Share valuation is the most challenging process, especially when the majority and minority shareholders are involved in the process. Sometimes, the shareholders feel underprivileged due to the control of the majority shareholders in the decision-making process, and they are given no justice in the share valuation.
As a result, they can go to the court to demand justice and a just valuation of the shares when a merger & acquisition process takes place. On the other hand, they can contact the third party to resolve the issue of the valuation of shares.
To safeguard the rights of the minority shareholders and to check the unnecessary control of the majority shareholders, the shareholder’s dispute can be resolved legally or with the help of professional advice.
Accotax is the best place in the UK where you can seek professional and legal advice on your share valuation in a shareholder’s dispute. Contact us now!
What is Share Valuation?
Share valuation is the process of determining the total worth of a business. Market demand and supply for the shares of an organisation help decide the price or value of a share. Different methods and techniques are used to define the share valuation.
Why Does Shareholder’s Dispute Arise?
When two partners in a private company are parting their ways in a business, one of them will buy the shares of the parting shareholders. As a result, the valuation of the shares will be determined. The problem arises when the majority shareholders use their majority and undermine the value of the shares.
As a result, the minority shareholders are vulnerable to unfair treatment in the share buyout process. However, they can seek professional help or file a petition in court for a just valuation of the shares.
Share Valuation in the Shareholder’s Dispute
When the shareholders want to sell a company and determine the value of shares, the minority shareholders are vulnerable to an unfair valuation. The strong sway of the majority shareholders could undermine the valuation of the shares.
As a result, the shareholders who are not in large numbers or have little or no control in managing the valuation of shares can take legal help from the court.
Companies Act 2006
Companies Act is the legalisation of the companies in the UK. It provides provisions for the disputes related to the companies and their management. Similarly, this act of Companies Act 2006 provides provisions for the minority shareholders.
As a result, they can file a petition for the just valuation of the shares and the buyout of the share by the company or from other shareholders.
After following a certain procedure, the court will decide on the value of the shares after analysing carefully the petitioner’s concerns and the financial laws. For this, the court will focus on these points:
- The date of the unfair valuation of shares occurred
- The date on which the valuation of shares was effected
- The date on which the petitioner sought the help from the court
- The date of the order to buy shares
Interestingly, the shares valuation or the company’s valuation would be different on each of these dates. Therefore, the judges decide the valuation of shares on the date of the order to buy shares. Nevertheless, the majority shareholders can still manipulate the value of the shares between these dates. However, the court is also committed to a fair determination of the value of shares.
Methods of Valuation of Shares
The valuation of shares is based on the valuation of the shares in general, keeping in view the total market demand and supply. It is not based on buying shareholders and selling shareholders only.
Commonly, two methods are used to assess the valuation of shares.
- Discounted Cash Flow Method
- Price-Earning Ratio
Discounted Cash Flow Method is a way to analyse the valuation of a business or shares keeping in view the cash flows expected to gain in the future. In other words, the projected future cash flows will determine the present value of shares today.
The price-Earning Ratio, also known as the P/E ratio, informs the investors about the total earnings per share. In other words, it determines how much an investor will pay in return for £1 share earnings. Put differently, the price-to-earnings ratio helps determine the total worth of an investment. The shareholders can determine how much they have to pay in return for the earnings on the shares. The price is worth it or not.
Bottom Line
In sum, the share valuation is the most important procedure for the vulnerable minority shareholders. When the shareholders decide to part ways and assess the valuation of shares to arrange a smooth buy-out by the other shareholders, the minority shareholders are at the risk of being manipulated.
So, it is essential that they petition the court and get a justified valuation of their shares. Without this, the leaving shareholders or the small shareholders are likely to get a lower price. The majority of equity holders can exert their control over the management for a manipulated valuation. In this case, share valuation in the shareholder’s dispute can be assessed under the Companies Act of 2006.
If you are seeking legal advice on the share valuation of your company, hire a team of professional accountants and advisors at Accotax right away. Reach out to us!
Disclaimer: All the information provided in this article on Share Valuation is general in nature. It does not intend to disregard any of the professional advice.