The valuation of shares in a private company is more complex than the valuation of a listed company’s shares, because there is no market price and the comparable data is limited. The valuer must select the methodology that is appropriate to the company’s business, and the NCLT will scrutinise the methodology and the assumptions.
The Methods
The income approach (DCF) is the most common method for a private company with predictable cash flows. The market approach uses the comparable companies or the comparable transactions, with adjustments for the size, the growth, and the risk. The asset-based approach values the company’s net assets, and it is appropriate for a company whose value lies in its assets rather than its earnings.
The Discounts and Premiums
A private company valuation may apply a discount for the lack of marketability and a discount for the minority interest, or a premium for the control. The application of the discounts is a matter of judgment, and the NCLT will examine whether the discount is supported by the evidence.
The NCLT Scrutiny
The NCLT examines the valuation in the oppression buy-out, the scheme, and the capital reduction. The Tribunal does not substitute its own valuation, but it will reject a report that is not supported by the methodology or the assumptions. The NCLAT has upheld the Swiss Challenge method in a family dispute, and it has set aside a buy-out order based on an outdated valuation.
A technically sound private company valuation selects the appropriate methodology, documents the discounts and premiums, and supports the assumptions with the company’s financial data.
Call to Action
Anuj Desai & Associates advises companies and shareholders on the valuation of private company shares—from the methodology and the discounts to the NCLT scrutiny and the defence of the valuation. If you need a valuation for an oppression buy-out or a scheme, we can help you coordinate the process.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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