Early Share Valuation in Shareholders’ Disputes

23 April, 2019
This article has been reviewed and is up to date as of 10 June, 2020

In any shareholders dispute one of the first questions that will occur to a lawyer is how much are you arguing about.  However, it is surprising how often this has not been addressed by parties to a dispute.

Shareholder litigation is notoriously expensive.  As part of any risk analysis an assessment of the proportionality of taking legal action is essential.  It is rare that any good lawyer will ever advise that litigation should be embarked on as a point of principle.  It should only be contemplated where a commercial case for doing so can be made out.

I am sometimes asked for my personal view on the value of the company but this is very definitely something for an accountant to give an opinion on rather than a lawyer. 

The valuation of companies has an undeserved reputation as being something of a dark art.  However, at the most basic level a company is simply worth what somebody will pay for it (either actually or theoretically)and there are various tried and tested ways of approaching such a valuation which I will not try and summarise here. 

A full blown expert valuation for a court case will cost many thousands of pounds but that is not necessarily what is required at the initial stage of a dispute.  What you need is a ball park figure that can be used as the basis of your initial risk analysis and also potentially form the basis of settlement discussions.

In this latter respect, some disputes are really just about “how much”.  Deep down the parties realise that one or other has to leave and it is simply a question of how much the other will take / pay for the shares.  In these cases it can sometimes be agreed that an accountant will act jointly.  The parties will each pay half of the cost of getting a valuation and either agree to be bound by the valuation or less formally just use the valuation obtained as the starting point for discussions.