How Much Are My Shares Worth?
Whether the other side is offering to buy you out, the Court orders the purchase of your shares or you anyway just “want out”, the key question is how much your shares are worth? The answer depends infinitely on the particular facts and for this reason it is not possible to make more than general observations.
1. Expert help is usually required when valuing shares
Share valuation is an art, not a science. In the case of an unquoted private company – where there is therefore no public market in the shares – it will rarely be possible to form any reliable view about its value without some form of expert input.
Even then, one expert will often disagree with another about the appropriate method or result.
2. Is there already an agreement about how shares will be valued?
Where the company’s articles of association or a shareholders’ agreement make provision for the sale and valuation of shareholdings, then it is common for them to provide for value to be determined by the company’s auditors whose determination will usually be stated to be final as between the shareholders. This means that they will usually be stuck with the auditors’ opinion of the company’s value even if it is doubtful or unreasonable and, depending on the precise terms of the articles or agreement, therefore bound to sell at that price.
Auditors (and other valuers) will, however, usually owe a duty of care to the shareholders so that if they value the shares negligently they may be liable in damages to a shareholder who has suffered loss by, for example, having to sell shares at an unreasonably low price.
3. Method of share valuation – as a going concern?
One of the decisions which the expert will have to make is what method of valuation to adopt. The two fundamental methods of valuing a company are as a “going concern” or on the basis of a break-up/liquidation value of its net assets. Unless, unusually, the business will not be continued after the sale of the shares in question (or there is some other special feature), it will be valued as a “going concern”.
The appropriate method of valuing a business as a going concern will depend on all the circumstances including, in particular, the nature of the business. If there is a usual or conventional method of valuing businesses in a particular industry then this will probably be the appropriate method unless there is some particular reason not to use it. Evidence of the method and/or price of other comparable sales of businesses in that industry may also assist.Valuation as a going concern will usually be based on its profit or future income and it is common to take a figure for maintainable profits (whether gross or net) and multiply it by a factor based on expected “yield”. Yield (and thus multiplier) will often be strongly influenced by the nature of the industry in which the company operates. Occasionally, even a “going concern” is more appropriately valued on the basis of its net assets.
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4. Is there a discount for minority shareholdings when valuing shares?
5. No discount where quasi-partnership or unfair prejudice is found by court?
6. Valuation of shares – allowing for unfair prejudice
7. Valuation of shares – as at what date?
Should you require assistance with a shareholder dispute, the negotiated transfer of shares or the valuation of a shareholding then please contact Francis Wilks & Jones and we will be more than happy to discuss your enquiry on an initial no obligation basis.
Each case we deal with is unique to the individual concerned. Our team of experts can provide you with the tailored expert advice you need.
Please contact one of our corporate specialists on 020 7841 0390.