Valuation requirements under Companies Act, 2013
Valuation is the process of determining the value of an asset or a company. It plays a crucial role in various financial transactions such as mergers and acquisitions, initial public offerings, and private equity investments. The Companies Act, 2013 (the Act) lays down the requirements for valuation of assets and liabilities in the context of corporate transactions. In this blog, we will discuss the valuation requirements under the Act.
1. Valuation of Assets and Liabilities
Section 247 of the Act requires that a company must get its assets and liabilities valued by a registered valuer in the following situations:
- (A) When the company is getting amalgamated with another company
- (B) When the company is getting demerged
- (C) When the company is selling or disposing of its undertaking or part thereof
- (D) When the company is issuing shares on a preferential basis
- (E) When the company is buying back its own shares
- (F) When the company is providing loans or advances to its directors or any other person in whom the director is interested
- (G) When the company is acquiring any asset from a related party
- (H) When the company is issuing debentures
The valuer must provide a report on the valuation of assets and liabilities to the company in the prescribed format.
2. Registered Valuers
The Act requires that a valuer must be a registered valuer under the Companies (Registered Valuers and Valuation) Rules, 2017. The Rules prescribe the qualifications, experience, and other eligibility criteria for becoming a registered valuer.
3. Independence of the Valuer
The Act requires that the valuer must be independent and not have any conflict of interest in the valuation process. The valuer must disclose any relationship with the company or its directors that may affect his/her independence.
4. Valuation Report
The valuer must prepare a valuation report in the prescribed format, which must include the following information:
- (A) The purpose and scope of the valuation
- (B) The methodology used for valuation
- (C) The assumptions and limitations of the valuation
- (D) The fair value of the assets or liabilities being valued
- (E) Any other information as may be required by the Act or the rules
The valuation report must be submitted to the company in a sealed cover and must be accompanied by a declaration of independence by the valuer.
In conclusion, the Companies Act, 2013 lays down the requirements for valuation of assets and liabilities in the context of various corporate transactions. Companies must comply with these requirements to ensure transparency and fairness in the valuation process. Registered valuers play a crucial role in the valuation process and must be independent and comply with the prescribed rules and regulations.