Valuations and Taxation aspects for start-up Business


Valuation of equity shares is usually necessary for regulatory or also financial reporting purposes for a business. In the valuation of shares, the underlying asset is the business and the per-share value is calculated to arrive at the final valuation.

Methods of Valuation by Registered Valuers for a Start-up Valuation:

There are several common methods for determining the fair value of the business of a company. They chiefly fall under the following three categories and the application of any below-mentioned methods of valuation depends on the nature of operations, level of maturity of the businesses, future business potential, and purpose of valuation. For the purpose of arriving at the fair value of the Equity Shares of the Company, it would be essential to select an appropriate basis for valuation from among the various alternatives available.

Income-based valuation approach (“Income Approach”):

The Discounted Cash Flow (DCF) method under the income approach is common. It is an appropriate method for business appraisers. This approach constitutes estimation of the business value. It is by calculating the present value of all the future cash flows which the company expects to generate. As per Rule the fair market value of the unquoted equity shares shall be determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.

Net Asset Value based valuation approach (“Asset Approach”): 

The Asset-Based Valuation Method is not a suitable method of valuing a startup business. It is because it does not truly measure the earning capacity of an enterprise and its growth potential.

Market-based valuation approach (“Market Approach”): 

The Market Based Valuation Method is also not a suitable method. This is because startups are not a listed company, they do not have a market price readily available for Valuing the Company. The Startups cannot be in comparison with listed comparable as well.

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