In short: Private company shares have no market price, so you value them using methods such as net assets, earnings or discounted cash flow. Minority holdings are often worth less per share than a controlling stake. When shares are given to employees, transferred between family members or used for tax reliefs, HMRC may check the value, so get professional advice.
Shares in a listed company have a price you can look up. Shares in a private limited company do not. Yet you often need a value, for example when a founder leaves, an investor joins or shares are given to staff. This guide explains the basics.
When do you need a share valuation?
- Selling or transferring shares to a new owner, a family member or a co-founder.
- Issuing new shares to an investor, to decide the price per share.
- Employee share schemes and share options, including EMI options.
- A shareholder leaving, especially if the articles or a shareholders' agreement set out how the price is fixed.
- Disputes or divorce.
- Tax purposes, such as Capital Gains Tax, Inheritance Tax or employment taxes.
Main valuation methods
1. Net asset value
Add up what the company owns and subtract what it owes. Divide by the number of shares. This suits property or investment companies, or businesses that are closing. It often undervalues trading companies, because it ignores future profits and goodwill.
2. Earnings (profit) multiple
Take the company's sustainable profit and multiply it by a figure based on similar businesses. The multiple depends on the sector, growth, risk and size. Smaller private companies usually attract lower multiples than large or listed ones.
3. Discounted cash flow (DCF)
Forecast future cash flows and convert them to today's value using a discount rate that reflects the risk. This suits businesses with predictable cash flows, but the result is very sensitive to the assumptions.
4. Dividend yield
Value shares based on the dividends they pay. Often used for small minority holdings that have no influence over the company.
5. Recent transactions
If shares were recently sold or issued at arm's length, that price is a useful guide, adjusted for any changes since.
Why the size of the holding matters
The value per share can depend on how many shares are being valued:
- Over 75% - can pass special resolutions, such as changing the articles.
- Over 50% - controls ordinary decisions, such as appointing directors.
- 50% or less - no control alone.
- Small minority - little influence.
A minority stake is often valued at a discount because the holder cannot control dividends or a sale. A controlling stake can be valued at a premium.
Check your articles and agreements
Your articles of association or shareholders' agreement may say:
- Who must be offered the shares first (pre-emption rights).
- How the price is fixed, for example "fair value" set by an independent accountant.
- Different prices for "good leavers" and "bad leavers".
These rules can override what a buyer would otherwise pay.
HMRC and share valuations
Where tax depends on the value of shares, HMRC may challenge it. HMRC's Shares and Assets Valuation team handles these cases. For example:
- For EMI share options, companies can ask HMRC to agree the value in advance.
- For some Capital Gains Tax cases, you can ask HMRC for a post-transaction valuation check after the transaction but before filing the return.
Giving shares to employees below market value can create an income tax charge. Transfers to family members or connected people are usually treated as made at market value for tax.
Because the tax rules are detailed, speak to an accountant or valuation specialist before you agree a price.
Paperwork after a transfer or issue
- Share transfer: complete a stock transfer form, pay any stamp duty due, update the register of members and issue new share certificates.
- New shares: file a return of allotment (SH01) with Companies House and update the registers.
- Update PSC details if anyone's control changes.
How Form My Company can help
We do not provide formal valuations, but once a value is agreed we handle the paperwork for you. See our Share Issue and Transfer and Share Certificates services. If shareholders need to approve the change, we draft the Resolutions and Minutes.
Frequently asked questions
Is there a standard way to value private company shares?
No single method. Net assets, earnings multiples and discounted cash flow are common, and the right one depends on the business.
Are minority shares worth less?
Often yes, per share, because a minority holder cannot control decisions such as dividends or a sale.
Can HMRC agree a share value?
In some cases. For EMI options companies can ask HMRC to agree a value, and for some Capital Gains Tax cases you can ask for a post-transaction valuation check.
Do I need to tell Companies House about a share transfer?
Not straight away. The change is recorded in the company's register of members and reported in the next confirmation statement.