How to Value a Business When Shareholders Disagree: A UK Guide

Shareholder disagreements are one of the most stressful situations a UK SME can face. When two or more owners no longer share the same vision — or when one shareholder wants out — the question quickly becomes: what are the shares actually worth?

The answer is rarely straightforward. Valuation in a dispute context is not the same as valuation for a sale or for HMRC. The methodology, the assumptions, and even the definition of "value" can change depending on the trigger event and the wording of your shareholder agreement.

This guide walks through how independent valuations work when shareholders disagree, what UK law and best practice expect, and how to keep the process commercially sensible.

Why Valuation Disputes Happen

Most shareholder disputes in UK private companies fall into a handful of recurring patterns:

• Exit of a founder or minority shareholder under a shareholders' agreement
• Divorce or estate requiring a share to be bought out
• Deadlock between equal shareholders on strategy or distributions
• Unfair prejudice petitions under section 994 of the Companies Act 2006
• Pre-emption rights triggered by a proposed transfer

In each case, the parties usually agree the shares have value — they simply disagree on how much. That is where an independent valuation becomes essential.

Start With the Articles and Shareholders' Agreement

Before commissioning any valuation work, the first step is always to read the company's articles of association and any shareholders' agreement carefully.

These documents often specify:

• The valuation basis (fair value, market value, or a formula)
• Whether minority discounts apply
• Who appoints the independent expert
• Whether the expert acts as an expert or arbitrator
• The timing and payment terms for any buy-out

A well-drafted agreement can resolve most of the dispute before it begins. A poorly drafted one — or none at all — leaves the parties relying on common law, the Companies Act, and ultimately the courts.

Fair Value vs Market Value

This is the single most important distinction in dispute valuations, and it is frequently misunderstood.

Market Value

Market value is the price a hypothetical willing buyer would pay a willing seller in an arm's length transaction. For a minority stake in a private company, market value typically reflects significant discounts for lack of control and lack of marketability — often 30% to 50% combined.

This is the basis HMRC uses for tax purposes and what most third-party buyers would offer.

Fair Value

Fair value is a different concept. It generally values the shares as a proportionate share of the whole business, often without applying minority discounts. The reasoning is that a forced exit — particularly in an unfair prejudice case — should not penalise the departing shareholder for circumstances they did not create.

UK case law (notably *Re Bird Precision Bellows* and later authorities) has established that in section 994 petitions, fair value is the usual default unless the facts suggest otherwise.

The practical impact is significant. A 25% shareholding in a company worth £4m might be valued at:

• £500,000 on a market value basis (with discounts)
• £1,000,000 on a fair value basis (pro-rata)

Knowing which basis applies — and arguing for the right one — is often where most of the value is won or lost.

The Role of the Independent Expert

When shareholders cannot agree, the standard route is to appoint an independent valuer to determine the price. This is usually done in one of three ways:

1. Joint appointment — both parties agree on a single expert whose determination is binding
2. Each party instructs their own expert, with a third appointed to break any deadlock
3. Court-appointed expert in litigation

A competent independent expert will:

• Confirm the valuation basis required by the agreement or court
• Set the valuation date (often the date of the trigger event, not today)
• Request management accounts, forecasts, contracts, and customer data
• Apply appropriate methodology — typically earnings-based, sometimes asset-based or DCF
• Issue a reasoned written determination that both sides can rely on

The expert's role is to be impartial, not to advocate. That distinction matters: an expert determination is usually final and binding, with very limited rights of appeal.

Methodology in Dispute Contexts

The valuation methods themselves are not unusual — what differs is how they are applied.

Earnings-Based Approaches

Most trading SMEs are valued on a multiple of maintainable earnings (EBITDA or adjusted profit). In a dispute, particular care is taken to:

• Strip out non-recurring items and owner-specific costs
• Adjust directors' remuneration to a market rate
• Identify any related-party transactions that distort earnings
• Select a multiple based on comparable transactions and sector benchmarks

Asset-Based Approaches

For property-rich, investment, or asset-heavy businesses, a net asset value approach may be more appropriate — particularly where trading profits are modest relative to the underlying assets.

Discounted Cash Flow

DCF is used selectively, usually where the business has predictable contracted revenues or where a significant change in trajectory is expected. In disputes, DCF is often challenged because the assumptions are inherently subjective.

Information Asymmetry: A Common Flashpoint

In many disputes, one shareholder is inside the business (often a director) and the other is outside. The outside shareholder may struggle to access management accounts, forecasts, or customer information.

Under UK company law, shareholders have limited statutory information rights — primarily to filed accounts and the register of members. A well-drafted shareholders' agreement should address this. In litigation, disclosure is the mechanism that levels the playing field.

For the valuation to be credible, both sides need to be working from the same financial picture. An experienced valuer will request information from both parties and flag any material gaps in their report.

Practical Steps If You Are Heading Into a Dispute

If you are a UK SME shareholder facing a valuation disagreement, the practical sequence is usually:

1. Read the articles and shareholders' agreement carefully — get legal advice if needed
2. Identify the trigger event and the valuation basis it requires
3. Try to agree the process before arguing about the number — joint appointment, valuation date, scope
4. Gather financial information — accounts, management info, contracts, forecasts
5. Instruct an independent valuer with experience of dispute work
6. Engage constructively with the expert's information requests
7. Use the determination as the basis for a commercial settlement

In our experience, parties who focus on process first reach settlement faster and at lower cost than those who start by trading numbers.

When Litigation Becomes Unavoidable

Sometimes settlement is not possible and the dispute goes to court — most commonly as an unfair prejudice petition under section 994. The court has wide powers, including ordering one shareholder to buy out another at a price the court determines.

In these cases, valuation evidence is usually given by single joint experts or by party-appointed experts who must comply with CPR Part 35 duties to the court. The valuer's overriding duty is to the court, not to the instructing party.

Litigation is expensive, slow, and damaging to the underlying business. A well-handled independent valuation, commissioned early, almost always produces a better commercial outcome than fighting it out in court.

How Optival Helps

We act as independent valuation advisors for UK SMEs in shareholder disputes — both as jointly appointed experts and as party-appointed advisors. Our work includes:

• Independent expert determinations under shareholders' agreements
• Valuation reports to support unfair prejudice proceedings
• Strategic advisory ahead of negotiations or mediation
• Review and critique of valuations prepared by the other side

We focus on producing reasoned, defensible reports that hold up under scrutiny — and on helping parties reach a commercial settlement wherever possible.

If you are facing a shareholder valuation dispute and want a confidential conversation about your options, get in touch. Early advice often makes the difference between a manageable process and a prolonged dispute.