Valuation of Private Company Shares

Valuation of Private Company Shares

The need for valuation of price of shares in private limited company often arise in the following situations:

• Shareholders’ disputes : Where a shareholder is leaving the business and either wishes to sell shares or is forced to sell shares upon leaving.
• Shares buy back by company : Where the company is planning to buy back shares held by a shareholder, and the shares bought back by the company will be cancelled while the shareholdings of the remaining shareholders will be uplifted.
• Restructuring of Company : Where the Company is planning on a re-organisation and swapping shares in one company for shares in another in merger and acquisition transactions.

 

Difficulty of valuation of private company shares

The valuation is made difficult as there is little published data available relating to private company shares. Unlike the value of shares of listed company, there is no open market price for private company shares.

The books and records of the private company are confidential to the shareholders concerned.  Minority shareholders generally have limited access to unpublished information and no guarantee of board of directors representation. 

This means that valuation of shares in private companies is not a precise science. There can be multiple valuation methodologies and factors to consider which will affect the outcome of the valuation of private company shares.

 

For legal advice or services on corporate & commercial disputes and matters, please contact CHOW & CHEUNG, Hong Kong Solicitors & Notary Public [Tel: +852 2856 3799 or Email: cac@ccsn.hk ]

Website: www.ccsn.hk

 

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