Shareholder disputes place enormous strain on a business. When trust between owners breaks down, decision-making slows, relationships deteriorate, and the focus often shifts from growth to exit. In many of these disputes, the central issue becomes the value of the shares held by the departing or aggrieved shareholder.
Unlike listed companies, where share prices are publicly available, private companies have no obvious or objective market value. Determining a fair price for shares in a dispute context is therefore complex, technical, and frequently contentious. Businesses that fail to plan for this scenario often find themselves locked in expensive, time-consuming conflict.
This article explains why share valuation becomes so difficult during shareholder disputes and how businesses can reduce risk by preparing in advance.
Why Share Valuation Becomes Contentious in Disputes
When shareholders are aligned, valuation is often theoretical. When they are in conflict, it becomes critical.
In private companies, share value depends on a combination of financial performance, asset base, liabilities, cash flow prospects, and broader market conditions. In dispute scenarios, additional complications arise, including disagreements over access to information, allegations of misconduct, and disputes about which point in time the valuation should apply.
Different classes of shares may also carry different rights, further complicating the analysis. As tensions rise, valuation arguments often become strategic tools rather than objective assessments.
Common Valuation Methodologies
Independent valuers use different approaches depending on the nature of the business and the circumstances of the dispute.
Some valuations focus on the company’s position at a specific point in time, particularly where the dispute relates to a defined triggering event. Others take a broader view, considering future earnings potential and growth prospects to determine what a willing buyer might reasonably pay.
In asset-heavy businesses, a net asset-based approach may be relevant, while trading companies often require earnings-based methods that assess profitability and expected returns. Each method can produce materially different outcomes, which is why disputes frequently arise over which approach should apply.
The Importance of a Proper Shareholders’ Agreement
Many valuation disputes could be avoided entirely with a well-drafted shareholders’ agreement.
A robust agreement should clearly set out how shares are to be valued in different scenarios, including exits, deadlocks, breaches, or disputes. It should identify the valuation methodology, the process to be followed, the qualifications of any independent valuer, and how disagreements are resolved.
Importantly, it should also regulate access to financial information and define the events that trigger a compulsory or optional valuation. By addressing these issues upfront, businesses reduce uncertainty and remove scope for tactical disputes when relationships deteriorate.
Why Independent Valuers Are Critical
Even with a shareholders’ agreement in place, professional valuation expertise is often essential.
Independent valuers bring objectivity, technical skill, and market insight to what is otherwise an emotionally charged process. Their role is not only to calculate a value, but also to explain and justify that value in negotiations, expert determinations, or court proceedings if required.
The cost of professional valuation is usually modest compared to the financial and operational damage caused by prolonged disputes or poorly resolved exits.
Preparing Before a Dispute Arises
Businesses rarely plan for shareholder disputes, but the most resilient companies do.
Practical preparation includes keeping shareholders’ agreements up to date, maintaining accurate financial records, and periodically assessing business value. Establishing relationships with trusted legal, accounting, and valuation professionals before a dispute arises can significantly reduce response time and costs when issues emerge.
Regular communication and transparent governance also play a key role in preventing disputes from escalating in the first place.
Key Takeaways for Business Owners
Share valuation disputes are one of the most difficult and expensive aspects of shareholder conflict. However, they are also among the most preventable.
Clear contractual frameworks, professional valuation input, and proactive planning allow businesses to resolve disputes efficiently and fairly, without destroying value or relationships. The best time to address valuation mechanics is before they are needed — not when a dispute is already underway.
Shareholder Dispute Advice at O’Reilly Law
O’Reilly Law advises business owners, directors, and shareholders on disputes, exits, and corporate restructurings, including matters involving complex share valuations.
We assist with:
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Drafting and reviewing shareholders’ agreements
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Shareholder disputes and deadlock resolution
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Exit mechanisms and forced buy-outs
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Coordinating independent valuation processes
If you are facing a shareholder dispute — or want to ensure your business is protected before one arises — we can help you put the right structures in place.
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