Who can value shares in a private company in Australia, and what it costs

There is no licence or formal admissions board for people who value shares in a private company in Australia, so the choice of valuer is usually yours. Use an independent business valuer acting for no shareholder, with a fixed fee and a signed report on the exact parcel and its rights. Oliver Group charges from $1,495 + GST.

Who can value shares in a private company in Australia?

Anyone can, unless the constitution or a shareholders' agreement says who must: Australia has no licence or formal admissions board for people who value businesses or shares. In the ATO's words, 'There is no formal admissions board in Australia for business valuers.' For tax, its guide says acceptability usually turns on the process followed, not the person. People use an independent business valuer, an accounting firm's valuation team, a corporate adviser or the company's own accountant, compared below. An online calculator is rarely evidence a reviewer will rely on: it usually names no parcel, rights, date or source.

How do the options compare?

They differ most on independence and on whether you see the fee before you start. This compares kinds of adviser, not particular firms.

What makes valuing shares different from valuing the business?

The business value is the starting point, not the answer. The shares are worth what is left for the owners after debt, and one parcel is then valued on its own rights and limits:

• ·Equity after debt: the business value, less borrowings and other debt, plus surplus assets such as excess cash, usually gives the value of all the shares.
• ·Classes and rights: a company decides the rights and restrictions on its shares (section 254B of the Corporations Act 2001), and the ATO's guide counts naming the interest and its rights among the things that make a value better supported.
• ·Minority or control: a parcel that cannot control dividends, the board or a sale may be worth less per share, but the facts decide. In Commissioner of Taxation v Miley [2017] FCA 1396, three equal shareholders sold together to one buyer, and the Federal Court held there was no occasion for a lack of control discount.
• ·Limits on transfer: a constitution or shareholders' agreement may give existing owners first right to buy, and where a proprietary company uses the replaceable rules, its directors may refuse to register a transfer for any reason (section 1072G).
• ·The standard of value: tax usually uses market value, while a buyout uses the wording of the agreement or constitution, such as fair value or a formula.

Why are shares in a private company valued?

Usually because the law or an agreement needs a value for one parcel at one date. Your accountant or lawyer decides how the rules apply:

• ·Capital gains tax, including a transfer to family or a trust: if nothing is paid, or the parties do not deal at arm's length and the price differs from market value, market value at the time of the event is used (section 116-30 of the Income Tax Assessment Act 1997).
• ·Buyout: the shareholders' agreement may set how the price is found, and if the company buys the shares back off-market for less than market value, the seller is treated as receiving market value (worked out as if the buy-back had never been proposed), which can then be reduced for any dividend component (section 159GZZZQ(2) and (3) of the Income Tax Assessment Act 1936).
• ·Employee share scheme: the employee's taxable discount is generally worked out from the market value of the shares or options.
• ·Deceased estate: for shares the deceased acquired before 20 September 1985, the beneficiary's cost base starts at market value on the day of death (section 128-15 of the 1997 Act).
• ·Dispute: in an oppression case a court can order one member to buy another's shares (section 233 of the Corporations Act 2001); expert witness work is a separate engagement, agreed first. Family law valuations are handled by our dedicated family law practice, Family Law Valuations.

What should I check before engaging a share valuer?

Check five things before you pay: independence, the fee, the exact parcel, the standard and date, and a report others can test. Each can be confirmed in writing:

• ·Independence: no role for the company or any shareholder, declared in the report as the ATO's guide expects.
• ·The fee: fixed in writing and not tied to the result, which the ATO says your instructions should state.
• ·The parcel: the number and class of shares, their rights, and how control and limits on transfer are treated.
• ·Standard and date: market value at the time of the event for tax, or your agreement's wording for a buyout.
• ·The report: signed, with the method, evidence and assumptions set out.

What documents should I send for a share valuation?

None to start: send the enquiry form, and a fifteen-minute call confirms the package, fee, delivery date and what is needed. Once engaged, we usually ask for:

• ·The constitution, any shareholders' agreement and the share register
• ·Financial statements for the last three years, and the accounts nearest the valuation date
• ·Loan accounts with shareholders and related entities
• ·The parcel, the purpose and the valuation date
• ·Recent share sales, issues, buy-backs or offers, with prices

How much does a share valuation cost, and how long does it take?

The fee is set by the annual turnover of the company whose shares are valued, not by the size of the parcel. Under $2 million it is $1,495 + GST, with the signed report in 2 business days; $2 million to $3 million is $2,495 + GST and $3 million to $10 million $3,495 + GST, each in 3 business days; over $10 million is quoted in writing before work starts. Delivery time starts once payment and all required information have been received. Each additional entity, such as a second company or a trust, is +$795 + GST, and each retrospective (past) valuation date +$495 + GST, agreed in writing before work starts. Everyone pays the same published fee. Before signing, every report is reviewed by a second valuer. The fee does not cover expert witness work, a cross-check against a second or third method, or tax advice: Oliver Group is not a registered tax agent.

• ·Market valuation for tax purposes (guide), ATO
• ·Market valuation of assets, ATO
• ·ITAA 1997 s 116-30, ATO legal database
• ·ITAA 1997 s 128-15, ATO legal database
• ·ITAA 1936 s 159GZZZQ, ATO legal database
• ·ESS: calculating the discount, ATO
• ·Corporations Act 2001 (ss 232, 233, 254B, 1072G), Federal Register of Legislation
• ·Commissioner of Taxation v Miley [2017] FCA 1396, Federal Court of Australia