Valuation of shares for buyback

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 March 2013
hi, all,
Can anybody please provide me the details
regarding valuation of shares for buy-back
of a private limited company?

Kindly reply at the earliest?

Querist : Anonymous

Querist : Anonymous (Querist)

14 March 2013

Dear all,

Question: Is a Certificate from a Chartered Accountant required for buyback in case of private limited company?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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02 August 2025 Hey! On **valuation of shares for buyback** of a **private limited company**, here are the key points you need:

---

### 1. **Valuation of Shares for Buyback**

* **Section 68(2) of the Companies Act, 2013** requires that buyback of shares be made from **paid-up equity share capital and free reserves only**.

* The **buyback price** should be determined based on a **fair valuation** of the shares.

* Typically, valuation is done by a **Registered Valuer** or a **Chartered Accountant** (depending on jurisdiction/rules), using accepted valuation methods such as:

* **Net Asset Value (NAV) method**
* **Discounted Cash Flow (DCF) method**
* **Earnings Multiple method**

* The valuation report establishes the **maximum price** at which the shares can be bought back.

---

### 2. **Requirement of a Certificate from a Chartered Accountant**

* **For private limited companies**, the law **does not explicitly mandate** a certificate from a Chartered Accountant or Registered Valuer for share buyback (unlike listed companies).
* However, **Section 68(4)** of the Companies Act, 2013 requires a **declaration of solvency** by the directors to ensure the company is solvent post buyback.
* While a **formal valuation certificate is not strictly mandatory**, it is **highly advisable** to have a valuation report or certificate to:

* Comply with the company’s Articles of Association.
* Satisfy shareholders and auditors.
* Avoid disputes or future scrutiny.

---

### Summary

| Aspect | Private Limited Company (Buyback) |
| -------------------------- | ------------------------------------------------ |
| Valuation Requirement | Fair valuation needed, typically by CA or valuer |
| Certificate from CA/Valuer | Not mandatory but recommended |
| Legal Provision | Declaration of solvency by directors required |
| Valuation Methods | NAV, DCF, Earnings Multiple, etc. |

---

If you want, I can help draft a checklist or a basic format of the valuation certificate used in buyback. Would you like that?

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