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Thread: How to determine the value of shares in a private company?

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    Question How to determine the value of shares in a private company?

    Hi All,

    My father recently passed away, leaving only myself and my mother as directors of the company.

    The executor of his estate (my aunt, his sister) contacted me requesting the value of his shares in the company, as he owned 50%.

    The company is an SME employing 5 people

    Can anyone assist with the legal requirements or procedures involved in determining this information? Who is allowed to provide this information? I do the company books. Am I allowed to "value" the shares of the company myself, or do I need to get a professional?

    I mean, I should be able to get a clear indication of assets & liabilities just by looking at my financial reports as per Pastel? These reports are all (supposed) to be accurate right, so I can use them to prove how I determined the value?

    I'm not even really sure yet how to divide the shares once I've determined the value either...

    Any help, tips or advice will be greatly appreciated! 🙏🙏

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    Hi Ola

    I assume you and your Mom are the heirs? Under those circumstances I would suggest net asset value. The assets should be depreciated up to date of death and then considered for any impairments. Then apply the percentage shares held by your Dad. The result is a fair valuation for estate purposes.

    If EBITDA is found to be lower than net asset value, use that x outlook instead. EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization. Depending on the nature of the business 5 times that value would be a fair share valuation in booming times. 2 or even less when the outlook is dismal.

    There is no hard and fast rule. The answer is usually provided by the executor who uses whatever means to arrive at an opinion.

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    Diamond Member Justloadit's Avatar
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    Quote Originally Posted by Andromeda View Post
    Depending on the nature of the business 5 times that value would be a fair share valuation in booming times. 2 or even less when the outlook is dismal.
    The value is directly linked as well to the type of contribution by the shareholder in the business.
    Many times the business has value due to the know how of the share holder, who now is no longer contributing.
    If there is no one else to continue the business in its current form, then frankly there is no value in the business, besides assets and stock.
    Victor - Knowledge is a blessing or a curse, your current circumstances make you decide!
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    The value is determined by what profit a willing buyer can expect to make. Nothing else really.

    In the case of a deceased estate, the heirs have a claim to the net assets of the entity. They are not willing buyers.

    The nature of the contribution by the shareholder, whether in cash or in kind, is not really relevant to the value of the company's shares. Remember it is not being sold as a going concern, the executor is asking for a valuation to determine the value of the estate for estate duty purposes.

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    Diamond Member Blurock's Avatar
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    Sadly, one of my customers died recently. He had no succession plan and there is no-one to take over the business.
    As the business relied solely on his skills and had no 2IC with matching skills. It will now have to be liquidated and staff have lost their jobs.
    Excellence is not a skill; its an attitude...

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    Hi @Ola. Just like you said, you need to calculate both the asset value and the liabilities. If you have all the details about the properties, you can try on your own to calculate the share value. Also you can get help from a professional auditor to get clear statements on the shares, cash flow, tax and the liabilities.

    If the other shareholder(executor of the estate) requests for an official reporting on the share value, better go with a professional auditing service. That would be the best for legal proceedings too.

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