Valuation of a share in a private company

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  • #31540
    John Boxall
    Participant

    I am trying to get the processing side to make a valuation of a share in a private company.

    HMRC guidance is at

    http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/shares.htm#6

    My view is that while it’s a fairly small private company the annual dividends are just under £3000/share – if you valued the shares at £16000 that would be a return of 17.25%

    Allowing for the fact that as a small private company it’s not as secure as a FTSE 100 company given current rates of interest, and in the absence of any other evidence it would be possible to justify a £16000 valuation.

    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

    Wilkins Micawber, Ch12 David Copperfield

    #88212
    John Boxall
    Participant

    Bump, can anyone help or has anyone ever had to deal with capital like this?

    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and in short you are for ever floored.

    Wilkins Micawber, Ch12 David Copperfield

    #88213
    Anonymous
    Guest

    Have a look at the balance sheets. Add up current assets then subtract liabilities. Deduct 10% selling fees, then divide by the number of shareholders. This gives you a good starting point – depending on the nature of the company and its profitability a potential investor may pay more or less for your claimant’s share.

    #41052
    peterdelamothe
    Keymaster

    You cannot value a company on just its dividends (although I accept that dividends can only be paid out of clear profits). Paying dividends is a tax efficient way for directors / shareholders.

    You must look at the balance sheet and consider the assets. Unlike a quoted company, there will be limited goodwill on the BS so the physical assets will help. However, one point to note is that assets such as property will probably not be valued at current mkt values. There is no req to update every year; only when about to be sold.

    So I would suggest you need to:

    consider the type of business involved
    look at the balance sheet to identify the assets and the profitability over some years
    look at the profit and loss accounts to establish the turnover of the business as this will affect the value.

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