Selling your company? How to Value your shares

Any valuer in the corporate finance area will tell you that valuing a shareholding in a private limited company is not an exact science.

Frequently, no market exists for the purchase of shareholdings in a private limited company save amongst existing shareholders.  In particular, most well-drafted shareholders agreements will require a shareholder to offer his/her shares to their co-shareholders for sale as the first step.   In such circumstances, the remaining shareholders will very often have a good idea what the shares are worth as they may be involved in the day to day running of the business and/or be familiar with valuations of businesses in the relevant industry/sector. Notwithstanding the foregoing, a valuation of a shareholding in a private company would be required for advisory and taxation purposes in such situations.

There is wide scope for significant variations in values when seeking a formal valuation and the first question a valuer usually asks is what the purpose of the valuation?  The objective and for whom the valuer is acting will determine whether s/he seeks to minimise or maximise the valuation and usually in the knowledge that it is the first stage in a negotiation.

A very brief overview of the four most commonly used methods when valuing shares in a small to medium company is set out below.

Selling Your Company How To Value Your Shares