Valuation of Shares by Merchant Bankers & Registered Valuers (MB/RV)

Valuation of Shares by Merchant Bankers & Registered Valuers (MB/RV) . When startups pitch to investors, one of the first things they ask for is a valuation report issued by a SEBI-registered Merchant Banker (MB) or an IBBI-registered Registered Valuer (RV). Since early-stage startups often lack a strong top-line (revenue) and bottom-line (profits), valuation is primarily based on Discounted Cash Flow (DCF), relying on projected financials and a five-year revenue model to determine share price.
Beyond investment rounds, share valuation plays a mandatory role in corporate finance, M&A transactions, and regulatory compliance under FEMA, Companies Act, Income Tax Act, and SEBI guidelines from time to time as per the case may be.
Through this Compliance Calendar LLP article, we will take you through the importance, methodologies, and legal requirements for startup valuation, pre-check for the compliance with SEBI, RBI, FEMA, and MCA regulations—a must-know for every Company’s founder and investor doing business in India and specially a Foreign Subsidiary company having FDI and needs to file FCGPR with RBI for reporting purpose. 
Who Can Issue the Share Valuation Report ?

Valuation Professional
Regulatory Authority
Responsibilities
Applicable Transactions
Mandatory for

Merchant Bankers (MBs)
SEBI (Securities and Exchange Board of India)
Conducts valuation for FDI, FEMA compliance, preferential allotments, and IPO pricing

Foreign Direct Investment (FDI) valuation under FEMA

Preferential allotments under SEBI guidelines

IPO pricing and valuation of listed companies

Share swap transactions

FEMA Compliance

SEBI Regulations

Public & Private Equity Transactions

Registered Valuers (RVs)
IBBI (Insolvency and Bankruptcy Board of India)
Valuation of shares, securities, assets, and businesses under the Companies Act, IBC, and SEBI regulations

Share valuation for mergers, demergers, and acquisitions

Valuation for insolvency proceedings (IBC)

Valuation for regulatory filings under the Companies Act

Share buybacks, ESOPs, and private placements

Companies Act, 2013

Insolvency and Bankruptcy Code (IBC)

SEBI Guidelines on valuation

FEMA Compliance (limited to FDI cases)

Chartered Accountants (CAs)
ICAI (Institute of Chartered Accountants of India)
Can conduct valuation for FDI/ODI under FEMA if they have 10+ years of practice

Valuation reports for Foreign Direct Investment (FDI) and Overseas Direct Investment (ODI) under FEMA

Business valuation for internal assessments and compliance

Tax valuation under Income Tax Act (Rule 11UA)

FEMA Compliance (limited to FDI/ODI cases)

Taxation under Income Tax Act

Financial reporting

Valuation Under FEMA (Foreign Exchange Management Act)

Transaction Nature

Valuation Requirement

Certifying Authority

FDI - Issue of Shares

Valuation must follow an internationally accepted pricing methodology to determine fair value.

SEBI-registered Merchant Banker (MB) or Chartered Accountant (CA) or Registered Valuer (RV) (as per IBBI rules)

Transfer of Shares (Resident to Non-Resident)

The share price shall not be less than the fair value worked out as per internationally accepted valuation methodology.

Merchant Banker (MB) or Chartered Accountant (CA) or Registered Valuer (RV) (as per IBBI rules)

Transfer of Shares (Non-Resident to Resident)

The share price shall not be more than the fair value determined using recognized valuation methods.

Merchant Banker (MB) or Chartered Accountant (CA) or Registered Valuer (RV) (as per IBBI rules)

Valuation Under Income Tax Act (Rule 11UA)

Fair Market Value (FMV) must be determined for unquoted shares using the Net Asset Value (NAV) Method or Discounted Cash Flow (DCF) Method.

Merchant Banker (MB) or Registered Valuer (RV) (as per IBBI rules)

Valuation Under Income Tax Act, 1961 – Rule 11UA

Aspect

Description

Purpose of Valuation

To check the Income tax compliance, fair market pricing, and prevent tax evasion under the Income Tax Act, 1961.

Applicable Shares

Applies to both quoted and unquoted shares, with different valuation methodologies.

Valuation of Unquoted Shares

Net Asset Value (NAV) Method or Discounted Cash Flow (DCF) Method is used for valuation.

Valuation of Quoted Shares

Based on stock exchange price or historical trading data.

Fair Market Value (FMV) Determination

Mandatory for taxation of share transfers and capital gains calculations.

Rule 11UA(1)(c)(b) - FMV Calculation for Unquoted Shares

FMV is determined by considering:-

Book value of assets (excluding jewelry, artistic work, and immovable property).
Market value of quoted shares held by the company.

Government-assessed value for stamp duty purposes.

Book value of liabilities, excluding contingent liabilities and dividends payable.

Practical Challenges in Valuation Under Rule 11UA

Audited vs. Unaudited Balance Sheets – Tax authorities prefer audited financials, but unaudited data may be accepted if necessary.

Fair Value Estimation for Illiquid Shares – Lack of active market trading makes fair valuation complex.

Convertible Preference Shares & Debentures – Determining FMV for convertible instruments presents valuation challenges.

How to Obtain a Valuation Report?
Obtaining a valuation report from a SEBI-Registered Merchant Banker (MB), IBBI-Registered Valuer (RV), or Chartered Accountant (CA) is essential for ensuring transparency, regulatory compliance, and fair market pricing in various corporate transactions. Whether raising funds through Foreign Direct Investment (FDI) or non-FDI sources, a valuation report determines the fair issue price of shares, to comply with FEMA regulations, if share transfers between residents and non-residents, as well as resident-to-resident transactions, to maintain compliance with valuation norms and prevent disputes related to capital gains taxation under the Income Tax Act (Rule 11UA). 
Moreover, under private placements rules or preferential allotments as per Section 42 of the Companies At 2013, and ESOPs, valuation is required to check that shares are issued at the fair price subject to the Valuation Rule. Beyond compliance, obtaining a valuation report from MB or RV or CA builds investor confidence and ensures smooth regulatory approvals especially in FEMA for FDI Approval under FCGPR Filing.  Engaging a Merchant Banker, Registered Valuer, or Chartered Accountant for an exclusive and legally compliant valuation is a necessity for company matters in  corporate finance and investment transactions. 
Learn through Stepwise process here:-
Step-1: Identify the Valuation Requirement 
Determine the purpose of the valuation, such as further issue of share capital or Equity funding, share transfer (FEMA compliance), tax filing (Rule 11UA), or corporate restructuring (MCA/SEBI compliance) specially for Income tax Capital Gain activity. 
Step-2: Engage a Qualified Valuer 
Choose either a SEBI-registered Merchant Banker (MB) or an IBBI-registered Registered Valuer (RV), depending on regulatory needs under RBI/ SEBI/ MCA/ Income Tax etc. 
Step-3: Prepare Required Documents 
Submit key financial records for parameters, including balance sheets as on date of valuation and 5 years projection for DCF method, asset details, and any supporting documentation needed for valuation by Merchant Banker or Registered Valuer. 
Step-4: Valuation Analysis 
The professional will apply appropriate methodologies, such as Discounted Cash Flow (DCF), Net Asset Value (NAV), or Comparable Companies’ Multiples (CCM), to determine the fair value of shares.
Step-5: Obtain the Certified Valuation Report 
Once the valuation is finalized, the certified Valuation Report will be issued by the valuer with UDIN (If CA as per ICAI Norms) for submission to regulatory authorities such as MCA, RBI, SEBI, or Income Tax Department.
Final Overview from Compliance Calendar LLP (CCL) 
The Share Valuation or called company Valuation of unquoted shares is a major process governed by multiple regulations, including FEMA, the Income Tax Act, SEBI, and the Companies Act. Whether for Foreign Direct Investment (FDI) reporting (FC-GPR filing), mergers & acquisitions, or taxation, businesses must check that their valuation reports comply with regulatory standards set by the respective authorities depending on case to case.
For an accurate and compliant valuation, choosing the right Merchant Banker (MB), Registered Valuer (RV), or Chartered Accountant (CA) is essential. At Compliance Calendar LLP (CCL), our team of Registered Valuers, SEBI-Registered Merchant Bankers, and Experienced Chartered Accountants assists businesses in conducting valuations in accordance with all applicable laws and regulations.
Frequently Asked Questions (FAQs)
Q1. What is the need for share valuation? 
Ans. Share valuation is required for regulatory compliance, taxation, mergers & acquisitions, foreign investments, and fundraising. It ensures fair pricing and transparency in financial transactions.
Q2. Who can perform share valuation in India?
Ans.

Valuation Professional as

Regulatory Authority

Major Responsibilities

Applicable Transactions

SEBI-Registered Merchant Bankers (MBs)

SEBI (Securities and Exchange Board of India)

Conducts valuation for FDI, FEMA compliance, preferential allotments, IPO pricing, and mergers & acquisitions.

Foreign Direct Investment (FDI) under FEMA

Preferential allotments of shares

IPO pricing for listed companies

Mergers & acquisitions (fair valuation)

Share transfers between residents & non-residents

IBBI-Registered Valuers (RVs)

IBBI (Insolvency and Bankruptcy Board of India)

Mandatory for valuations under the Companies Act, 2013 for share issuance, buybacks, mergers, and financial restructuring.

Valuation for M&A transactions

Share buybacks & ESOPs

Minority shareholding purchases

Corporate debt restructuring

Chartered Accountants (CAs)

ICAI (Institute of Chartered Accountants of India)

Can perform valuations under specific provisions of the Income Tax Act & FEMA regulations.

Fair Market Value (FMV) valuation under Rule 11UA

Valuation for taxation & capital gains assessments

Valuation for FDI/ODI transactions under FEMA

3. What are the key provisions governing share valuation? 
Ans. Valuation is regulated under:

Companies Act, 2013, Requires valuation by an IBBI-Registered Valuer as per Section 247 of the Companies Act 2013 specially for Private placement rule section 42.

FEMA (Foreign Exchange Management Act) – Mandates valuation for FDI reporting under FCGPR, share transfers between residents and non-residents & Vice versa under FDI -FCTRS Reporting.

Income Tax Act (Rule 11UA) – Specifies valuation methods for unquoted shares to calculate the Price per share to check the tax liability on capital gain.

SEBI Guidelines – Require valuation by a Merchant Banker for preferential allotments and IPOs.

Q4. What are the methods used for share valuation?
Ans.

Valuation Method

Description

Best Used For

Net Asset Value (NAV) Method

Calculates value based on total assets minus total liabilities.

Companies with significant tangible assets (e.g., real estate, manufacturing).

Discounted Cash Flow (DCF) Method

Projects future cash flows and discounts them to present value using a discount rate.

Startups, high-growth companies, and businesses with strong future revenue potential.

Comparable Companies’ Multiples (CCM) Method

Compares valuation metrics with similar publicly traded companies (e.g., P/E ratio, EV/EBITDA).

Private companies looking for valuation based on market comparables.

Price Earning Capacity Value (PECV) Method

Determines valuation based on future earnings potential and historical profitability.

Established businesses with consistent revenue and profitability.

Market Price Method

Uses the current stock market price as the fair value.

Listed companies with active stock trading.

Q5. When is Merchant Banker Valuation required?
Ans.

Case/Event

Description

Relevant Law / Regulation

Foreign Direct Investment (FDI)

Valuation of shares issued to foreign investors as per FEMA guidelines.

FEMA Regulation 20(R)

Preferential Allotment of Shares

Required when shares are issued at a price higher than the face value to investors.

SEBI (ICDR) Regulations, Rule 76A

Mergers & Acquisitions

Ensures a fair valuation of companies involved in a merger or acquisition transaction.

SEBI Takeover Code & Companies Act, 2013

Sweat Equity & Employee Stock Purchase Plans (ESOPs)

Determines the fair value of shares issued to employees or directors as a part of compensation.

Section 54 of Companies Act, 2013 & SEBI ESOP Regulations

Transfer of Shares from a Resident to a Non-Resident

Ensures that share transfer pricing meets FEMA compliance and fair market value requirements.

FEMA Regulation 11

Q6. When is a Registered Valuer’s (RV) valuation required?
Ans.

Case/Event

Description

Relevant Law / Section

Mergers & Amalgamations

Valuation is required to determine the fair swap ratio for merging entities.

Section 230 of Companies Act, 2013

Buyback of Shares

Justifies the fair repurchase price before shares are bought back by the company.

Section 68 of Companies Act, 2013

Issue of Sweat Equity Shares

Determines the fair value of shares issued to employees or directors in exchange for expertise or services.

Section 54 of Companies Act, 2013

Purchase of Minority Shareholding

Valuation ensures minority shareholders receive fair compensation in case of compulsory acquisition.

Section 236 of Companies Act, 2013

Corporate Debt Restructuring

Required by lenders and SEBI to determine the value of assets and securities involved in restructuring.

As per SEBI and RBI guidelines

Q7. What are the FEMA valuation requirements for issuing shares to a foreign investor? 
Ans. Under FEMA regulations, the valuation of shares for Foreign Direct Investment (FDI) in unlisted companies must follow internationally accepted pricing methodologies to ensure fair pricing and regulatory compliance. 
A valuation report under FEMA Law, mandatory and must be certified by a SEBI-Registered Merchant Banker or Chartered Accountant (CA). However, in cases where the FDI is for a newly registered company (such as a foreign subsidiary or a company with foreign investment), many Authorized Dealer (AD) Banks also accept valuation reports from IBBI-Registered Valuers (RVs), for RBI’s FC-GPR filing, which is required for reporting FDI transactions.
Q8. What are the FEMA valuation rules for share transfer between a Resident and a Non-Resident? 
Ans. From Resident to Non-Resident, share price must be equal to or higher than the fair value and from Non-Resident to Resident, share price must be equal to or lower than the fair value. Hence Valuation must be conducted using internationally accepted methodologies and certified by a Merchant Banker or Registered Valuer.
Q9. What is the Rule 11UA valuation requirement under the Income Tax Act? 
Ans. Rule 11UA of the Income Tax Act, 1961 mandates fair market valuation (FMV) of shares for taxation purposes.

Quoted Shares – FMV is based on stock exchange prices.

Unquoted Shares – Valued using Net Asset Value (NAV) or Discounted Cash Flow (DCF) methods.

Q10. What are the challenges in share valuation under Rule 11UA? 
Ans. Using audited vs. unaudited balance sheets for valuation.

Adjusting deferred liabilities and reserves in valuations.

Determining FMV for companies without market transactions.

Valuation of convertible preference shares & debentures.

Q11. How to get a Merchant Banker or Registered Valuer’s Report?
Ans. Identify the purpose of valuation (fundraising, share transfer, compliance, etc.).

Engage a SEBI-registered Merchant Banker (MB) or IBBI-registered Valuer (RV).

Provide financial statements, business projections, and asset details.

The MB/RV will apply the suitable valuation method and issue a certified report.

Q12. How much does a Merchant Banker valuation report cost? 
Ans. The cost of obtaining a Merchant Banker’s valuation report varies based on company size, complexity, and transaction type.
Q13. Is valuation required for a Rights Issue? 
Ans. No valuation is required for Rights Issues under the Companies Act 2013, However, if the shares are issued at a premium, valuation may be required under Rule 11UA of the Income Tax Act for Capital Gain purpose.
Q14. How are foreign company shares valued under FEMA?
Ans. Foreign company shares valued under FEMA are:

Investment in a Foreign Company: If an Indian entity invests over USD 5 million, valuation must be done by a Merchant Banker or International Bank.

Acquisition through Share Swap: Valuation must be carried out by a Merchant Banker or International Bank.

Acquisition through ADR/GDR: Valuation is based on the company’s market capitalization or a Merchant Banker’s report.

Q15. What is the role of IBBI in valuation under the Companies Act?
Ans. IBBI (Insolvency and Bankruptcy Board of India) is the regulatory body for Registered Valuers (RVs). From February 1, 2019, only IBBI-registered valuers can perform valuations required under the Companies Act, 2013.
Q16. Can a Chartered Accountant (CA) issue a valuation report? 
Ans. CAs can issue valuation reports under FEMA for FDI and ODI Compliances, Income Tax Act, and Companies Act in specific cases.However, for transactions under the Companies Act, a Registered Valuer (RV) is mandatory. SEBI mandates Merchant Banker certification for valuation of shares in IPOs, FDI, and preferential allotments.

When startups pitch to investors, one of the first things they ask for is a valuation report issued by a SEBI-registered Merchant Banker (MB) or an IBBI-registered Registered Valuer (RV). Since early-stage startups often lack a strong top-line (revenue) and bottom-line (profits), valuation is primarily based on Discounted Cash Flow (DCF), relying on projected financials and a five-year revenue model to determine share price.

Beyond investment rounds, share valuation plays a mandatory role in corporate finance, M&A transactions, and regulatory compliance under FEMA, Companies Act, Income Tax Act, and SEBI guidelines from time to time as per the case may be.

Through this Compliance Calendar LLP article, we will take you through the importance, methodologies, and legal requirements for startup valuation, pre-check for the compliance with SEBI, RBI, FEMA, and MCA regulations—a must-know for every Company’s founder and investor doing business in India and specially a Foreign Subsidiary company having FDI and needs to file FCGPR with RBI for reporting purpose.

Who Can Issue the Share Valuation Report ?

Valuation Professional	Regulatory Authority	Responsibilities	Applicable Transactions	Mandatory for
Merchant Bankers (MBs)	SEBI (Securities and Exchange Board of India)	Conducts valuation for FDI, FEMA compliance, preferential allotments, and IPO pricing	Foreign Direct Investment (FDI) valuation under FEMA Preferential allotments under SEBI guidelines IPO pricing and valuation of listed companies Share swap transactions	FEMA Compliance SEBI Regulations Public & Private Equity Transactions
Registered Valuers (RVs)	IBBI (Insolvency and Bankruptcy Board of India)	Valuation of shares, securities, assets, and businesses under the Companies Act, IBC, and SEBI regulations	Share valuation for mergers, demergers, and acquisitions Valuation for insolvency proceedings (IBC) Valuation for regulatory filings under the Companies Act Share buybacks, ESOPs, and private placements	Companies Act, 2013 Insolvency and Bankruptcy Code (IBC) SEBI Guidelines on valuation FEMA Compliance (limited to FDI cases)
Chartered Accountants (CAs)	ICAI (Institute of Chartered Accountants of India)	Can conduct valuation for FDI/ODI under FEMA if they have 10+ years of practice	Valuation reports for Foreign Direct Investment (FDI) and Overseas Direct Investment (ODI) under FEMA Business valuation for internal assessments and compliance Tax valuation under Income Tax Act (Rule 11UA)	FEMA Compliance (limited to FDI/ODI cases) Taxation under Income Tax Act Financial reporting

Valuation Under FEMA (Foreign Exchange Management Act)

Transaction Nature	Valuation Requirement	Certifying Authority
FDI - Issue of Shares	Valuation must follow an internationally accepted pricing methodology to determine fair value.	SEBI-registered Merchant Banker (MB) or Chartered Accountant (CA) or Registered Valuer (RV) (as per IBBI rules)
Transfer of Shares (Resident to Non-Resident)	The share price shall not be less than the fair value worked out as per internationally accepted valuation methodology.	Merchant Banker (MB) or Chartered Accountant (CA) or Registered Valuer (RV) (as per IBBI rules)
Transfer of Shares (Non-Resident to Resident)	The share price shall not be more than the fair value determined using recognized valuation methods.	Merchant Banker (MB) or Chartered Accountant (CA) or Registered Valuer (RV) (as per IBBI rules)
Valuation Under Income Tax Act (Rule 11UA)	Fair Market Value (FMV) must be determined for unquoted shares using the Net Asset Value (NAV) Method or Discounted Cash Flow (DCF) Method.	Merchant Banker (MB) or Registered Valuer (RV) (as per IBBI rules)

Valuation Under Income Tax Act, 1961 – Rule 11UA

Aspect	Description
Purpose of Valuation	To check the Income tax compliance, fair market pricing, and prevent tax evasion under the Income Tax Act, 1961.
Applicable Shares	Applies to both quoted and unquoted shares, with different valuation methodologies.
Valuation of Unquoted Shares	Net Asset Value (NAV) Method or Discounted Cash Flow (DCF) Method is used for valuation.
Valuation of Quoted Shares	Based on stock exchange price or historical trading data.
Fair Market Value (FMV) Determination	Mandatory for taxation of share transfers and capital gains calculations.
Rule 11UA(1)(c)(b) - FMV Calculation for Unquoted Shares	FMV is determined by considering:- Book value of assets (excluding jewelry, artistic work, and immovable property). Market value of quoted shares held by the company. Government-assessed value for stamp duty purposes. Book value of liabilities, excluding contingent liabilities and dividends payable.
Practical Challenges in Valuation Under Rule 11UA	Audited vs. Unaudited Balance Sheets – Tax authorities prefer audited financials, but unaudited data may be accepted if necessary. Fair Value Estimation for Illiquid Shares – Lack of active market trading makes fair valuation complex. Convertible Preference Shares & Debentures – Determining FMV for convertible instruments presents valuation challenges.

How to Obtain a Valuation Report?

Obtaining a valuation report from a SEBI-Registered Merchant Banker (MB), IBBI-Registered Valuer (RV), or Chartered Accountant (CA) is essential for ensuring transparency, regulatory compliance, and fair market pricing in various corporate transactions. Whether raising funds through Foreign Direct Investment (FDI) or non-FDI sources, a valuation report determines the fair issue price of shares, to comply with FEMA regulations, if share transfers between residents and non-residents, as well as resident-to-resident transactions, to maintain compliance with valuation norms and prevent disputes related to capital gains taxation under the Income Tax Act (Rule 11UA).

Moreover, under private placements rules or preferential allotments as per Section 42 of the Companies At 2013, and ESOPs, valuation is required to check that shares are issued at the fair price subject to the Valuation Rule. Beyond compliance, obtaining a valuation report from MB or RV or CA builds investor confidence and ensures smooth regulatory approvals especially in FEMA for FDI Approval under FCGPR Filing. Engaging a Merchant Banker, Registered Valuer, or Chartered Accountant for an exclusive and legally compliant valuation is a necessity for company matters in corporate finance and investment transactions.

Learn through Stepwise process here:-

Step-1: Identify the Valuation Requirement

Determine the purpose of the valuation, such as further issue of share capital or Equity funding, share transfer (FEMA compliance), tax filing (Rule 11UA), or corporate restructuring (MCA/SEBI compliance) specially for Income tax Capital Gain activity.

Step-2: Engage a Qualified Valuer

Choose either a SEBI-registered Merchant Banker (MB) or an IBBI-registered Registered Valuer (RV), depending on regulatory needs under RBI/ SEBI/ MCA/ Income Tax etc.

Step-3: Prepare Required Documents

Submit key financial records for parameters, including balance sheets as on date of valuation and 5 years projection for DCF method, asset details, and any supporting documentation needed for valuation by Merchant Banker or Registered Valuer.

Step-4: Valuation Analysis

The professional will apply appropriate methodologies, such as Discounted Cash Flow (DCF), Net Asset Value (NAV), or Comparable Companies’ Multiples (CCM), to determine the fair value of shares.

Step-5: Obtain the Certified Valuation Report

Once the valuation is finalized, the certified Valuation Report will be issued by the valuer with UDIN (If CA as per ICAI Norms) for submission to regulatory authorities such as MCA, RBI, SEBI, or Income Tax Department.

Final Overview from Compliance Calendar LLP (CCL)

The Share Valuation or called company Valuation of unquoted shares is a major process governed by multiple regulations, including FEMA, the Income Tax Act, SEBI, and the Companies Act. Whether for Foreign Direct Investment (FDI) reporting (FC-GPR filing), mergers & acquisitions, or taxation, businesses must check that their valuation reports comply with regulatory standards set by the respective authorities depending on case to case.

For an accurate and compliant valuation, choosing the right Merchant Banker (MB), Registered Valuer (RV), or Chartered Accountant (CA) is essential. At Compliance Calendar LLP (CCL), our team of Registered Valuers, SEBI-Registered Merchant Bankers, and Experienced Chartered Accountants assists businesses in conducting valuations in accordance with all applicable laws and regulations.

Frequently Asked Questions (FAQs)

Q1. What is the need for share valuation?

Ans. Share valuation is required for regulatory compliance, taxation, mergers & acquisitions, foreign investments, and fundraising. It ensures fair pricing and transparency in financial transactions.

Q2. Who can perform share valuation in India?

Ans.

Valuation Professional as	Regulatory Authority	Major Responsibilities	Applicable Transactions
SEBI-Registered Merchant Bankers (MBs)	SEBI (Securities and Exchange Board of India)	Conducts valuation for FDI, FEMA compliance, preferential allotments, IPO pricing, and mergers & acquisitions.	Foreign Direct Investment (FDI) under FEMA Preferential allotments of shares IPO pricing for listed companies Mergers & acquisitions (fair valuation) Share transfers between residents & non-residents
IBBI-Registered Valuers (RVs)	IBBI (Insolvency and Bankruptcy Board of India)	Mandatory for valuations under the Companies Act, 2013 for share issuance, buybacks, mergers, and financial restructuring.	Valuation for M&A transactions Share buybacks & ESOPs Minority shareholding purchases Corporate debt restructuring
Chartered Accountants (CAs)	ICAI (Institute of Chartered Accountants of India)	Can perform valuations under specific provisions of the Income Tax Act & FEMA regulations.	Fair Market Value (FMV) valuation under Rule 11UA Valuation for taxation & capital gains assessments Valuation for FDI/ODI transactions under FEMA

3. What are the key provisions governing share valuation?

Ans. Valuation is regulated under:

Companies Act, 2013, Requires valuation by an IBBI-Registered Valuer as per Section 247 of the Companies Act 2013 specially for Private placement rule section 42.
FEMA (Foreign Exchange Management Act) – Mandates valuation for FDI reporting under FCGPR, share transfers between residents and non-residents & Vice versa under FDI -FCTRS Reporting.
Income Tax Act (Rule 11UA) – Specifies valuation methods for unquoted shares to calculate the Price per share to check the tax liability on capital gain.
SEBI Guidelines – Require valuation by a Merchant Banker for preferential allotments and IPOs.

Q4. What are the methods used for share valuation?

Ans.

Valuation Method	Description	Best Used For
Net Asset Value (NAV) Method	Calculates value based on total assets minus total liabilities.	Companies with significant tangible assets (e.g., real estate, manufacturing).
Discounted Cash Flow (DCF) Method	Projects future cash flows and discounts them to present value using a discount rate.	Startups, high-growth companies, and businesses with strong future revenue potential.
Comparable Companies’ Multiples (CCM) Method	Compares valuation metrics with similar publicly traded companies (e.g., P/E ratio, EV/EBITDA).	Private companies looking for valuation based on market comparables.
Price Earning Capacity Value (PECV) Method	Determines valuation based on future earnings potential and historical profitability.	Established businesses with consistent revenue and profitability.
Market Price Method	Uses the current stock market price as the fair value.	Listed companies with active stock trading.

Q5. When is Merchant Banker Valuation required?

Ans.

Case/Event	Description	Relevant Law / Regulation
Foreign Direct Investment (FDI)	Valuation of shares issued to foreign investors as per FEMA guidelines.	FEMA Regulation 20(R)
Preferential Allotment of Shares	Required when shares are issued at a price higher than the face value to investors.	SEBI (ICDR) Regulations, Rule 76A
Mergers & Acquisitions	Ensures a fair valuation of companies involved in a merger or acquisition transaction.	SEBI Takeover Code & Companies Act, 2013
Sweat Equity & Employee Stock Purchase Plans (ESOPs)	Determines the fair value of shares issued to employees or directors as a part of compensation.	Section 54 of Companies Act, 2013 & SEBI ESOP Regulations
Transfer of Shares from a Resident to a Non-Resident	Ensures that share transfer pricing meets FEMA compliance and fair market value requirements.	FEMA Regulation 11

Q6. When is a Registered Valuer’s (RV) valuation required?

Ans.

Case/Event	Description	Relevant Law / Section
Mergers & Amalgamations	Valuation is required to determine the fair swap ratio for merging entities.	Section 230 of Companies Act, 2013
Buyback of Shares	Justifies the fair repurchase price before shares are bought back by the company.	Section 68 of Companies Act, 2013
Issue of Sweat Equity Shares	Determines the fair value of shares issued to employees or directors in exchange for expertise or services.	Section 54 of Companies Act, 2013
Purchase of Minority Shareholding	Valuation ensures minority shareholders receive fair compensation in case of compulsory acquisition.	Section 236 of Companies Act, 2013
Corporate Debt Restructuring	Required by lenders and SEBI to determine the value of assets and securities involved in restructuring.	As per SEBI and RBI guidelines

Q7. What are the FEMA valuation requirements for issuing shares to a foreign investor?

Ans. Under FEMA regulations, the valuation of shares for Foreign Direct Investment (FDI) in unlisted companies must follow internationally accepted pricing methodologies to ensure fair pricing and regulatory compliance.

A valuation report under FEMA Law, mandatory and must be certified by a SEBI-Registered Merchant Banker or Chartered Accountant (CA). However, in cases where the FDI is for a newly registered company (such as a foreign subsidiary or a company with foreign investment), many Authorized Dealer (AD) Banks also accept valuation reports from IBBI-Registered Valuers (RVs), for RBI’s FC-GPR filing, which is required for reporting FDI transactions.

Q8. What are the FEMA valuation rules for share transfer between a Resident and a Non-Resident?

Ans. From Resident to Non-Resident, share price must be equal to or higher than the fair value and from Non-Resident to Resident, share price must be equal to or lower than the fair value. Hence Valuation must be conducted using internationally accepted methodologies and certified by a Merchant Banker or Registered Valuer.

Q9. What is the Rule 11UA valuation requirement under the Income Tax Act?

Ans. Rule 11UA of the Income Tax Act, 1961 mandates fair market valuation (FMV) of shares for taxation purposes.

Quoted Shares – FMV is based on stock exchange prices.
Unquoted Shares – Valued using Net Asset Value (NAV) or Discounted Cash Flow (DCF) methods.

Q10. What are the challenges in share valuation under Rule 11UA?

Ans. Using audited vs. unaudited balance sheets for valuation.

Adjusting deferred liabilities and reserves in valuations.
Determining FMV for companies without market transactions.
Valuation of convertible preference shares & debentures.

Q11. How to get a Merchant Banker or Registered Valuer’s Report?

Ans. Identify the purpose of valuation (fundraising, share transfer, compliance, etc.).

Engage a SEBI-registered Merchant Banker (MB) or IBBI-registered Valuer (RV).
Provide financial statements, business projections, and asset details.
The MB/RV will apply the suitable valuation method and issue a certified report.

Q12. How much does a Merchant Banker valuation report cost?

Ans. The cost of obtaining a Merchant Banker’s valuation report varies based on company size, complexity, and transaction type.

Q13. Is valuation required for a Rights Issue?

Ans. No valuation is required for Rights Issues under the Companies Act 2013, However, if the shares are issued at a premium, valuation may be required under Rule 11UA of the Income Tax Act for Capital Gain purpose.

Q14. How are foreign company shares valued under FEMA?

Ans. Foreign company shares valued under FEMA are:

Investment in a Foreign Company: If an Indian entity invests over USD 5 million, valuation must be done by a Merchant Banker or International Bank.
Acquisition through Share Swap: Valuation must be carried out by a Merchant Banker or International Bank.
Acquisition through ADR/GDR: Valuation is based on the company’s market capitalization or a Merchant Banker’s report.

Q15. What is the role of IBBI in valuation under the Companies Act?

Ans. IBBI (Insolvency and Bankruptcy Board of India) is the regulatory body for Registered Valuers (RVs). From February 1, 2019, only IBBI-registered valuers can perform valuations required under the Companies Act, 2013.

Q16. Can a Chartered Accountant (CA) issue a valuation report?

Ans. CAs can issue valuation reports under FEMA for FDI and ODI Compliances, Income Tax Act, and Companies Act in specific cases.However, for transactions under the Companies Act, a Registered Valuer (RV) is mandatory. SEBI mandates Merchant Banker certification for valuation of shares in IPOs, FDI, and preferential allotments.