While publically listed companies have a readily accessible share price at a given time that is dictated by a fluid market, the same cannot be said of privately listed shares.
This means that when there are any proposed dealings in such shares, they may have to be valued to set a price.
Very often and subject to what is said below, the value is set by the price which a buyer is willing to pay.
Otherwise, when it is proposed that shares be sold or new shares be issued in an organisation, a formal expert valuation may be necessary.
There are many ways to value shares in a private company, so this exercise is often performed by an instructed accountant or corporate finance advisor, who will value the shares in the most appropriate and sustainable way, according to a selection of factors which include market sector.
The more information such an advisor is provided with to assist this exercise, the more accurate the valuation will be.
And an accurate valuation is important not only to ensure a purchase properly reflects the value of the shares, but for tax purposes, as there are capital gains and other tax implications for both the transferor and recipient of shares that are dependant upon true market value being attributed to the shares in question.
As such, it is always wise to seek both valuation and taxation advice from specialists before going ahead with a share sale or issue.
It would also be wise to consult the organisations institutional documents, such as their articles of association, together with any relevant contractual documents such as shareholders agreements, to make sure any proposed sale or issue to the proposed transferee is permissible and if so, subject to what conditions, and to establish whether a mechanism for share valuations has already been agreed and therefore needs to be followed.
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