Laws and Compliance in Business Valuation: formula sheet

Key formulas

Four-question test

Law → Trigger → Valuer → Basis of value

Use this structure to answer any question on which law applies and what it requires.

Companies Act 2013 valuer rule

Valuer = registered valuer under the Registered Valuers Rules, 2017, for the relevant asset class

Applies where the Act requires a valuation by a registered valuer, for example in certain non-cash and arrangement matters.

FEMA pricing direction

Issue to non-resident: price ≥ fair value; Transfer from non-resident to resident: price ≤ fair value

Fair value follows an internationally accepted pricing methodology certified as the FEMA rules require.

IBC valuation values

Two registered valuers → fair value and liquidation value of the corporate debtor's assets

Used by the resolution professional and the committee of creditors to judge resolution plans.

SEBI pricing basis

Listed company preferential issue price = floor set by SEBI formula based on market prices

Formula is market-price based, not a free valuation. Check the current regulation for the exact floor.

Trigger for Section 247

Valuation required under the Companies Act → must be by a registered valuer

Covers property, stock, shares, debentures, securities, goodwill, other assets, net worth and liabilities of a company.

Who appoints the valuer

Audit committee; if none, the Board of Directors

The valuer is not appointed by the management informally or by the party who benefits from the value.

Asset classes for registration

Land and Building | Plant and Machinery | Securities or Financial Assets

A valuer registers for specific asset classes and values only those classes.

Registration structure

Individual passes the valuation examination → is enrolled as a member of a registered valuers organisation (RVO) → is registered with the authority

The authority under the Rules is the Insolvency and Bankruptcy Board of India (IBBI). An individual can register as a valuer. A partnership entity or a company can also be registered if it meets the Rules' conditions, for example partners or directors who are themselves registered valuers.

Core duties of the valuer

Be independent and impartial → exercise due diligence → follow applicable valuation standards → keep records → disclose interest

Frame these as principles; the Rules also set a code of conduct.

Valuer's disqualifying interests

No valuation of an asset where the valuer, a relative or an associate has an interest, and no valuation of an entity they are connected with

Conflict of interest and lack of independence are the commonest exam angles.

Consequence of contravention

Contravention of Section 247 or Rules → fine of ₹25,000 to ₹1,00,000 (fine only) [Section 247(3)]; intent to defraud → imprisonment up to one year and fine of ₹1,00,000 to ₹5,00,000, plus refund of remuneration received and liability to pay damages for loss [Section 247(4)]

Refund of remuneration and damages for loss attach to the intent-to-defraud limb, not to ordinary contravention. The Act speaks of refund of remuneration and damages, not disgorgement. Know the principle first, then the amounts.

SEBI ICDR floor price (frequently traded shares)

Floor price = higher of (90 trading days VWAP, 10 trading days VWAP) before the relevant date

The relevant date is fixed by the ICDR Regulations, linked to the date of the shareholders' meeting. The floor is the minimum price. You can issue at a higher price.

SEBI SAST open offer price

Offer price = highest of the prescribed reference prices (negotiated price, acquirer's look-back prices, 60 trading days VWAP, etc.)

Open offer is triggered at 25% voting rights or on acquiring control. The offer price can never be below the highest reference price.

FEMA pricing rule

Issue or sale to a non-resident: price ≥ fair value. Sale by a non-resident to a resident: price ≤ fair value

This applies to unlisted shares. Fair value is certified by a CA, SEBI-registered merchant banker or practising cost accountant. Listed shares follow SEBI norms.

Rule 11UA value of an unquoted equity share

FMV per share = (A + B + C + D − L) × PV ÷ PE

A = book value of assets other than jewellery, artistic work, shares, securities and immovable property. B = value of jewellery and artistic work. C = fair market value of shares and securities. D = stamp duty value of immovable property. L = book value of liabilities, excluding paid-up equity capital, reserves and surplus, tax provisions and contingent or unascertained liabilities. PE = total paid-up equity capital. PV = paid-up value of one equity share.

Taxability of shares received (1961-Act section 56(2)(x) logic)

No consideration: taxable if FMV > ₹50,000, whole FMV taxed. Inadequate consideration: taxable if (FMV − consideration) > ₹50,000, the difference taxed

The 10% tolerance applies to immovable property, not to shares. Check the section number in the Income-tax Act, 2025.

Core ethical principles

Integrity + Objectivity + Independence + Competence and due care + Confidentiality + Professional behaviour

Use these as headings when answering any ethics case. Link each to a fact in the scenario.

Elements of a valuation engagement

Purpose + Subject + Valuation date + Basis of value + Premise + Approach/method + Assumptions + Conclusion

Check that each is defined before the valuation begins and stated in the report.

Conflict test

Direct or indirect interest in subject or client → conflict → decline, or disclose and safeguard where permitted

Apply to the valuer, relatives and associated firms. Follow the rules for registered valuers strictly.

Report disclosure checklist

Scope + Sources + Methods and reasons + Key assumptions + Limitations + Restrictions on use + Conclusion

A report missing assumptions or limitations is incomplete.

Quick revision

• Ask first: which law applies, what triggers the valuation and who may carry it out.
• A valuation required by a statute must be done by the person that statute permits, so check the valuer eligibility.
• Registered valuers work within asset classes and the Registered Valuers Rules set their eligibility and conduct.
• Valuation reports must state the method, assumptions and basis, not only the final value.
• SEBI valuation rules attach to specific capital market actions, so link each rule to its action.
• FEMA valuation matters when shares move between residents and non-residents, so think of pricing norms.
• Tax valuation is tied to specific transactions, so identify the transaction before the method.
• Under the IBC, valuation supports the resolution process and is done by registered valuers.
• Independence and conflict of interest are the main ethical tests of a valuer.
• Document your work: a valuation without records and reasoning is weak professionally and in the exam.
• Do not quote section numbers or limits unless you are sure of them.

Common mistakes

• Saying one law governs all valuations. Fix: Treat each law as separate. A single deal can trigger several laws, so check each one.
• Claiming SEBI requires a free valuation for every listed issue. Fix: Say SEBI pricing is mainly formula-based on market prices, with valuation reports in specified cases.
• Saying Section 247 applies to every valuation a company ever does Fix: Say it applies where the Companies Act requires a valuation. Other laws, such as SEBI or FEMA rules, have their own valuer requirements.
• Saying the promoter or the management appoints the valuer Fix: The law says the audit committee, or the Board if there is no audit committee. Write this exactly.
• Using the lower of the 90-day and 10-day VWAP as the preferential issue floor. Fix: The floor is the higher of the two. Underline the word higher in your notes.
• Applying the FEMA floor to both buying and selling by a non-resident. Fix: Ask who is the non-resident. Buyer or subscriber: not less than fair value. Seller to a resident: not more than fair value.
• Treating IVS as binding law in India Fix: Say IVS is a global benchmark. For registered valuers, the Companies Act framework, the Rules and the standards adopted under them apply.
• Confusing independence with objectivity Fix: Independence is about having no interest or relationship that threatens judgment. Objectivity is the mental attitude of not letting bias or pressure affect the work.

Exam tips

• In MCQs, match the trigger to the law: non-resident means FEMA, listed company pricing means SEBI, insolvency means IBC.
• In descriptive answers, use the four-part structure of law, trigger, valuer and basis to earn marks quickly.
• Do not quote section numbers or percentages unless you are sure. Name the law and the principle instead.
• Use the Income-tax Act, 2025 for tax questions in the June 2027 term.
• In case questions, state which laws apply together before giving your recommendation.
• In MCQs, watch for options that name the wrong appointing body. The correct one is the audit committee, or the Board where there is no audit committee.
• In case questions, check three things in order: is a valuation required by the Act, is the valuer registered for that class, and is the valuer independent.
• Link this topic to the legal framework chapter. A good answer separates Section 247 from SEBI, FEMA and tax valuation rules.