Assessment of corporate rights

Valuation of corporate rights is an important aspect in today’s business environment, which concerns the determination of the value of shares, shares in authorized capital, as well as other ownership rights granted by legal entities to their members or shareholders.

“Corporate rights” should be understood as a set of property and non-property rights arising from a person as a result of his participation in the creation or activity of a legal entity.

Corporate rights include the right to participate in the management of the company, to receive part of the profit (dividends), to a share of the property in case of liquidation, as well as other rights provided for by legislation and the company’s charter.

Corporate rights can be classified according to various criteria:

• By object of law: shares, shares in the authorized capital, shares, etc.
• According to the content of the law: property (right to dividends, right to liquidation quota) and non-property (right to participate in management, right to information).
• According to the form of expression: documentary and non-documentary securities.

Valuation of corporate rights is a complex process that requires consideration of many factors.

There are several basic assessment methods, each of which has its own advantages and disadvantages:

Comparative method (method of analogs) –is based on an analysis of market prices of similar properties that have been sold recently. For this purpose, data on sales of shares or shares in companies with similar characteristics are used.

Advantages of the comparative method:

• Simplicity and clarity.
• The possibility of taking into account the current market conditions.

Disadvantages of the comparative method:

• Lack of a sufficient number of comparable objects.
• The influence of subjective factors on the price of transactions.

Income method (method of discounting cash flows) – is based on forecasting the future income that can be obtained from the ownership of corporate rights and discounting them to the present value.

Advantages of the income method:

• Taking into account the company’s development prospects.
• Ability to evaluate various development scenarios.

Disadvantages of the income method:

• High dependence on forecasts.
• Difficulty in determining the discount rate.

The cost method (replacement value method) is based on the determination of the costs necessary to create a similar object or to restore it.

Advantages of the cost method:

• Objectivity of assessment.
• Ease of calculations.
• Disadvantages of the cost method:
• Ignoring market conditions.
• Impossibility of taking into account the uniqueness of individual companies.

It is also important to take into account international valuation standards that may be applied in the case of attracting foreign investors or entering international markets:

• Mergers and acquisitions. In the case of a merger or acquisition of companies, the assessment of corporate rights is a key stage. It allows you to determine the fair value of the merging companies and the amount of compensation to shareholders. Here, it is especially important to take into account the synergy that may arise as a result of combining businesses.
• Distribution of property during liquidation. In case of liquidation of the company, it is necessary to evaluate the corporate rights to determine the shares of the participants in the residual property. This requires a detailed analysis of the company’s assets and liabilities, as well as possible risks.
• Resolution of disputes between participants. Evaluation of corporate rights is often necessary when resolving disputes between members or shareholders of a company. This may apply both to the determination of the fair value of the shares upon the exit of the participant from the company, and to the distribution of profit or liquidation quota.
• The role of independent evaluators. The involvement of independent valuers is an important aspect in the valuation of corporate rights. Independent appraisers must have appropriate qualifications and licenses, as well as adhere to appraisal standards established by law. Their findings can be crucial in litigation and settlements.

Practical aspects of the assessment of corporate rights:

• Analysis of financial statements– allows you to understand the financial condition of the company, its profitability, liquidity and other key indicators. Analysis of balance sheets, profit and loss statements, and cash flow statements is especially important.
• Assessment of market conditions –includes an analysis of the competitive environment, market trends, economic and political factors that may affect the value of the company.
• Use of specialized programs –allow to significantly simplify the process of evaluating corporate rights. There are many specialized software products that allow you to automate calculations, data analysis, and report generation.
• Peculiarities of assessment of startups and innovative companies – it is important to consider growth potential, intellectual property, and risks associated with new technologies and markets.

At the same time, there are several international valuation standards that can be applied to the valuation of corporate rights.

One of the most common is the International Valuation Standard (IVS), which establishes general principles and approaches to valuation.

Modern trends, such as globalization, technological development and the growing role of innovation, affect approaches to the evaluation of corporate rights, making this process even more dynamic and demanding.

In this context, it is important to constantly improve assessment methods and tools, as well as adapt to changes in market conditions and the legislative environment.