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VALUATION OF SHARES AND BUSINESS

Corporate Laws / Banking / SEBI / LLP - By: - Mr. M. GOVINDARAJAN - Dated:- 2-1-2016 - Valuation is a devise to assess the worth of the enterprise. A share is a bundle fo rights like rights like right to elect directors, to vote on resolutions of the company, share in the surplus, if any, on liquidation etc., The valuation of shares is required to be done in the following circumstances: Assessments under Wealth Tax Act; Purchase f a block of shares which may or may not give the holder thereof a .....

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nce and expertise in the job. Valuation of experts is called for when the parties involved in the transaction fail to arrive at a mutually acceptable value or the agreements or Articles of Association etc., provide for valuation by experts. The valuation by a valuer becomes necessary when- Shares are unquoted; Shares relate to private limited companies; Courts so direct; Articles of Association so provide; Relevant agreements so provide; Statute so requires. In CWT V. Mahadeo Jalan - 1972 (9) TM .....

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ot quoted on a stock exchange or of a private limited company, then value is determined by reference to the dividends, if any, reflecting the profit earning capacity on a reasonable commercial basis. But, where they do not, then the amount of yield on that basis will determine the value of the shares. In other words, the profits which the company has been making and should be marking will ordinarily determine the value; The dividend and earning method or yield method are not mutually exclusive; .....

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share transfers will also be taken into consideration as earlier indicated in arriving at valuation; Where the dividend yield and earning method break down by reason of the company s inability to earn profits and declare dividends, if the set back is temporary, then it is perhaps possible to take the estimate of the value of the shares before set back and discount it by a percentage corresponding to the proportionate fall in the price of quoted shares of companies which have suffered similar re .....

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ining the value of shares of the acquired and acquiring company to safeguard the interests of the shareholders of both the companies. The process of arriving at the value should include a detailed and comprehensive analysis which takes into account a range of factors including the past, present and most importantly, the future earnings and process of the company, an analysis of its mix of physical and intangible assets and the general economic and industry conditions. The other salient factors i .....

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s are to be kept in mind in the valuation of shares- Capital cover; Yield; Earning capacity; and Marketability. For arriving at the fair value of shares, three well known methods are to be applied- The manageable profit basis method; The net worth method or the break up value method; and The market value method. The following are the methods of valuation of the business- Value based on assets, such as book value, replacement cost, appraised value, exchange earnings etc., Open market valuation; V .....

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court should not sit in judgment over it, yet the court cannot abdicate its duty to scrutinize the scheme with vigilance. It is not expected of the Court to act as a rubber stamp simply because the statutory majority has approved the scheme and there is no opposition to it. The Court is not bound to treat the scheme as a facit accompli and to accord its sanction merely upon a casual look at it. It must still scrutinize the scheme to find out whether it is reasonable arrangement which can, by rea .....

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