Stock Ownership Plan where workers own the firm, future worker-owners are the residual claimants. A residual claimant is the person who gets what is left after everyone else is paid. The same is true in partnerships. So a valuation that gives today’s owners tomorrow’s profits is aiming at the wrong target. The paper says that makes the usual fair market value inappropriate for these firms.

The valuation trick in plain English

The paper walks through the standard logic by breaking it into parts. One part is the net asset value, or what the firm owns after debts. The other part is the present value of expected future profits, meaning tomorrow’s gains translated back into today’s dollars. In ordinary investor-owned firms, those future profits are treated as belonging to current shareholders. In worker-owned firms and partnerships, that assumption breaks. The future claim belongs to future worker-members or future partners. The appendix then links this point to three common valuation routes: a stream of dividends, discounted cash flow, and net asset value plus goodwill. All three rest on the same ownership assumption.

100%ESOP

the paper’s simplest worker-owned case

used as a clean ownership example
  1. The stream-of-dividends formula prices the firm by expected payouts over time.
  2. The discounted cashflow formula turns future cash into present value.
  3. The NAV + goodwill formula adds current assets and expected future profit rights.

“the future residuals do not accrue to the current shareholder/residual-claimants”

From the abstract

“A valuation that assumes tomorrow’s profits belong to today’s owners is pointing at the wrong person.”

Why this matters for worker ownership

This matters because ownership is not just a label. It decides who gets paid, who bears risk, and who can sell what. A fair market price is fine if the buyer truly receives the future residuals. But if those future gains belong to later worker-owners or later partners, then the price built from those gains belongs to them too. The paper frames this as a clash between property rights and personal rights. Property rights travel with the asset. Personal rights belong to the people who join the firm later and do the work later. That is why the same valuation rule can fit one kind of firm and fail badly for another.

What has to be asked next

The sharp question now is not whether valuation formulas exist. They do. The question is which ownership setup they describe. A worker cooperative, a 100% ESOP, and a partnership all move the future residual claim away from today’s outside owner. That means any price test has to match the real claim holder at the time those profits arrive. The paper does not ask us to abandon valuation. It asks us to stop pretending that one ownership model fits every firm. Once that shift is made, the same spreadsheet can no longer hide who really owns tomorrow’s gains.