Accurately assessing your company’s value is now vital for driving sound strategic choices. In fact, according to a recent Deloitte report, over 65% of M&A deals globally rely on a formal business valuation as part of the due diligence process. For Indian businesses too, valuation plays a critical role in meeting compliance, raising capital, and driving shareholder value.
Yet many business owners aren’t sure when to pursue a business valuation. Some wait until an external trigger—such as an investor pitch or acquisition offer—forces the issue. Others proactively schedule valuations to support long-term planning and regulatory readiness.
The truth is, several key events and compliance needs require businesses to obtain certified valuation reports. These may include fundraising, succession planning, ESOP implementation, litigation support, or meeting regulatory mandates under India’s Companies Act, SEBI, FEMA, or Income Tax rules.
Moreover, valuation is not a one-size-fits-all exercise. Choosing the right method—whether Discounted Cash Flow (DCF), market approach, or asset-based valuation—requires expertise, industry insight, and regulatory understanding. An inaccurate valuation may lead to financial setbacks or regulatory complications for businesses.
In this comprehensive guide, we’ll explore when your company should get a business valuation, key compliance requirements, and proven valuation methods. Backed by Rakesh Narula & Co.’s extensive experience, this guide is designed to help founders, CFOs, and corporate advisors make confident, informed decisions.
What Is Business Valuation?
Business valuation is the process of determining a company’s economic worth at a given point in time. It considers financial, operational, and market factors to establish a fair value.
For business owners, valuation supports key decisions — from raising capital and M&A deals to succession planning and regulatory compliance. In India, certified valuations are increasingly required under the Companies Act, SEBI, FEMA, and Income Tax Act.
Beyond compliance, a well-executed valuation guides strategic planning throughout a company’s life cycle. It is crucial that valuations are performed by qualified professionals — typically IBBI-registered valuers using globally accepted methods such as DCF, market approach, or asset-based approach.
Why and When Does a Business Need Valuation?
A business valuation isn’t a one-time task reserved for major transactions. In today’s dynamic landscape, Indian businesses are often required to obtain valuation reports at various stages—both for compliance and strategic reasons.
Knowing when to get your business valued is essential. A valuation performed at the right time can uncover opportunities, identify risks, and ensure compliance with critical legal and financial obligations.
These are 10 important situations when obtaining a business valuation becomes necessary:
1. Mergers & Acquisitions (M&A)
Valuation plays a central role in M&A deals. Whether your company is acquiring another entity or being acquired, a fair business valuation helps determine an appropriate purchase price. It supports both parties in negotiating equitable terms and reduces the risk of post-transaction disputes.
2. Fundraising / Venture Capital
When raising equity from investors or venture capital firms, a credible valuation gives you leverage. Investors seek transparency—knowing that your valuation is based on proven methods like DCF valuation or market approach builds trust and can drive better deal outcomes.
3. ESOP Implementation
Issuing Employee Stock Ownership Plans (ESOPs) requires accurate valuation of company shares. Indian regulations mandate certified valuation reports to ensure that ESOP grants are fair and defensible under tax and corporate law.
4. Succession Planning & Exit Strategy
For family-owned businesses or founders planning retirement, a valuation helps facilitate smooth succession planning. It ensures that stakeholders have clarity on the company’s worth—enabling informed estate planning and business continuity.
5. Regulatory & Tax Compliance (Income Tax, FEMA, SEBI)
Various business situations in India require companies to undergo formal valuation as per regulatory standards. The Companies Act, FEMA, SEBI regulations, and Income Tax Act all require valuation reports for share transfers, foreign investments, restructuring, and related-party transactions.
6. Insolvency or Restructuring (IBC Cases)
Valuation plays a pivotal role during corporate restructuring or insolvency proceedings governed by the Insolvency and Bankruptcy Code (IBC)l. Accurate assessments of assets, liabilities, and enterprise value guide resolution plans and support creditor negotiations.
7. Financial Reporting (Ind-AS, IFRS)
Modern accounting standards—Ind-AS and IFRS—require fair value reporting for certain assets, liabilities, and financial instruments. Business valuation ensures compliance with these standards and strengthens the credibility of financial statements.
8. Litigation Support (Family or Shareholder Disputes)
In legal disputes—such as shareholder disagreements, family-owned business conflicts, or divorce proceedings—valuation provides objective, defensible evidence to resolve financial claims equitably.
9. Insurance Coverage Planning
High-value businesses often seek to insure critical assets, IP, or even entire enterprise value. An accurate business valuation helps determine appropriate coverage limits and ensures sufficient protection against unexpected losses.
10. Partnership Dissolution or Reorganization
When business partnerships change—through dissolution, buyouts, or reorganization—a valuation ensures fair settlement of interests. It protects all parties and provides a transparent foundation for negotiations.
Business Valuation & Compliance Requirements in India
For Indian businesses, valuation is not merely a tool for internal planning or investor negotiations. In many cases, it is a legal and regulatory requirement. Understanding when compliance demands a certified valuation can help your company avoid penalties, ensure transparency, and build stakeholder trust.
Below are key compliance scenarios and valuation standards that Indian businesses must navigate:
Regulatory Valuation Requirements
1. Income Tax Act
Section 56(2)(viib) and other relevant clauses of the Income Tax Act necessitate conducting a valuation for the following purposes:
- Determining fair market value of shares during issuance to investors
- Assessing arm’s length value in related-party transactions
- Calculating capital gains and tax liabilities in share transfers
A valuation report certified by a registered valuer ensures that your tax filings can withstand scrutiny.
2. Companies Act, 2013
The Companies Act prescribes valuation requirements in the following contexts:
- Issuance of shares, debentures, and other securities
- Mergers, demergers, and corporate restructuring under Sections 230-240
- Buyback of shares
- Valuation of assets for financial reporting and disclosure
Only IBBI-registered valuers are authorized to provide valuations under the Companies Act.
3. FEMA (Foreign Exchange Management Act)
When Indian companies engage in cross-border transactions, FEMA regulations come into play. A certified valuation is required for:
- Inbound foreign investment
- Outbound investment
- Transfer of shares between residents and non-residents
Ensuring compliance with FEMA valuation norms protects companies from regulatory penalties and facilitates smoother clearance from the Reserve Bank of India (RBI).
4. SEBI Listing Regulations
For listed companies, valuation is required in various corporate actions, such as:
- Issuance of shares on a preferential basis
- Delisting of securities
- Takeovers and acquisitions under SEBI SAST regulations
- Employee stock options and bonus issues
Proper valuation supports transparent disclosures and protects shareholder interests.
5. Insolvency & Bankruptcy Code (IBC)
In insolvency proceedings, accurate valuation of the debtor’s assets is critical to:
- Informing resolution plans
- Guiding bidding and asset sales
- Ensuring fairness in distribution to creditors
Under IBC, two independent valuations by IBBI-registered valuers are typically required for corporate debtors.
Valuation Standards to Follow
In India, the following valuation standards are recognized and applied by professional valuers:
- Indian Valuation Standards (IVS) issued by ICAI
- ICAI Valuation Standards 2018 for registered valuers
- IVS guidelines are applied when performing valuations for international investors and transactions that span multiple countries.
- IBBI regulations for registered valuers under the Companies Act, 2013 and IBC
Adherence to these standards ensures that your valuation reports meet both legal and industry best practice requirements.
Business Valuation Methods Explained
Here are the three primary methods used to value a business:
- Income Approach (DCF Valuation)
Evaluates a business’s value by estimating its future earnings and converting them into today’s monetary terms..
- Market Approach
Compares your business to similar companies based on recent transactions or market multiples (EBITDA, P/E ratios).
. - Asset-Based Approach
Assesses business worth by evaluating assets at market value and deducting outstanding liabilities.
How to Choose the Right Business Valuation Services in India
Choosing the right valuation partner ensures your report is both accurate and compliant with Indian regulations.
Here’s what to look for:
- Certified Expertise
Partner with an IBBI-registered valuer or reputed valuation firm with proven experience across industries. - Regulatory Knowledge
Ensure they understand compliance under Companies Act, FEMA, SEBI, and Income Tax. - Methodology & Transparency
Ask about their valuation methods (DCF, market, asset-based) and reporting standards (IVS, ICAI). - Industry Track Record
Look for firms that have handled valuations in your sector — it ensures better benchmarking and insight. - Client References
Check testimonials or case studies to validate trustworthiness.
RNC offers certified, multi-domain valuation services — trusted by leading corporates and compliant with all major Indian regulatory frameworks.
Conclusion — Why Partner with RNC for Trusted
Business Valuation Services
Beyond meeting compliance obligations, business valuation serves as a vital resource for shaping strategic choices and safeguarding your company’s long-term interests. From securing investment and facilitating mergers to implementing ESOPs or fulfilling regulatory expectations, an accredited valuation report offers transparency and assurance.
At RNC Valuecon LLP, we bring decades of experience and deep regulatory expertise to every valuation assignment. Our team of IBBI-registered valuers delivers accurate, compliant, and insightful reports — tailored to your business needs.
Looking to make informed business decisions backed by a reliable valuation?
Connect with our certified valuation professionals today to ensure your company is accurately valued.
FAQs
1. Why should a business undergo valuation?
A business valuation determines the fair market value of a company. It supports decision-making for M&A, fundraising, compliance, succession planning, and legal matters.
2. In which situations is business valuation mandated by Indian regulations?
Valuation is required under several regulations, including the Companies Act, FEMA, Income Tax Act, SEBI rules, and the Insolvency and Bankruptcy Code. Typical triggers include share issuance, restructuring, cross-border transactions, and regulatory reporting.
3. What are the common business valuation methods?
The three primary methods are:
- Income Approach (DCF)
- Market Approach
- Asset-Based Approach
Professional valuers select the appropriate method based on your business context.
4. How long does a business valuation take?
A typical valuation takes 2 to 4 weeks, depending on business complexity, availability of financial data, and scope of the assignment.
5. How much do business valuation services in India cost?
Valuation fees vary based on business size, purpose, and complexity. It is best to consult with an expert like RNC for a tailored quote and scope discussion.