Hi, based on my understanding, the discounted free cash flow method must be adoptted when issuing shares to non-resident.
However, if a non-resident setup a new company, uppon the establishment, the non-resident will inject capital and the company will issue shares to the non-resident. Will the discounted free cash flow method still must be used upon the above situation?
Is there any official laws, regulations or website that can provide this answer?
In my opinion, DCF method takes into account future earnings discounted at appropriate cost of capital. It discourages issuing shares to NR at par value.
As per me, Discounted Cash Flow method is the method by which a company anticipate its profits in coming years, based on its performance in past years.
A newly incorporated company cant do that. In your case, the value of share by DCF method witll be the same as the nominal value of share.
I think, you jst need a share valuation certificate from your auditor, stating this fact and i think you can issue the shares. But please refer FEMA on this issue, the Cap on FDI, if any.
Expert comments invited.
The same is very clear as per Master Circular issued by RBI.
Anuj
+91-9810106211
femaquery @ gmail.com
CA.Anuj gupta, can you pls explain it further?
Can any one tell me how should i value shares of a company which is in its first year of operation.
CAclubindia
