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Important Points to be considered while valuating shares of private limited companies:-
- Valuation of private equity share is generally subject to private understanding between parties
- in valuation of pvt. Co. Equity share, any provision related to Valuation or transfer of shares as per AOA (Article of Association) must be foll...
W Network
caDear Sir, my father and his friend started a company by 50% shareholder each. Both of them are directors also. Company was incorporated in 2012. My father and my brother gave their full time to grow the business. We also bought money by way of unsecured loans in the company. But other director i.e.(my father’s friend) never gave his time and have not invested any money in the company other than his equity.as he was not taking interest in the business my father told him to resign as a director and transfer his shares.
Few months back he suddenly transferred a huge amount from the company to his own company without asking my father and demanding a huge amount for transfer of his shares (without any valuation method) and his resignation. He is also not signing cheques and payments to creditors are stopped.my questions are 1) Can we take legal action against him and how? 2) How the valuation of shares can be done? 3) How can we save company from liquidation?
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W Network
caImportant Points to be considered while valuating shares of private limited companies:-
- Valuation of private equity share is generally subject to private understanding between parties
- in valuation of pvt. Co. Equity share, any provision related to Valuation or transfer of shares as per AOA (Article of Association) must be followed.
- In absence of any any provision in AOA, permission from other members should be obtained, and shares should be first offered to them for allotment.
- While calculating Value of equity shares of private company generally Net asset value method or profit earning capacity method is followed:
- Net Asset Value (NAV) Method: - Under NAV all assets are taken at book value (excluding fictitious assets and goodwill) and reduced by Net liability, then value derived is divided by number of shares to get market Value per share.
-
Earning Capacity Method:- Under this method average of past few years profit is taken and adjustment is made for any abnormal transactions occurred in those years, and then considering future growth prospect Future Maintainable Profit (FMP) is arrived.
FMP (future maintainable profit) arrived is divided by Number of shares to get Earning per Share (EPS).
Then EPS is multiplied with P/E Ratio (market price to earnings ratio). In absence of Market price of share to get P/E ratio Use method 100/NRR (Normal rate of return).
On multiplication of EPS with P/E ratio we get value of market value per share.
NOTE: - To avoid Conflict between high and low market price at different method it’s advisable to take average of above two methods, which is as follows:
= Market Price with NPV + Market Price with Earning Capacity
Directors are agents of the Company in transactions they enter into on behalf of the Company, though they are not agents for individual shareholders or members. A director may be an employee, a servant or even a "worker" of the Company. He occupies the position of a trustee, though he is not a trustee in the strict sense in respect of the Company’s properties and funds.
Director’s liability arises because of their position as agents or officers of the Company has also for being in the position of trustees or having fiduciary relation or mis-appropriation of funds of the company or its shareholders.
Some of these liabilities are in contract, some are in tort, some are under the criminal law and others are statutory, i.e., under the Companies Act and other laws. The courts have, in deciding the liability of Directors, taken into consideration a director’s position as a whole.
‘Get a Wazzeer’ to have a professional to evaluate the company shares and draft the Valuation certificate.
almost 3 years ago
View answer
Dear Sir, my father and his friend started a company by 50% shareholder each. Both of them are directors also. Company was incorporated in 2012. My father and my brother gave their full time to grow the business. We also bought money by way of unsecured loans in the company. But other director i.e.(my father’s friend) never gave his time and have not invested any money in the company other than his equity.as he was not taking interest in the business my father told him to resign as a director and transfer his shares.
Few months back he suddenly transferred a huge amount from the company to his own company without asking my father and demanding a huge amount for transfer of his shares (without any valuation method) and his resignation. He is also not signing cheques and payments to creditors are stopped.my questions are 1) Can we take legal action against him and how? 2) How the valuation of shares can be done? 3) How can we save company from liquidation?
-
W Network
caImportant Points to be considered while valuating shares of private limited companies:-
- Valuation of private equity share is generally subject to private understanding between parties
- in valuation of pvt. Co. Equity share, any provision related to Valuation or transfer of shares as per AOA (Article of Association) must be followed.
- In absence of any any provision in AOA, permission from other members should be obtained, and shares should be first offered to them for allotment.
- While calculating Value of equity shares of private company generally Net asset value method or profit earning capacity method is followed:
- Net Asset Value (NAV) Method: - Under NAV all assets are taken at book value (excluding fictitious assets and goodwill) and reduced by Net liability, then value derived is divided by number of shares to get market Value per share.
-
Earning Capacity Method:- Under this method average of past few years profit is taken and adjustment is made for any abnormal transactions occurred in those years, and then considering future growth prospect Future Maintainable Profit (FMP) is arrived.
FMP (future maintainable profit) arrived is divided by Number of shares to get Earning per Share (EPS).
Then EPS is multiplied with P/E Ratio (market price to earnings ratio). In absence of Market price of share to get P/E ratio Use method 100/NRR (Normal rate of return).
On multiplication of EPS with P/E ratio we get value of market value per share.
NOTE: - To avoid Conflict between high and low market price at different method it’s advisable to take average of above two methods, which is as follows:
= Market Price with NPV + Market Price with Earning Capacity
Directors are agents of the Company in transactions they enter into on behalf of the Company, though they are not agents for individual shareholders or members. A director may be an employee, a servant or even a "worker" of the Company. He occupies the position of a trustee, though he is not a trustee in the strict sense in respect of the Company’s properties and funds.
Director’s liability arises because of their position as agents or officers of the Company has also for being in the position of trustees or having fiduciary relation or mis-appropriation of funds of the company or its shareholders.
Some of these liabilities are in contract, some are in tort, some are under the criminal law and others are statutory, i.e., under the Companies Act and other laws. The courts have, in deciding the liability of Directors, taken into consideration a director’s position as a whole.
‘Get a Wazzeer’ to have a professional to evaluate the company shares and draft the Valuation certificate.
almost 3 years ago
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