Whether you’re bringing in a new investor, transferring equity between founders, or simply want a clearer picture of your business, knowing how to value shares in a private company is essential.
Unlike a public company listed on the ASX, there’s no daily “market price” for private company shares. You need to choose a method, gather the right information, and document the process so it stands up to scrutiny.
In this guide, we’ll walk through the main valuation methods used in Australia, what really drives value, and the practical legal steps when you issue or transfer shares. We’ll also flag key compliance considerations so you can move forward with confidence.
What Does It Mean To Value Shares In A Private Company?
Valuing shares means estimating what one share - or a parcel of shares - would be worth in a fair transaction today. It’s a practical question that crops up when you:
- Invite a new investor or partner to buy in
- Transfer equity to a co-founder or key employee
- Buy or sell a portion of the company
- Set a price for an employee equity or options plan
- Resolve a dispute or exit scenario
Because there’s no public market for most private Australian companies, you’ll typically rely on one or more recognised valuation methods and then negotiate a commercially sensible price.
Why Getting Share Valuation Right Really Matters
Accurate, evidence‑based valuation isn’t just a financial exercise - it has real consequences. If you overvalue shares, you may deter good investors or create future disputes. If you undervalue them, you risk diluting existing owners unfairly.
It also touches your legal duties. Under the Corporations Act, directors must act in the best interests of the company. Pricing shares without reasonable grounds can expose the business to disputes, and it may reflect poorly on governance if challenged later (for example, in a sale or founder exit).
Finally, valuation decisions often flow into tax, documentation and disclosure obligations. It pays to approach this carefully and record your reasoning.
Common Valuation Methods For Private Australian Companies
There’s no single “right” method. Many founders use a primary method and cross‑check with another to arrive at a range, then settle on a price through negotiation and context.
1) Asset-Based Valuation (Net Assets)
This method starts with the company’s assets (cash, inventory, property, equipment, and sometimes identifiable intangibles) and subtracts its liabilities (loans, creditors, tax owing). The result is the net asset value. Divide that figure by the total number of shares on issue to get a per‑share estimate.
- Works best for: Asset-heavy businesses (e.g. property holding, capital‑intensive industries).
- Watch out for: Understating valuable intangibles (IP and goodwill) or using book values that no longer reflect reality.
2) Earnings-Based Valuation (Profit Multiple Or EBITDA)
Here, value is linked to the profits the business generates. A common approach is applying a multiple to normalised annual profit or EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). The “right” multiple depends on industry conditions, growth prospects, size, and risk profile.
- Works best for: Established, profitable companies with relatively predictable earnings.
- How it’s done: Normalise your profit, select a defensible multiple based on comparable private deals or industry benchmarks, multiply to estimate enterprise value, then adjust for net debt to arrive at equity value.
- Note: Multiples can vary widely. Treat any “rules of thumb” cautiously and justify your choice with evidence.
3) Discounted Cash Flow (DCF)
DCF projects the business’s future cash flows and discounts them back to today using a rate that reflects risk and the time value of money. It’s powerful because it’s forward‑looking, but it relies on well‑reasoned assumptions.
- Works best for: Growth companies, earlier‑stage ventures with clear forecasts, or businesses with uneven earnings.
- What it needs: Realistic revenue, margin and investment assumptions, and a suitable discount rate and terminal value method.
4) Market Comparables (Transaction Or Trading Comparables)
Comparable valuation references recent deals for similar businesses or, where relevant, trading multiples of comparable listed companies (with adjustments for size and liquidity). Private deal data can be limited, but it’s a helpful cross‑check.
- Works best for: Sectors where recent private transactions or credible industry data are available.
- Watch out for: Apples‑to‑oranges comparisons and unverified deal rumours - stick to reliable sources.
In practice, you might triangulate: for example, start with an EBITDA multiple, sanity‑check against a conservative DCF, and glance at asset backing to ensure the outcome makes commercial sense.
Key Factors That Influence Share Value
No two companies are the same. When you value shares in an Australian private company, consider:
- Profitability and cash flow: Consistent, growing earnings typically support higher values.
- Asset base: Tangible assets and defensible IP can anchor downside risk and influence price.
- Growth outlook: Pipeline, market size, competitive moat and scalability all matter.
- Industry dynamics: Multiples tend to be higher in growth sectors and lower in mature or cyclical industries.
- Management strength: Capability and track record can reduce perceived risk.
- Deal-specific terms: Voting rights, dividend preferences, anti‑dilution protections and drag/tag rights can change value for the buyer and seller.
- Control and liquidity: A minority, illiquid stake often attracts a discount; a controlling stake may command a premium.
- Historical transactions: Prior share sales provide a reference point, adjusted for new information.
A Simple Example: From Business Value To Price Per Share
Let’s say your company has 1,000 ordinary shares on issue. On an asset basis, you hold $800,000 of assets and $200,000 of liabilities. Net assets are $600,000, suggesting $600 per share ($600,000 ÷ 1,000).
Now cross‑check on an earnings basis. If your normalised after‑tax profit is $150,000, and a defensible multiple for your size and sector is 4x, the implied equity value is $600,000, again pointing to $600 per share. If a more conservative 3x multiple is justified, the equity value drops to $450,000 ($450 per share). That range then frames your negotiation.
Real‑world valuations may include adjustments for surplus cash, non‑operating assets, one‑off items, forecast growth, and the specific rights attached to the shares being sold or issued. Documenting your assumptions is important.
Issuing Or Transferring Shares: What Legal Steps Are Involved?
Once you’ve landed on a price or a pricing mechanism, make sure the transaction is properly authorised, executed and recorded. Here’s a practical roadmap.
1) Check Your Governance Documents
Start with your Company Constitution and any Shareholders Agreement. These documents often set processes for new issues, pre‑emptive rights (existing shareholders’ first right to participate), transfer restrictions and required approvals.
2) Board Approval And Resolutions
New issues typically require approval by the board. Record the decision with a directors’ resolution (and a shareholder resolution if your documents require it). When executing resolutions or related documents, companies often sign under section 127 of the Corporations Act to streamline validity and evidentiary requirements.
3) Confirm Share Class And Price
Decide whether you’re issuing ordinary or another class (e.g. preference shares). Set the price per share and clearly describe the rights attached (dividends, voting, liquidation preference). Ensure the price is justifiable by your chosen valuation approach and the company’s circumstances.
4) Allotment Or Transfer Mechanics
For a new issue, use a Share Subscription Agreement and update the register once funds clear. For a sale of existing shares, use appropriate transfer documents and follow any pre‑emptive or consent process in your governance documents. If you’re unsure about the paperwork, this step pairs well with guidance on how to transfer shares.
5) Update Registers And Notify ASIC
Update your share register and issue share certificates (if your constitution requires them). You must notify ASIC of changes to share structure or members within 28 days; most companies do this using the process explained in ASIC Form 484.
6) Keep Tax And Payroll In View
Share transactions can have tax implications, including CGT for sellers and potential ESS tax for employees receiving equity. It’s sensible to obtain tax advice before you proceed, especially for employee equity or complex restructures.
Compliance And Fundraising Rules To Keep In Mind
When offering or selling shares, a few Australian law touchpoints are especially important.
Directors’ Duties
Directors must act in the best interests of the company. Decisions about pricing, timing and to whom shares are offered should be made on a proper, informed basis and for a proper purpose. Keeping a clear paper trail of your valuation approach and board decision helps demonstrate good governance. If you’re weighing risk and opportunity, the business judgment rule in section 180(2) may be relevant.
Fundraising And Disclosure
Offers of shares can trigger disclosure rules under the Corporations Act. Many private companies rely on small‑scale personal offer exemptions, sophisticated investor thresholds, or other carve‑outs. If you’re raising capital without a prospectus, make sure your offer fits an exemption such as those outlined under section 708.
Misleading Statements
Financial products (including shares) are regulated under the Corporations Act and ASIC Act. Ensure any information you provide to potential investors is not misleading or deceptive, and that forecasts or assumptions are reasonable and supportable.
Privacy Considerations
When collecting personal information from investors or employees for your register, consider whether you are an APP entity under the Privacy Act (most businesses with annual turnover of $3 million or more are captured, along with some smaller entities in specific categories). If the Act applies to you, ensure you have a compliant Privacy Policy and handle data appropriately.
Employee Equity
If you plan to offer options or shares to staff, align your plan rules with tax and securities law settings. It’s common to document terms via a clear plan and offer documents - our overview of employee share options is a useful starting point.
What Legal Documents Will You Likely Need?
Having the right paperwork makes share issues and transfers smoother and reduces the risk of disputes. The exact mix depends on your structure and plans, but many private companies use some or all of the following:
- Company Constitution: Your internal rulebook for governance, share classes, transfers and meetings - review your Company Constitution to confirm what’s required.
- Shareholders Agreement: Covers decision‑making, pre‑emptive rights, drag‑along/tag‑along, valuation mechanisms and dispute resolution. If you have multiple owners, a Shareholders Agreement is crucial.
- Share Subscription Agreement: Sets the terms of a new share issue, price, warranties and completion mechanics - see Share Subscription Agreement.
- Share Transfer Documents: Records the sale and transfer of existing shares and the required approvals; if helpful, revisit the steps in how to transfer shares.
- Board And Shareholder Resolutions: Authorise the issue or transfer and approve updates to the register.
- ASIC Notifications: Lodge the relevant changes within the deadline - the process is outlined in the Form 484 guide.
- Share Certificates And Registers: Keep your records current; many companies issue certificates in line with their constitution.
- Share Certificates Context: If you’re formalising ownership, it’s worth understanding the role of share certificates in Australia.
When signing, companies often execute documents under section 127 to streamline enforceability and reduce evidentiary risk.
What If You Can’t Agree On Value?
Disagreement happens - especially where control, timing or information asymmetry are factors. Good governance anticipates this. Many companies bake a valuation pathway into their Shareholders Agreement (for example, a default method or independent valuer determination) for buy‑sell events, exits and disputes.
If you don’t have a mechanism in place, consider jointly appointing an independent valuer and agreeing upfront on the scope (method, adjustments, minority discounts, and how costs are shared). Even if you’re confident in your numbers, an independent review can save time and preserve relationships.
Key Takeaways
- There’s no single “correct” way to value private company shares in Australia - most founders use an earnings, asset, DCF or comparables approach (often more than one) and document their assumptions.
- Value is shaped by profitability, cash flow, asset base, growth prospects, industry dynamics, management capability and deal terms (including control and liquidity).
- Before issuing or transferring shares, check your Company Constitution and any Shareholders Agreement, pass the right resolutions, execute properly and notify ASIC on time.
- Capital raising can trigger disclosure rules - many private companies rely on exemptions such as those under section 708. Ensure your investor information is accurate and not misleading.
- The core documents you’ll likely need include a Share Subscription Agreement for new issues, transfer documents for sales, board and shareholder resolutions, and timely ASIC lodgements (via Form 484).
- Where value is contested, build a clear process into your Shareholders Agreement (or appoint an independent valuer) to keep negotiations fair and efficient.
If you’d like a consultation on valuing shares, issuing or transferring equity, or getting the right documents in place for your private company, reach us on 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat. We’re here to help you move forward with confidence.
