May 26, 2015

The Importance of Shareholder Agreements

Shareholders Agreements and Business Valuations

Forensic Accounting often involves the task of valuing a business or a shareholding in a company. This is particularly the case in respect to family law and with respect to shareholder disputes. Often if a company has a shareholders agreement it is devoid of valuation methodology. Often if a shareholders agreement exists it simply states that should a valuation be necessary then there should be the appointment of a particular expert to do it.

There are many different methods to value a business or shareholding and they include: Capitalisation of Future Maintainable Profits method, Net Tangible Assets method, Discounted Cash Flow method and Capitalisation of Dividends method. Additionally valuation differences then occur within each method such as the method of calculating maintainable profit, the applicable capitalisation rate, any discount factor for minority shareholding together with many other applicable assumptions.

So in other words, if you were to ask three experts the value of a business or shareholding, based on the same information provided it is common to have many varied results.

A possible solution

If your company or clients do not have a shareholders agreement, get one!

  • Add paragraphs into the shareholders agreement that enables a sample valuation method applicable to the business to be annexed to the agreement.
  • Review that sample valuation method yearly to ensure it is still applicable and if circumstances change, change the annexed sample.
  • Get advice and keep the sample method up to date. This then will go a long way to reducing any ambiguity regarding the value of the business or shareholding.

The SV Partners Forensic Team provides our clients with an objective and defensible opinion of the value of their organisation. For further information on how we can assist you with your shareholder agreements, please contact a member of our team on 1800 246 801.

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