When Does a Company Need a Valuation Report, and Who Can Give It?

Companies need a valuation report more often than they expect: when issuing shares, bringing in a foreign investor, transferring shares between family members, issuing sweat equity or ESOPs, or restructuring. A common question is who is allowed to give that report. The answer depends on the law that requires the valuation, and getting it wrong can mean the report is not accepted.

This article explains the common situations that need a valuation, who can give it under each law, and the company law steps around it.

When a company typically needs a valuation

Situation	Law that drives it	Who usually gives the report
Preferential allotment or private placement of shares for cash, by an unlisted company	Companies Act, 2013 and rules	A registered valuer
Issue of shares for consideration other than cash, sweat equity, valuation of assets in mergers and other matters	Companies Act, 2013 (Section 247 and related provisions)	A registered valuer
Issue or transfer of shares involving a non-resident	FEMA pricing guidelines	A Chartered Accountant, a SEBI-registered merchant banker or a practising Cost Accountant, using an internationally accepted pricing method
Tax on issue or transfer of unlisted shares	Income-tax rules on fair market value	Depending on the method and purpose, the company’s own computation, a Chartered Accountant or a merchant banker, as the rules specify
Insolvency and liquidation	Insolvency and Bankruptcy Code	Registered valuers appointed in the process

Often more than one law applies to the same transaction, for example a share issue to a non-resident by an unlisted company. In such cases, reports that satisfy each law may be needed.

Registered valuers

• Under Section 247 of the Companies Act, where a valuation is required under the Act, it must be done by a registered valuer
• Registered valuers are registered with the Insolvency and Bankruptcy Board of India, in specific asset classes such as securities or financial assets, land and building, and plant and machinery
• Check the valuer’s registration and asset class before engaging them

Role of the company and its advisers

• Identify which laws require a valuation for the transaction, and by whom
• Engage the right valuer or valuers, with a clear scope and valuation date
• Ensure the report is current when the shares are issued; some reports are valid only for a limited period
• Place the report before the board and, where required, the shareholders, with the explanatory statement
• Complete the related filings, such as PAS-3, MGT-14 and FEMA reporting
• Keep the report on record for audit and tax purposes

Practical points

• Use the same valuation date and assumptions where more than one report is needed, to avoid inconsistencies
• Do not rely on a report prepared for a different purpose or law
• A valuation should be supported by realistic projections; aggressive numbers can be questioned by tax authorities
• For family transfers, check both the Companies Act and the tax position before fixing the price

For methods of valuation, see methods of business valuation and how to conduct share valuation. For specific transactions, see sweat equity shares, ESOP valuation and FDI in private limited companies.

Frequently asked questions

Can a Company Secretary give a valuation report?

Only if they are a registered valuer, or otherwise qualified under the specific law. A Company Secretary in practice typically advises on which valuation is needed, coordinates the process, and handles the approvals and filings.

Is one valuation report enough for a share issue to an NRI?

Not always. The Companies Act may require a registered valuer’s report, and FEMA pricing requires a valuation by one of the professionals specified for that purpose. Sometimes one professional holds both qualifications.

How long is a valuation report valid?

It depends on the purpose. Many regulators expect the valuation date to be close to the date of issue or transfer. Check the specific requirement.

ചുരുക്കം (Summary in Malayalam)

ഓഹരി പുറപ്പെടുവിക്കൽ, വിദേശ നിക്ഷേപം, കുടുംബാംഗങ്ങൾ തമ്മിലുള്ള ഓഹരി കൈമാറ്റം, sweat equity, ESOP, പുനഃസംഘടന എന്നിവയ്ക്ക് valuation report വേണ്ടി വരാം. Companies Act പ്രകാരമുള്ള valuation-ന് IBBI-യിൽ രജിസ്റ്റർ ചെയ്ത registered valuer വേണം; FEMA pricing-ന് CA, SEBI-registered merchant banker, അല്ലെങ്കിൽ cost accountant; income tax-ന് നിയമത്തിൽ പറയുന്ന രീതിയും വ്യക്തിയും. ഒരേ ഇടപാടിന് ഒന്നിലധികം നിയമങ്ങൾ ബാധകമാകാം. ശരിയായ valuer, valuation തീയതി, board/shareholder അംഗീകാരം, filings എന്നിവ ശ്രദ്ധിക്കുക.

This article gives a general overview of valuation requirements under the Companies Act, 2013, FEMA, the Income-tax law and related rules. Requirements and qualified professionals vary by purpose and are revised from time to time; for accurate and current requirements, refer to the relevant Acts, rules and notifications. The article is not advice on any particular case.