Private Limited Company Shares Valuation

Dear All: Would appreciate your inputs/response to the below.

12 like minded people formed a group in June 2020 to explore new ideas to set-up a profit making entity.

Majority of these people met every week to discuss their ideas in different domains, type of entity to be formed, etc.

In October 2020 a Pvt. Ltd. entity was registered. Shares were issued at Rs. 10/share to the investors in this entity. Total investment by this group was Rs. 10 lacs initially.

This team finalized on a project in November 2020 requiring total investment of Rs. 10 crores.

This firm is planning to go with 70% bank loan and 30% equity.

Towards the 30% (Rs. 3 crores), the current set of shareholders are able to bring in additional investment amounting to Rs. 2 crores. There is a gap of Rs. 1 crore. 

Friends of the existing shareholders are interested to invest to fill this gap of Rs. 1 crore

There is no revenue at this point in time for this entity. However, the existing shareholders have put in a lot of time and effort in the past 11 months to discuss ideas, evaluation of these ideas/opportunities, discussing with different departments and analysts, etc. 

1. Can this firm charge premium for share price for the new entrants?

2. If yes, what is the method to calculate the current share price for the new entrants?

Thanks and Regards,

SamSue

Replies (6)
Quick Summary
A group of 12 individuals formed a Private Limited Company in 2020, initially investing Rs. 10 lacs and issuing shares at Rs. 10 each. The company now requires Rs. 3 crores in equity for a new project, with existing shareholders able to contribute Rs. 2 crores. A Rs. 1 crore gap needs to be filled by new investors, and the discussion seeks advice on whether a premium can be charged for new shares and how to calculate the current share price.

There are a lot many methods of valuation. Obtain professional advise from valuers.

Thank you Zafar for your reply. Trust charging a premium to the new entrants is doable?

since it is legal and complicated matter, better take a professional advise.

Thank you Mr. Anil Jain.

Like Mr. Anil Jain mentioned there are different methods and some of them are here

https://cleartax.in/s/valuation-of-shares

 

Dear Yasaswi Gomes:

This is a good start.  Thank you.

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