A private-company valuation needs a stated purpose, valuation date, basis of value and interest being valued. A valuation for a negotiated sale, a shareholder dispute, financial reporting or a tax filing may each produce a different answer, and each should state clearly what it is for.
Enterprise value and equity value
A common source of disagreement is comparing figures prepared on different bases, such as an enterprise value for the whole business and an equity value for the shares. In owner-managed companies, director balances, related party arrangements and borrowings can make the difference between the two significant. Explain any earnings adjustments, including a market-based replacement cost for an owner’s role where relevant, and support claims that costs are genuinely non-recurring. The value of a minority holding may also differ from a proportionate share of the whole.
Tax follows the transaction
Where shares change hands, the tax consequences depend on the facts. HASiL's Guidelines on Capital Gains Tax for Unlisted Shares set out who is chargeable, and our article on capital gains tax on unlisted shares summarises the current position. A share-transfer instrument may attract stamp duty, subject to the applicable reliefs and exemptions, and HASiL's stamp duty pages explain the current process. The value used for tax or stamp duty is determined under the relevant law and may differ from the price agreed between the parties.
For related reading, see our article on financial due diligence for SME acquisitions.
This article is general information only. Requirements depend on each company's circumstances; please refer to the official sources linked above, and see Saifudin & Co's corporate finance and transactions services if you would like assistance.