Valuation is required in many instances of asset transfers, but more so when new shares are issued in a company. When the shares are issued to a foreign person, it becomes even more complicated. Valuation is mandatory under Income Tax laws when shares are issued at a premium, under company law and under RBI FEMA laws when the exchange of shares and money is between a domestic person and a foreign person. The valuation exercise involves understanding the client’s business in full, evaluating the growth potential, analyzing the revenue projections and determining the free cash flows and applying one or more valuation models to arrive at the right valuation.
SMJA has assisted several clients in coming up with the financial projections, arriving at free cash flows and issuing the valuation report as required under one or more laws as explained above.