Our Guide to Share Valuation

Our Guide to Share Valuation in this months article may be useful if you are a shareholder,  someone wanting to buy a company or buy into an existing company. 

What is a share valuation? 

A share valuation is the process of calculating the value of a company’s share. A share is the shared proportion of ownership within a company. For example JS Reakes Ltd has two directors who both have 50% of the shares. If the company was valued at £200,000 the two directors would each have a share worth £100,000. 

When and why do you need a share valuation? 

Issuing new shares: When a company is issuing new shares (to raise funds/money) they might need to know the value or impact. If they issue an additional 1000 shares it will dilute the value of the existing shares. So, knowing the extent of the impact is useful. 

Buyouts: You might also need a share valuation if one of the business owners is selling their shares to the other owners. They will need a valuation for a “buyout” (Where one of the shareholders gains all or some of the other shareholders’ shares). 

Disputes: Another situation in which you will need a share valuation is if there has been a partnership dispute or fallout in which one shareholder or the other will look to sell their shares.  

Legal disputes: If there is a legal dispute going on in the background and the Court needs expert advice a share valuation is needed. This is because if one partner has less than 50% of the shares, they have diminished control over the business. Meaning decisions can be pushed through by 50% or above shareholders.

Buying or selling Shares: When a shareholder is looking to either buy or sell their shares, they need a valuation to ensure a fair deal.

Methods of share valuation 

There are several methods used to conduct a share valuation. Each method is suited to different types of businesses and situations. For example a few of the most common methods include: 

Asset-Based: This involves calculating the net asset value of the company by subtracting liabilities from assets. Providing a clear snapshot of the company’s financial health. 

Income-Based: This method looks at the company’s financial projections and its ability to generate future earnings. 

Market-Based: This method looks at the value of similar companies in the market. Which provides a valuation based on the current market. 

Who provides share valuations? 

Specialist Valuers can provide share valuations, these are normally surveyors or accountants. At JS Reakes, our valuer Jon has over 30 years of experience in valuing businesses and shares of businesses. He can interpret shareholder agreements and company articles, cutting through complicated language to provide clear and simplified advice. 

Keep up to date by signing up to our monthly newsletter! If you are in need of a share valuation or would like professional advice and support, please email us at office@jsreakes.co.uk to get in touch! 

At JS Reakes, we tailor our services to your requirements. Our expertise comes with over 30 years of experience in commercial property. We are based in Bristol and cover Wales and the Southwest. Email us at office@jsreakes.co.uk to get in touch!