How to value shares in a UK private company
Valuing shares in a private company is different from valuing the company itself. The whole business might be worth £4 million on any sensible measure, but a 15% holding is not automatically worth £600,000 — and understanding why saves owners, buyers and departing shareholders from the most common argument in private-company deals.
The short answer
You value the company first, then adjust the per-share result for the specific holding. The company itself is usually valued by earnings — normalised EBITDA or profit after tax times a sector multiple — with net asset value as a cross-check, and, where forecasts justify it, a discounted cash flow. The per-share number that comes out is then reduced for lack of control (typically 20–50% for a minority) and for lack of marketability (typically 10–30% for private-company shares), unless the holding is a controlling stake being bought by someone who values that control.
The methods, and when each applies
Earnings basis. The default for a profitable trading company. Normalise EBITDA — strip out one-offs, adjust owner remuneration to a market rate, remove personal expenses — and apply a sector multiple. This is what a trade buyer or PE house would do, so it is what a defensible share valuation does.
Net asset basis. The default for property companies, investment vehicles and businesses being wound down. For a trading company it usually sets a floor, not the answer.
Discounted cash flow. Useful where credible forecasts exist and the earnings history is atypical (recent turnaround, heavy investment year). Rarely the primary method for an SME because the inputs are too easily flexed.
Recent transaction basis. If shares have changed hands recently at arm's length, that is powerful evidence. HMRC and courts both give it real weight — often overriding a calculated figure.
Discounts for lack of control
A minority shareholder cannot force a dividend, block a decision they disagree with, appoint or remove directors, or compel a sale. The market prices that in. As a rough guide: a 10% holding in a company without a shareholders' agreement typically attracts a 40–50% discount from pro-rata value; a 25%+ holding that carries blocking rights on special resolutions attracts 20–35%; a 50/50 holding attracts a smaller discount because deadlock cuts both ways; a controlling stake may attract no discount, and sometimes a control premium.
Discounts for lack of marketability
Every private-company share attracts one. You cannot ring a broker on Monday and sell your holding by Friday, and a buyer prices the delay, the search cost and the transfer restrictions. Typical range 10–30%, applied after the control discount. Where the articles impose pre-emption in favour of existing shareholders at "fair value" set by the directors, marketability discounts sit at the top of the range.
Why the articles matter as much as the accounts
The articles of association and any shareholders' agreement determine what the holding actually is. Pre-emption rights limit who a share can be sold to. Bad-leaver provisions can force a sale at nominal value. Drag-along and tag-along clauses change the exit dynamic. Two identical 20% stakes in two identical companies can be worth very different amounts because one is protected by class rights and the other is a bare ordinary share. Any share valuation that ignores the articles is not a valuation you can rely on.
The situations this comes up in
- Shareholder exits and admissions. Founders letting a director buy in, or bought out on retirement.
- Shareholder disputes. A minority forced out under unfair-prejudice proceedings, or an "exit at fair value" mechanism triggered.
- Divorce. A spouse's shareholding valued for the financial settlement, where minority and marketability discounts are often the whole argument.
- Probate and estates. HMRC needs a defensible value on shares passing through an estate.
- EMI and unapproved options. The strike price for employee options.
Each of these has its own standard of value, which changes the answer. A market-value figure for a sale is not the same as a fair-value figure for an unfair-prejudice buyout, and neither is the same as an HMRC market value for tax. The purpose of the valuation should be spelt out on the front page of the report.
Common questions
How are shares in a UK private company valued?
Value the company by earnings, cross-check against net assets, take the per-share figure, then apply discounts for lack of control and lack of marketability appropriate to the specific holding.
Are minority shares worth less per share than majority shares?
Almost always. A minority holder cannot direct the company, so the market pays less per share. Combined discounts of 30–60% versus pro-rata value are typical for small minority stakes.
What is a marketability discount?
A reduction to reflect that private shares cannot be sold on demand. Typical range 10–30%, higher where the articles restrict transfers.
Do the articles of association affect share value?
Materially. Pre-emption, leaver provisions and drag/tag clauses all shape what the holding is worth. Any valuation that doesn't reference them isn't defensible.
What does a share valuation cost?
Our independent written share valuation is a fixed fee, typically £495, delivered in 72 hours once we have your accounts and articles.
The Business Valuers prepares independent share valuations for UK private companies for sales, exits, disputes, divorce, probate and share schemes. Ranges above are indicative; the actual discounts depend on the holding and the articles.
For a fixed-fee share valuation, get in touch.