Corporate Finance

Share Valuations

While shares are most obviously associated with the stock market, the majority of small businesses will not go anywhere near a stock market in their lifetime. Instead they are more likely to give out shares in their company in return for a lump sum investment. This may either be from friend and family or, for businesses that are looking for high growth, thorough formal equity funding finance. When you need the value of unquoted shares for tax purposes it should, with a few exceptions, be the estimated price that the shares would fetch if you sold them on the open market. Whilst there is no active open market for most unquoted shares the Courts have provided guidance on how to use an imaginary open market sale to arrive at a value. To arrive at a valuation consideration should be given to
  • the company's performance and financial status as shown in its accounts, and any other information normally available to its shareholders
  • the commercial and economic background at the valuation date
  • the size of the shareholding, and shareholders' rights
  • the company's dividend policy
  • appropriate yields and price earnings ratios
  • the value of the company's assets, and
  • any other factors deemed relevant to the business in question.
The valuation must reflect the extent to which a potential buyer of the shares can or cannot control, or influence, the company. There are many degrees of control, usually determined by the voting power of a particular block of shares. These range from full control, including power to liquidate the company, to a small or non-existent influence over the company's affairs of a minority shareholding. Unless there are exceptional circumstances, if the degree of control is less than complete the value of the shares will be less than a pro-rata proportion of the overall value of the company. Although this is true of any valuation, it is particularly important for CGT valuations at 31 March 1982. The asset to be valued at 31 March 1982 is usually the separate shareholding held by each shareholder at that date, even if the company as a whole has later been disposed of or the shareholdings have changed as a result of transfers since that date. The valuation of unquoted shares is not an exact science and you will need to take professional advice. In using the Pierce Corporate Finance Team you will have hands-on support to ensure a realistic valuation embracing all material matters which are of revelvance.