Need for Valuation of Shares :
The necessity for valuation of shares arises inter alia in the following circumstances:
(i) Assessments under the Wealth Tax Act.
(ii) Purchase of a block of shares which may or may not give the holder thereof a controlling interest in the company.
(iii) Purchase of shares by employees of the company where the retention of such shares is limited to the period of their employment.
(iv) Formulation of schemes of amalgamation, absorption, etc.
(v) Acquisition of interest of dissenting shareholders under a scheme of reconstruction.
(vi) Compensating shareholders on the acquisition of their shares by the Government under a scheme of rationalisation.
(vii) Conversion of shares, say, conversion of preference shares into equity.
(viii) Advancing a loan on the security of shares.
(ix) Resolving a deadlock in the management of a private limited company on the basis of the controlling block of shares being given to either of the parties.
Normally, the price prevailing on the stock exchange is accepted. However, valuation by expert is called for when parties involved in the transaction/deal/scheme, etc., fail to arrive at a mutually acceptable value or the agreements or articles of association, etc.. For isolated transactions of relatively small blocks of shares which are quoted on the stock exchanges, generally the ruling stock exchange price provides the basis of valuation. Thus, valuation by a valuer becomes necessary when:
(i) Shares are unquoted.
(ii) Shares relate to private limited companies.
(iii) The Court directs for valuation by an expert.
(iv) Articles of Association or relevant agreements so provide.
(v) Large block of shares is under transfer.
(vi) The law/applicable statue so requires.