How To Value Shares In A Private NZ Company

If you run a company in New Zealand, there’s a good chance you’ll eventually need to work out what your shares are worth.

Maybe you’re bringing in an investor, buying out a co-founder, issuing shares to a key employee, or preparing for a sale. Whatever the trigger, working out the value of shares in a private company can feel awkward - especially when there’s no market price, no daily trading, and a lot of value tied up in the founders’ effort and future potential.

The good news is there are established ways to value shares in a private company, and with the right preparation you can approach it in a way that’s commercially sensible and legally robust.

Below, we’ll break down the main valuation approaches in NZ, the factors that often get missed (but matter a lot), and the legal documents that help keep the process fair and dispute-free.

When Do You Need To Value Shares In A Private Company?

In a listed company, the share price is public and constantly updated. In a private company, you usually have to create a valuation framework.

Common situations where valuing shares becomes essential include:

• New investment: issuing shares to an investor (or converting a note into shares) means you need a price per share.
• Share transfers: one shareholder wants to sell to another shareholder, a family member, or an external buyer.
• Founder exit or dispute: a co-founder leaves and there’s a buyout clause, or you need a fair split.
• Employee incentives: you’re granting equity, options, or a form of “ownership” benefit and need a baseline value.
• Business sale or succession planning: you’re selling the company or planning a long-term ownership transition.
• Restructures: changes in ownership, reorganising group structures, or moving assets between entities.

In practice, it’s often the relationship aspect that makes valuations stressful. If shareholders don’t agree on the method upfront, valuation becomes a negotiation (or a fight) - and that can derail your broader commercial plan.

This is where a properly drafted Shareholders Agreement can make a huge difference, because it can set out how valuation works before anyone is under pressure.

What Does “Share Value” Actually Mean In A Private Company?

Before we get into methods, it helps to clarify what you’re actually trying to measure.

When valuing shares in a private company, the “value” might be:

• Fair market value: the price a willing buyer and willing seller would agree on in an arm’s length transaction.
• Investment value: what the shares are worth to this particular buyer (for example, they get synergies, control, or strategic benefits).
• Minority value: the value of a small parcel of shares that doesn’t give control.
• Control value: the value of a parcel that gives effective control of the company.

This is where private company valuations often go wrong: someone assumes “10% of the shares = 10% of the company value”. That’s not always true in real life, because:

• minority shares may be harder to sell and may have fewer rights (so they can be discounted); and
• a controlling stake can be worth more (a control premium) because it allows decision-making power.

It also matters whether you’re valuing:

• the business as a whole (enterprise value), then translating that into equity value; or
• the shares directly (especially where rights attached to shares vary across classes).

If your company has different share classes (for example, ordinary shares vs preference shares), the valuation becomes more complex, and your company’s rules need to be crystal clear. This is where having a tailored Company Constitution can really matter.

Common Methods For Valuing Shares In A Private Company

There isn’t one “right” method for valuing shares in a private company. The appropriate approach depends on your industry, stage, financial records, and why you’re valuing the shares in the first place.

That said, most valuations in NZ land in one (or a combination) of these categories.

1. Asset-Based Valuation (Net Assets / Book Value)

This method looks at what the company owns, minus what it owes, to get a “net assets” figure.

It’s typically more relevant where:

• the business is asset-heavy (for example, equipment, property, stock);
• the company is not consistently profitable yet; or
• the purpose is a baseline or “floor” valuation.

Watch-outs:

• Book value may not reflect true market value (assets may be under- or over-valued).
• It often undervalues businesses where the real value is in goodwill, brand, IP, or recurring customers.
• It can ignore growth prospects entirely.

2. Earnings Multiple (Maintainable Earnings x Multiple)

This is one of the most common methods for valuing shares in a private company with stable trading performance.

In simple terms:

• work out the company’s maintainable earnings (often EBITDA or net profit, normalised), then
• apply a multiple based on industry norms, risk, and growth profile.

For example, if your maintainable earnings are $300,000 and the market multiple is 4x, the business value might be around $1.2M (before adjusting for debt/cash and other factors).

Watch-outs: the “multiple” is where most debates happen. A high-growth, low-risk business with reliable contracts may justify a higher multiple than a business with client concentration risk or volatile margins.

3. Discounted Cash Flow (DCF)

DCF is more technical, but it can be a strong approach where the value is tied to future cash flows rather than past performance.

It typically involves:

• forecasting future cash flows (often 3–5+ years);
• choosing a discount rate to reflect risk; and
• calculating the present value of those future cash flows.

Watch-outs: DCF relies heavily on assumptions. If shareholders disagree about growth, margins, customer retention, or risk, the valuation can vary widely.

4. Comparable Companies / Comparable Transactions

This approach asks: “What are similar businesses selling for?”

It can be useful if there are recent transactions in your industry (for example, comparable private company sales, or valuation benchmarks used in fundraising rounds).

Watch-outs:

• Comparable data can be hard to find for truly private deals.
• No two small businesses are identical - customer mix, contracts, systems, and key person risk can change the valuation.

5. Last Funding Round / Price Per Share Method (Startups)

If your company has recently raised capital, that funding round can provide a starting point for valuing shares in a private company.

But it’s rarely as simple as “use the last share price”, because:

• investors may have received preferential rights (liquidation preferences, anti-dilution protections, special veto rights);
• the business may have materially changed since the raise (good or bad); and
• small parcels of ordinary shares may not be equivalent to investor shares.

If you’re raising capital, documenting the deal properly is critical - especially where the valuation is linked to future events. Just as importantly, in New Zealand share offers and fundraising can trigger obligations under the Financial Markets Conduct Act 2013 (FMCA) unless an exemption applies, so it’s worth getting advice on the structure, the disclosure position, and the documents.

Key Factors That Affect Private Company Share Valuations (And Often Cause Disputes)

Even when everyone agrees on a valuation method, there are practical issues that can significantly move the number up or down.

If you want a smoother process, it helps to identify these early - ideally before a transaction is on the table.

Quality Of Financial Information

Valuations rely on financial statements, forecasts, and records. If your accounts are messy or incomplete, it’s harder to justify any figure confidently.

Common adjustments valuers make include:

• normalising “one-off” expenses or income;
• adjusting owner salaries (for example, where the owner has underpaid themselves to boost profit);
• accounting for related-party transactions; and
• reviewing working capital needs (cash flow realities, not just profit).

Shareholder Rights And Restrictions

Not all shares are created equal. Value is tied to the rights attached to the shares, including:

• voting rights and control;
• dividend rights;
• pre-emptive rights (rights of first refusal on sale/issue);
• restrictions on transferring shares; and
• drag-along and tag-along rights.

If these rights aren’t properly documented, your valuation can become a proxy battle over “what did we actually agree to?”. This is one reason companies often formalise ownership rules through a right of first refusal framework and clear shareholder documents.

Minority Discounts And Control Premiums

Where a shareholder holds a minority stake, a buyer may pay less per share because they can’t control key decisions (and may have limited ability to sell later).

On the other hand, a buyer may pay more for a controlling stake because it unlocks decision-making power.

Whether discounts or premiums apply depends on:

• your constitution/shareholders agreement;
• how dividends are managed;
• how decisions are made in practice (not just on paper); and
• the purpose of the valuation (for example, internal buyout vs external sale).

Key Person Risk

Many small NZ businesses are founder-led. If the value of the business depends heavily on one person’s relationships, know-how, or reputation, that can reduce value (or at least increase risk).

Practical ways to reduce key person risk (and support valuation) include:

• documented processes and systems;
• employment agreements and incentives for key staff; and
• contracts that tie customers/suppliers to the company rather than the individual.

As your team grows, a clear Employment Contract helps you lock in expectations around duties, confidentiality, and IP - which can be important when a buyer or investor is assessing risk.

Intellectual Property (IP) Ownership

If your company’s value is tied to software, branding, designs, content, or know-how, the big question is: who actually owns it?

If the IP is owned personally by a founder (or wasn’t properly assigned from contractors), that can materially reduce company value - because the company doesn’t truly “own” the asset.

Putting proper IP assignments and confidentiality clauses in place early can protect value and make diligence smoother later on.

Tax And Compliance Implications

Valuation isn’t just a commercial exercise - it can have tax and compliance flow-on effects. For example, a share issue, share buyback, employee equity, or a change in control can have consequences under NZ tax rules (including IRD positions) and may affect how a transaction is structured and documented. It’s worth getting accounting/tax advice alongside the legal work so the valuation, the paperwork, and the tax outcomes line up.

Getting The Legal Side Right: Documents And Process That Protect Your Valuation

A valuation doesn’t exist in a vacuum. Even a “perfect” number can cause problems if the process isn’t clear, or if the legal documents don’t match what you’re trying to do commercially.

Here are the legal foundations that usually matter most when valuing shares in a private company.

Shareholders Agreement (Valuation Clauses And Exit Rules)

A good shareholders agreement often deals with:

• when a valuation is required (trigger events like exit, death/disability, dispute, or funding);
• who does the valuation (independent valuer, accountant, agreed expert);
• what method is used (earnings multiple, DCF, etc.);
• how disagreements are handled (for example, a tie-break valuation); and
• timelines for completing the valuation and sale process.

It can also cover the commercial reality of a buyout - for example, whether payment happens upfront or over time, and what security is provided.

Company Constitution (Share Rights And Decision-Making)

Your constitution can set rules that directly affect value, like:

• how shares are issued and transferred;
• different rights for different share classes; and
• how shareholder decisions are made.

If you’re issuing new shares, you’ll also want to be confident your process complies with the Companies Act 1993 and your internal governance rules (including director approvals and shareholder resolutions where required).

Share Sale Documents (Transferring Ownership Properly)

Once you’ve agreed on price, you still need the transfer documented correctly.

That might include:

• a share sale agreement (setting out the price, warranties, and completion mechanics);
• board/shareholder approvals (depending on your constitution and the Companies Act); and
• updating company records and the share register.

If you’re changing who owns the company - especially where multiple shareholders are involved - it can help to think through the bigger picture of changing company ownership so there aren’t any nasty surprises in the transaction process.

A Clear Process (Reducing The Risk Of Disputes)

In NZ, shareholder relationships are often long-term and personal (friends, family, co-founders). That’s great - until money is on the line.

Disputes commonly arise when one party feels:

• information was withheld;
• the valuation method was manipulated;
• the timeframe was rushed; or
• there was pressure to accept an unfair price.

Having a written process in your shareholders agreement and constitution won’t eliminate tension entirely, but it can make it much easier to show that the valuation was carried out consistently with what everyone agreed (and reduce the likelihood of the situation escalating into a formal dispute).

Practical Tips To Prepare For A Valuation (Before You Actually Need One)

If you wait until a deal is urgent, valuation becomes harder and more emotional. A bit of planning now can save you time, cost, and stress later.

Here are practical steps you can take to make valuing shares in a private company smoother:

• Keep tidy financials: accurate accounts, up-to-date management reporting, and clear separation of personal vs business expenses.
• Document key contracts: customer, supplier, contractor, and IP arrangements should be in writing.
• Reduce founder dependency: create systems and delegate key relationships where possible.
• Clarify share rights: ensure your constitution and shareholders agreement reflect how the business actually operates.
• Agree on a valuation mechanism early: even a “framework” helps (for example, independent valuer + defined method + dispute process).
• Think about fundraising compliance: if you’ll raise capital, get advice early on FMCA requirements/exemptions and how dilution and rights will work.

And if you’re considering a significant transaction (like bringing on an investor or buying out a shareholder), it’s worth getting advice early so the valuation and the legal documents line up commercially.

Key Takeaways

• Valuing shares in a private company is common in NZ businesses, especially for investment, buyouts, founder exits, and business sales.
• There are several accepted valuation methods, including asset-based valuation, earnings multiples, discounted cash flow, and comparable transactions, and the right choice depends on your business and the purpose of the valuation.
• Share value isn’t always proportional to ownership percentage, because minority discounts, control premiums, and differing share rights can materially affect the price per share.
• Strong legal foundations (especially a Shareholders Agreement and Company Constitution) help prevent disputes by setting a clear valuation process and ownership rules upfront.
• Clean financials, documented contracts, clear IP ownership, and reduced key person risk can improve both your valuation outcome and how confidently you can justify it to investors or buyers.
• Because private company valuations are heavily influenced by assumptions, rights attached to shares, and regulatory/tax settings (including FMCA and IRD considerations), getting tailored legal and accounting advice early can save major headaches later.

If you’d like help setting up your shareholder documents, preparing for an investment, or navigating a share transfer, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.