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Introduction In India, the valuation of shares plays a crucial role in corporate transactions such as fundraising, mergers, employee stock options, and foreign investments. Two major legal frameworks govern share valuation: the Foreign Exchange Management Act (FEMA) and the Companies Act, 2013. Va
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FAQ :
Under the Companies Act, 2013, valuation certificates are required for preferential allotment of shares, private placement, issue of sweat equity shares, buy-back of shares, non-cash transactions with directors, mergers, amalgamations, arrangements, and conversion of debentures or loans into equity.
Valuation must be conducted by a Registered Valuer, who is registered with the Insolvency and Bankruptcy Board of India (IBBI) as per Section 247 of the Companies Act, 2013.
Valuation is mandatory under FEMA for issuing shares to non-residents, transferring shares from residents to non-residents, transferring shares from non-residents to residents, swapping shares between Indian and foreign companies, and for capital contribution in LLPs.
FEMA mandates that for issuing shares to non-residents or transferring shares from residents to non-residents, the price must be at or above fair market value. For transfers from non-residents to residents, the price must be at or below fair market value.
Valuations under FEMA can be performed by a SEBI-registered Merchant Banker or a Chartered Accountant (CA) with experience in valuation.
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