Most business owners or shareholders in private companies have a reasonable idea of the value of their investment. Few, however, would have the knowledge or skills to support that valuation in an adversarial or litigious situation, or know how to realise that value when the time comes to retire.
Professional share valuations are most frequently used in the following circumstances:
- To agree a capital gains tax or inheritance tax liability
- To settle a dispute with a retiring shareholder
- To establish an appropriate number of shares to be granted to a new investor in consideration for capital introduced
- To set a starting point for negotiations in a take-over or merger
Although the valuation of shares relies to a large extent on judgement and instinct there are many basic principles that are commonly accepted. Failure to recognise these will result in fruitless or embarrassing negotiations, or to the rejection of the valuation by a court of law.
A valuation expert will take into account such issues as the company’s performance and asset base, the marketability of the shares, historic and future yields, the value of shares in quoted companies in the same market, the state of the economy, developing trends in the industry concerned, the size of the shareholding in dispute, and many other factors. His report will be robust and sufficiently well documented to be used as evidence in court if so required. If the matter is a tax dispute it will demonstrate an in-depth understanding of the taxation principles relevant to the case.
Very substantial sums of money are usually at stake, and it is wise to select an expert with a proven track record.