“Explore the intricate process of share valuation in India under Acts like Companies Act, Income Tax Act, and more. Understand methods, valuers, and governing provisions for fair and transparent share valuation. Learn about the diverse purposes, including taxation and compliance for non-resident investments.”
Introduction
In India, the valuation of shares is governed by various laws and regulations. The valuation of shares is important as it determines the price at which shares are bought or sold in the market. The valuation of shares is done based on various factors such as the company’s financial performance, assets, liabilities, and market demand, among others. In this article, we will discuss the comparison of share valuation under different Indian Acts.
1. The Companies Act, 2013.
2. The Income Tax Act, 1961.
3. The Foreign Exchange Management Act, 1999.
4. The Securities and Exchange Board of India (SEBI) Regulations, 2015.
5. The Reserve Bank of India (RBI) Regulations.
The process of valuation of shares is the same as that of valuation of a business, though the purpose of the valuation may impact the valuation of shares. For example, the valuation of shares in a merger may have a different value than the valuation of shares done for financial reporting as the regulatory parameters for both these could be different in terms of ways of arriving at fair value. The fair value of shares has different meanings for different purposes like fair value (legal), fair value (financial reporting), fair market value, etc.
Valuation under Different Acts
In this article, we will broadly compare the Valuation under the following laws & regulations for Issue or Transfer of Shares (Unlisted):
1. The Companies Act, 2013.
2. The Income Tax Act, 1961.
3. The Foreign Exchange Management Act, 1999.
|
Sr. No. |
Particulars | Companies Act, 2013 | Income Tax Act, 1961 | Foreign Exchange Management Act, 1999 |
| 1. | Method of Valuation | 1. Internationally accepted valuation methods.
2. Valuation methods adopted by any registered valuers’ organizations. |
1. NAV (Net Asset Value) Method.
2. DCF (Discounted Free Cash Flow) Method. |
1. Internationally accepted valuation methodology i.e., DCF (Discounted Free Cash Flow) Method as prescribed in RBI Notifications.
2. Any other suitable methodology. |
| 2. | Who Shall be the Valuer | 1. Merchant Banker in case valuation is based on DCF Method.
2. Any Registered Valuer if valuation is based other that on DCF Method. |
1. Registered Valuer will be able to do Valuation. | 1. Chartered Accountant (CA) or any SEBI registered Merchant Banker or a Practicing Cost Accountant are allowed to do Valuation |
| 3. | Valuation in case of Right Issue or Preferential Allotment of Shares | Required | Required | Required |
| 4. | Governing Provisions | Section 247 of the Companies Act, 2013. | Rule 11U, 11UA, 11UAA, 11UB. | Rules related to Capital Account Transactions and RBI Directions on Issue or transfer of shares to Non-resident |
| 5. | Purpose of the Valuation | 1. Transfer of Shares.
2. Buyback of Shares. 3. Issuance of Shares. |
1. Taxation.
2. Gift Tax. 3. Estate Duty. |
For fulfilling the compliance when a Non-Resident invests in an Indian Company. |
Conclusion
In conclusion, share valuation is an important aspect of the corporate and financial landscape in India. Various Acts and regulations govern the valuation of shares, and it is important for businesses and individuals to understand the different valuation methodologies and comply with the relevant provisions under the appropriate Act. The valuation of shares should be done in a fair and transparent manner, considering various factors that determine the value of the shares in the market.
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