Share Valuation Services
The capital share is one of the essential requirements of any business. It's divided into a 'number of indivisible units of a fixed amount', which is known as 'shares'. The process of getting to know the value of a company's shares is known as the valuation of shares. The share value will vary depending on the market demand and supply, and its valuation is done based on quantitative techniques. Before investing in any company, we need to understand the real worth of its shares.
Imagine you are the CEO of a company, and your company has decided to take over one of its competitors. So then, how are you going to decide the cost at which the other company's shares are worth? We can even consider buying its shares at the market price (the price at which they're being traded) if it's a listed identity, but how can we do that for a private company?
Therefore, it is better to calculate the net and profit worth of the company's ownership/ proprietorship in such circumstances through separate ways and available methods.
This calculation is known as Share Valuation.
In case of issue and transfer of shares, When an owner of shares in a Company transfers the shares to any person, he is required to pay Capital Gain tax on the difference between the sale consideration received by him and the cost of acquiring such shares. It is important to check if the "Sale consideration" that he receives from the buyer is at least equal to or more than the "Fair Market Value" ("FMV") as defined under Rule 11UA of The Income Tax Rules of the shares sought to be transferred.
Focus on the-
- Rule 11UA(1) is applicable in the case of Section 56 of the IT Act for determining the fair market value of the property other than immovable property.
- Whereas Rule 11UA(2) is applicable in the case of Section 56(viib) (i.e. shares issued by the company at a premium.
Analysis Of Section 56 Along With Rule 11ua
Amendments were made in the Finance Act, 2017, which inserted two new provisions under section 56(2). It said sections were inserted to deal with a circumstance where a property that consisted of unquoted shares will be transacted for inadequate consideration that too, much below the FMV of such property as per section 56 (2).
The Tax Act particularly specified that the following would be Taxable.
Cash receipt exceeding 50K, receipt of immovable property, company in which the public are not substantially interested, this shall be subjected to tax with applicable values to determine or evaluate Rule 11UA with specific taxable values based on the amount a particular property or company holds.
UNDER FAIR MARKET VALUE, the nature of assets and property will be Ornamental pieces such as rings, necklaces, bracelets, jewellery, drawings, paintings, Archaeological collections, sculptures, any work of art, shares and securities.
Who Can Do Valuation Of Shares?
After considering this act relevant in order of all aspects, monitoring and examining should be correct in all ways and in such a way that a valuation is required to be made in respect of any property, stocks, shares, debentures, securities, goodwill or any other asset or net worth of a company/firm, or its liabilities to be under the provisions of this act, It shall be valued by such a person having who makes an independent and objective, unbiased, true and after all a fair valuation of any assets that may need to be valued or prized, be determined while executing the duties of a valuer, exercise cautions, to follow on with the rules made and should be established accordingly, shall not undertake the valuation of any assets in which the valuer has a direct or indirect way of showing interest, anytime during or even after the valuation of assets, which is why the people-
Practising Company Secretaries registered with IBBI.
Practicing chartered accountant registered with IBBI
Practicing cost accountant registered with IBBI
Valuing stocks is a complicated process that can generally be viewed as a combination of science and art. Investors may be overwhelmed by the amount of share/ growth/ profit your business and firm are earning, and vice versa, disappointed too. To overcome, to look out for the best of what you're having unknowingly, you need to value the stocks after finding their value.
When Is Valuation Of Shares Required
When you are just about to sell your business and who wouldn't have the curiosity to know all about the business value for further aspects too, when you approach your bank for a loan based on shares as a security, it will be definitely needed as a sign of growth too, merger, reconstruction, amalgamation, when the company's share is to be converted, be it from preference to equity when company need to implement an employee stock ownership plan, for tax assessments under the wealth tax or gift tax acts, at times of litigation where share valuation is legally required, shares held by an investment company, compensating the shareholders.
All of the conditions mentioned above will meet by selecting one of the approaches from the asset, market, and income approach.
The system and criteria of determining the value of a company's share are performed using important and useful techniques, and share values vary according to market and demand supply. This is done relevantly, keeping in mind all the rules to be applied on, amendments are done for a reason and that too, to be better, both financially and economically. Having a record to know and reckon the ultimate shares of a specific company is vital to maintaining a healthy business and economy.
Investors are prudent and all ears open; while looking for the best value stocks to buy, investors must base their decisions on their own research, financial goals and risk appetite and treat the " best value stocks for the year" lists released by the media with Discretion. Section 56 and Rule 11 UA will guide any firm and individual to lead out a successful year and many more.