Is the value of a 10% stake exactly 10% of the company's total value?

Usually, no. A 10% (minority) stake does not grant you the right to appoint directors, declare dividends, or make strategic decisions. Consequently, a Discount for Lack of Control (DLOC) and a Discount for Lack of Marketability (DLOM) are applied, making the market value of that stake significantly less than a straight 10% mathematical proportion of the total enterprise value.

Why does the Revenue Service require an appraisal when shares are gifted?

Under the Tax Code of Georgia, gifting shares constitutes a transfer of property. If shares are gifted to an individual (who is not a first-line heir), the recipient must pay personal income tax based on the market value of the gifted asset. An independent appraisal is required to justify this market value and prevent the imposition of tax penalties.

What documents are needed to appraise a company share?

The appraiser requires the company's financial statements for the last 3-5 years, the corporate charter, any shareholder agreements, and details of current liabilities (loans) and assets. Management's financial projections for the upcoming years are also highly beneficial for the DCF model.

What is a Control Premium?

When a buyer acquires a controlling stake in a company (e.g., 51% or more), they gain full authority to manage the business. Investors are generally willing to pay an extra amount above the proportionate base value for this privilege. This additional amount is called a Control Premium.

Company Share Market Value Appraisal in Georgia | Legal.ge

What is a Company Share Market Value Appraisal?

Company share market value appraisal (Equity/Share Valuation) is a financial and analytical process aimed at determining the objective, fair market value of a specific equity stake in a Limited Liability Company (LLC) or a Joint Stock Company (JSC) at a given point in time. This process differs fundamentally from valuing the entire enterprise (Enterprise Value). Here, the focus is not only on the total value of the business but also on the specific rights, control, and risks associated with holding a 10%, 50%, or 90% stake. In Georgia, where private business is actively developing and transactions such as buying, selling, gifting, or inheriting shares among partners are frequent occurrences, an accurate market valuation is critically important. The value of a share depends on the company's financial health, its market positioning, its debt load, and most importantly—the degree of managerial control attached to the shares. An independent and certified appraiser's report ensures the fairness of the transaction, protects parties from financial losses, and guarantees full compliance with tax legislation.

What Does the Share Valuation Service Cover?

The market valuation of company shares involves an in-depth investigation of both financial and legal details. The service covers the following key components:

Calculation of Equity Value: In the initial stage, the total operational value of the company is determined using Discounted Cash Flow (DCF) or market multiples. Then, the company's debts are subtracted, and cash equivalents are added to arrive at the value of 100% of the equity.
Determination of Control Premium: If a controlling stake (e.g., 51% or more) is being evaluated, the expert factors in an additional value (a premium). This is because the owner has the ultimate right to make strategic decisions, appoint management, and distribute dividends.
Application of Minority Discounts (DLOC): If a small, non-controlling stake (e.g., 10%) is being valued, its worth is typically less than a straight 10% mathematical slice of the whole company, as the owner cannot dictate corporate policy. The appraiser calculates this Discount for Lack of Control.
Calculation of DLOM (Discount for Lack of Marketability): Selling a share in a closed (private) company is difficult and time-consuming because there is no public exchange. Therefore, a discount for lack of marketability is deducted from the share's value.
Legal Analysis of Equity Structure: Reviewing the company's charter and shareholders' agreements to determine if there are restrictions on share disposal, Rights of First Refusal (ROFR), or other legal barriers that negatively impact the price.

When is Share Market Valuation Necessary?

An independent valuation of company shares becomes necessary in multiple financial, legal, and tax-related situations. The most common scenarios include:

Buying and Selling Shares (M&A): When a partner sells their stake to another partner or an external investor. An appraisal protects the seller from selling too cheaply and the buyer from overpaying.
Gifting or Inheriting Shares: For tax authorities, it is mandatory to determine the exact market value of gifted or inherited property to correctly calculate tax liabilities (such as personal income tax).
Litigation and Divorce: When disputes arise between partners (e.g., expulsion of a partner) or during the division of marital property containing jointly owned shares. Courts rely on expert appraisals to determine fair compensation.
Bank Collateral and Loan Security: When a shareholder wishes to secure a personal or corporate loan and the bank requires company shares as collateral. The bank must know the exact liquidation and market value of the stake.
Squeeze-out of Minority Shareholders: When a majority shareholder (owning more than 95%) legally demands the buyout of the remaining shares. The law requires a "fair price" to be established by an independent expert.

Georgian Legal and Regulatory Framework

The valuation and circulation of shares in Georgia are regulated by corporate, civil, and tax law. The primary legislative act is the Law of Georgia on Entrepreneurs. It regulates the capital formation of LLCs and JSCs, rules for share transfers, partners' rights, and the Squeeze-out procedure, which explicitly mandates the payment of a "fair price." Equally important is the Tax Code of Georgia. When a share is sold, the capital gain is subject to taxation. If shares are transferred between related parties (or gifted), the Revenue Service requires the transaction to reflect market prices (Transfer Pricing principles); otherwise, severe penalties will be levied. The rules for dividing property during inheritance or divorce are governed by the Civil Code of Georgia. Appraisers are strictly required to adhere to the International Valuation Standards (IVS) to ensure that the report is methodologically sound and recognized by both tax authorities and the courts.

The Valuation Process and Methodology

Valuing a company share is a step-by-step, highly analytical process requiring professional expertise:

Data Analysis and Normalization: The expert studies the company's financial statements from recent years. Often, in SMEs, owners mix personal expenses with company expenses. These data points are "cleansed" to determine true profitability (normalized EBITDA).
Total Equity Valuation: The price of a 100% stake in the company is established using DCF (Discounted Cash Flow) models or market multiples.
Stake-Specific Adjustments: The total value is multiplied by the percentage of the stake being appraised. Subsequently, the appropriate discounts (DLOC, DLOM) or premiums are applied, depending on whether the stake is controlling or minority.
Report Preparation: An official, certified valuation report is compiled. It thoroughly explains all methods and assumptions used, ensuring it is robust enough for the client to use in any legal or tax institution.

Why is Legal.ge the Best Platform to Find an Appraiser?

Valuing a company share is not a simple mathematical proportion; it requires a deep understanding of financial principles, corporate law, and tax risks. A report prepared by an amateur can lead to multi-thousand Lari tax fines or the loss of a lawsuit. Legal.ge is a premier platform that brings together Georgia's best certified independent appraisers and financial experts, who have extensive experience in business valuation and forensic financial analysis. On our platform, you can review specialists' qualifications and industry experience, allowing you to choose a professional who will provide an accurate, objective, and legally bulletproof valuation of your shares for any transaction.