28 April 2021

There are various different ways in which the court, with the help of experts, can value the entire issued share capital in a company. The court may look at the company's net assets, it may look at the company's earnings, and so on.

Once a figure has been arrived at for the value of the whole company, should any adjustments be made where the transaction in question is of only some of the shares, and if so what are those adjustments?

The question here relates to the difference between what are called market value and equitable value. The market value will be the ordinary value of the whole business. Equitable value may then be arrived at after adjustments to take into account the fact that the shareholder selling their shares may be a minority shareholder without any influence on the running of the company.

Sometimes, the court will be attempting to identify the value of shares after a petition by a minority shareholder under Section 994 of the Companies Act 2006 where that shareholder alleges that they are a minority shareholder who has suffered unfair prejudice at the hands of the majority. The outcome of that sort of court claim may be a court order compelling the misbehaving shareholders to buy the shares of the victim of their unfair prejudice. The court will want to fix the price at which that transaction takes place.

Adjustments may also be necessary where a couple are divorcing and the value of the assets owned by the couple comes under the microscope for the purposes of their financial settlement.

What sort of adjustments may be necessary to achieve equitable value?

In the past, it has been argued that where a shareholder owns a minority shareholding i.e. less than 50%, and they have little influence of the conduct of the company, their shares should be discounted. Should that argument still be accepted?

Some companies are quasi partnerships where all the shareholders work in the business and where there is a relationship of trust between them, much as if they were partners. In such a scenario, there is a strong presumption against any sort of discount.

In other cases, the court may allow a discount, perhaps where the shareholder acquired the shares purely as an investment without working in the business.

In other cases, the court may allow a discount, perhaps where the shareholder acquired the shares purely as an investment without working in the business.

On the other hand, if the shareholder acquired the shares at a premium, i.e. for more than they were worth as a strict percentage of the value of the business as a whole, then again that premium should perhaps continue to apply.

One of the most important factors is whether the shares, if purchased now, would permit the buyer to have control of the company. If those shares would take the buyer from owning just under 50% to owning more than 50%, that would give the purchaser the ability to run the company more or less as they wished. That marriage value (ie the benefit from putting the new shares with that shareholder’s existing holding) may be very important. It may justify a large premium.

The court may bear in mind that the shares in an unquoted company are very likely to be purchased by someone who is already a shareholder in the company (who else would be interested?). The number of possible buyers may be quite small, and the court may therefore be able to work through all of the relevant permutations of their current shareholdings to see which of the buyers would be able to gain control of the company and whether that should be taken into account.

It is sometimes suggested that if a shareholder goes from 25% or less to holding more than 25%, they can then block Special Resolutions. In reality however that may not make very much difference to the running of the company, and that step change may not therefore be regarded as important.

Should the Court, where unfair prejudice has been proved, take that conduct into account?

The court will be very slow to apply a discount if it is ordering the purchase of shares following a claim under Section 994 of the Companies Act. The court will after all wish to avoid rewarding the misbehaving shareholders by allowing them to buy the claimant's shares at any sort of discount.

The court is unlikely though to take the role of disciplinarian and to punish bad behaviour in itself.

The court will instead look at any actual impact on the company's finances of that bad behaviour, and will take that impact into consideration. If therefore some of the shareholders have excluded a minority shareholder from meetings, that may be serious misconduct but it may not have damaged the finances of the company. If however some of the shareholders have diverted assets or business opportunities from the company, that will be part of the calculation.

Indeed, the court is likely to want to value the company as though the bad conduct had not taken place. Only that way will the court be able to prevent the misbehaving shareholders from profiting from their own poor behaviour.

As a result, in this type of case the court will both shy away from any discount and also value the company as though it had not suffered the impact of misconduct by the defendants.


A number of adjustments can be made to the fair value of the whole company in order to arrive at the equitable value of a minority interest in it. It will be important to be alive to the various arguments which can be made and the ways in which they can be resisted.

For more information contact Peter Livingstone on 01935 846235 or email