Share Valuation in Pali

What Is Share Valuation?

Share valuation estimates the value of a share, or a block of shares, in a company. For listed companies there is a market price, although special rules apply to preferential issues, takeovers and delisting. For unlisted companies there is no market price, so the value has to be estimated from the company's value, its capital structure and the rights attached to the shares.

Moving from the value of a company to the value of a share involves several steps: working out the value of equity after debt, allocating value among classes such as equity, preference and convertible shares, dividing by the number of shares, and then considering whether a discount or premium applies. A controlling stake may be worth more per share than a small minority stake, and shares that cannot easily be sold may be worth less because of lack of marketability.

Different laws look at share value differently. The Companies Act, FEMA and income tax law each have their own rules about method and about who may certify the valuation, so the same share can have different values under different rules. Share valuation therefore starts with identifying the purpose and the governing rule. Valuation, due diligence and professional opinion are different things. A valuation estimates value; due diligence investigates facts; a professional opinion is a formal view given by a qualified professional, such as a legal opinion or a certificate. An indicative valuation prepared for planning or negotiation is not a statutory valuation. Where the law requires a valuation or certificate from a registered valuer, a SEBI-registered merchant banker, a chartered accountant or a cost accountant, that report must be issued and signed by that professional, and we coordinate with the appropriate registered professional.

Who Needs Share Valuation?

• Shareholders buying or selling unlisted shares
• Promoters transferring shares to family members or by gift
• Companies issuing shares or conducting buy-outs
• Resident and non-resident parties transferring shares across borders
• Investors and employees dealing with preference shares, convertible instruments or ESOPs
• Shareholders in disputes over the value of their holding
• Executors and families dividing shareholdings

When Is Share Valuation Required?

A valuation is needed or advisable when:

• Shares of an unlisted company are transferred, and the price must not fall foul of tax or FEMA rules
• Shares are issued to a non-resident, or transferred between a resident and a non-resident
• Shares are gifted or transferred below value between related parties
• The Companies Act requires a registered valuer's report, for example for a preferential allotment
• ESOPs or preference shares are being valued
• A buy-out or squeeze-out price must be set
• A family or shareholder settlement requires an independent basis of value

What Our Share Valuation Service Includes

• Understanding the shares, company, transaction and governing rule
• Review of financial statements, projections and capital structure
• Valuation of the company and its equity using suitable methods
• Allocation of value among classes of shares and convertible instruments
• Value per share computation
• Control premium, minority discount and marketability discount, where relevant to the purpose
• Net asset value computation for tax or other prescribed formula purposes
• Mapping which professional must certify under the Companies Act, FEMA and income tax rules
• Preparation of the information pack for the certifying professional
• Indicative valuation report with assumptions and limitations
• Guidance on the effect of price on tax, stamp duty and compliance

Legal and Practical Considerations

Companies Act, 2013. Where the Act requires a valuation of shares, such as for preferential allotment under Section 62(1)(c), it must be done by a registered valuer registered under Section 247 and the Companies (Registered Valuers and Valuation) Rules, 2017, with the Insolvency and Bankruptcy Board of India as the authority.

FEMA. Under the Non-debt Instruments Rules, 2019, the price of unlisted shares issued to non-residents, or transferred to them, must not be less than the fair value determined under an internationally accepted pricing methodology on an arm's length basis, and the price of shares transferred by a non-resident to a resident must not exceed that fair value. The valuation is certified by a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant, as applicable, and certain cases such as swaps need a merchant banker or investment banker. Reporting to the RBI follows the transaction.

Income tax. For tax on transfers and receipts of unquoted shares, fair market value is determined under prescribed rules. With the Income-tax Act, 2025 effective from 1 April 2026, those rules are in the Income-tax Rules, 2026, which consolidated the earlier Rule 11UA family. Whether a net asset value formula or another method applies, and who must certify, should be confirmed from the current rule.

Different values for different purposes. The Companies Act, FEMA and tax rules prescribe their own methods. A single report may not satisfy all, and more than one valuation may be needed for one transaction.

Validity period. Some rules require the valuation to be as of a date close to the transaction, for example within a stated number of days. Stale reports may not be accepted.

Discounts and premiums. Control, minority and marketability adjustments depend on the purpose, the rule and the facts, and are not always permitted under prescribed formulas.

Stamp duty. Transfer of shares attracts stamp duty as per the law, which should be verified for the type of shares and mode of holding.

Common Mistakes in Share Valuation

• Using the company's book value per share for every purpose
• Ignoring preference shares and convertible instruments in the per-share calculation
• Using a valuation prepared for one law for another
• Transferring shares to a non-resident below the FEMA floor, or buying from one above the cap
• Missing the validity period of the valuation report
• Applying discounts or premiums where the rule does not allow them
• Gift or related-party transfers at an undervalue without considering tax
• Forgetting reporting filings after a non-resident transaction

Professional Fees, Government Fees and Timeline

There is no government fee for our indicative valuation. Fees of registered valuers, merchant bankers, chartered accountants or cost accountants for certificates and statutory reports are set by them and are separate. Stamp duty on transfer and RBI reporting charges, if any, are also separate. Our professional fees depend on the company and share structure and the number of valuations needed. A valuation typically takes 5 to 10 working days after information is received.

Share Valuation vs Equity Valuation vs Company Valuation

Share valuation concentrates on the value per share of particular classes and holdings. Equity valuation looks at the total value of equity after debt, often from an investor's perspective. Company valuation addresses valuations linked to corporate actions. Related services include Equity Valuation, Company Valuation and Valuation for Fundraising.

Need Professional Assistance With Share Valuation?

Pricing a share transfer correctly protects both sides from tax and FEMA problems. The Legal Bank can help you work out the value and the certification you need. Share your requirement to discuss the next steps.