Fair Value of Shares Certificate for Allotment: Complete 2026 Guide

It is a valuation certificate that states the fair value or fair market value of a company’s shares, used when the company issues further shares. It ensures the new shares are priced fairly and in line with the Companies Act, the Income Tax Act, and FEMA, depending on who the shares are allotted to.

When a company issues fresh shares by preferential allotment, private placement, or to non-residents, the law requires the price to be justified by a valuation. The certificate protects existing shareholders from dilution at an unfair price and satisfies regulators and the tax department.

It depends on the purpose. For preferential allotment under the Companies Act, a Registered Valuer (IBBI) must value the shares. For income-tax purposes under Section 56(2)(viib), a Merchant Banker does the DCF valuation. For FEMA pricing, a Chartered Accountant, Merchant Banker, or Cost Accountant may certify.

Only if the Chartered Accountant is also registered as a Registered Valuer with the IBBI. Since 2018, share valuation under the Companies Act must be done by a Registered Valuer under Section 247.

A Registered Valuer is a person registered with the IBBI under Section 247 of the Companies Act, 2013 and the Companies (Registered Valuers and Valuation) Rules, 2017, authorised to value assets including shares for company-law purposes.

Section 62 governs the further issue of share capital, including rights issues, employee stock options, and preferential allotment. Preferential allotment under Section 62(1)(c) requires valuation by a Registered Valuer.

Often called the angel tax provision, it taxes the excess of the share issue price over the fair market value when an unlisted company issues shares above fair value. Valuation supports the issue price and helps avoid this tax.

Rule 11UA of the Income Tax Rules prescribes the methods for determining the fair market value of unlisted shares, including the Net Asset Value (NAV) method and the Discounted Cash Flow (DCF) method.

The main methods are Net Asset Value (NAV), Discounted Cash Flow (DCF), and the Market or Comparable Companies approach. The method chosen depends on the law, the company’s stage, and the purpose of the valuation.

Yes. Under FEMA pricing guidelines, shares issued to a non-resident must be at a price not less than the fair value determined by an accepted valuation methodology, certified by a CA, Merchant Banker, or Cost Accountant.

Face value is the nominal value printed on the share (for example Rs.10). Fair value is the actual worth of the share based on the company’s assets, earnings, and prospects, which can be much higher or lower than face value.

There is no fixed fee. It depends on the valuation method, the company’s size and complexity, and the purpose. DCF valuations for funding rounds usually cost more than a simple NAV certificate. Agree the scope and fee in writing beforehand.

The valuation is a professional exercise, so the certificate is signed by the valuer after analysis. Documents can be shared digitally and a signed report issued, but it cannot be self-generated online.

A valuation reflects the position on a specific date. Under FEMA, a valuation is generally valid if the issue happens within 90 days of the valuation date. Other purposes may accept a valuation dated close to the allotment; always check the applicable rule.

Yes. It can be questioned if the method is inappropriate, assumptions are unrealistic, the valuer is not authorised for that purpose, or the report is inconsistent with the financials.

Yes, but the excess over fair value may attract tax under Section 56(2)(viib) unless an exemption applies (for example, DPIIT-recognised startups meeting conditions). A defensible DCF valuation is important.

When a Chartered Accountant signs a certificate, a UDIN is generated on the ICAI portal. Registered Valuer reports also carry the valuer’s registration details for authenticity.

It is the issue of shares to a select group of persons (such as investors or promoters) on a preferential basis, rather than to all shareholders. It requires a Registered Valuer’s valuation and a special resolution.

Under Section 42 of the Companies Act, it is an offer of securities to a select group of identified persons through a private placement offer letter, subject to valuation and procedural requirements.

The Discounted Cash Flow method values shares based on the present value of the company’s projected future cash flows. It is commonly used for startups and growth companies with strong future potential.

The Net Asset Value method values shares based on the company’s net assets (assets minus liabilities) as per the balance sheet, often used for asset-heavy or stable companies.

Yes, subject to FEMA and RBI pricing guidelines. The shares must be issued at or above the fair value certified by an authorised professional, and reporting in Form FC-GPR is required.

It is the RBI reporting form filed when an Indian company issues shares to a person resident outside India, and it requires the valuation certificate as a supporting document.

Listed companies follow the SEBI ICDR Regulations pricing formula for preferential issues, which is based on market price rather than a Registered Valuer’s DCF/NAV valuation.

Audited financial statements, the latest provisional accounts, shareholding pattern, MOA and AOA, projections (for DCF), details of assets and liabilities, and information on the proposed allotment.

By examining audited financials, testing the reasonableness of projections and assumptions, reviewing asset and liability details, and obtaining a management representation on the data provided.

Angel tax is the informal name for tax under Section 56(2)(viib) on the premium received by an unlisted company on issue of shares above fair market value. A sound valuation helps manage this exposure.

Eligible DPIIT-recognised startups can claim exemption from Section 56(2)(viib) subject to conditions and declarations. Professional advice is recommended to confirm eligibility.

Not always. The prescribed valuer and method can differ, so a valuation acceptable under the Companies Act may not automatically satisfy income-tax requirements. Often the purposes are addressed separately.

It is the date fixed with reference to the resolution, from which the valuation and pricing are determined under the applicable rules. The valuer states the valuation date clearly in the report.

If facts change or an error is found, a fresh report with a new date and reference is issued rather than altering the original. Valuations are date-specific.

It is a written statement from the company confirming that the financial data, projections, and information provided to the valuer are complete and accurate, supporting the valuation.

For issue of shares to non-residents, FEMA prescribes a floor price (not less than fair value). For transfer from a resident to a non-resident, similar floor-price rules apply to protect the resident.

Issuing below the FEMA floor price is a pricing contravention and can attract compounding and penalties under FEMA. The valuation certificate is used to demonstrate compliance.

Shares are issued by companies, so this certificate applies to companies. LLPs issue capital contributions, not shares, and follow the LLP Act, so the valuation context differs.

A pure rights issue under Section 62(1)(a) to existing shareholders in proportion does not mandatorily require a Registered Valuer, but pricing should still be reasonable; valuation is key for preferential and non-resident issues.

A SEBI-registered Merchant Banker performs DCF valuation for income-tax purposes under Rule 11UA and can also certify FEMA pricing. Their involvement is required where the law specifies a Merchant Banker.

Yes. The department can scrutinise the method and assumptions, especially for DCF, and may dispute the fair value. A well-documented, realistic valuation reduces this risk.

Usually one valuation as on the relevant date supports the round, but if allotments happen at different times or terms, or across regimes, additional certificates may be needed.

Foreign investors rely on the FEMA-compliant valuation to confirm the price meets Indian pricing norms. It is a standard part of the investment and FC-GPR documentation.

Yes. Where a regulator, bank, or investor prescribes a format, the valuer certifies within it, provided the wording does not exceed what the analysis and data support.

From a Registered Valuer, Merchant Banker, or Chartered Accountant authorised for the specific purpose, who analyses your financials and issues a documented, signed valuation. You may reach our office through the contact link provided.

Yes. Under Section 62 read with Section 247 of the Companies Act, 2013, shares for preferential allotment must be valued by an IBBI-registered Registered Valuer.

Post the 2023 changes, DCF valuation under Rule 11UA for Section 56(2)(viib) is done by a Merchant Banker. The NAV method can still be computed by prescribed professionals.

Section 42 governs private placement of securities to a select group of identified persons through a private placement offer letter, with valuation and procedural safeguards.

Shares issued to a non-resident must be priced at not less than the fair value worked out per an internationally accepted pricing methodology, certified by an authorised professional.

Rule 11U provides definitions and the basis (such as the balance sheet date) used for computing fair market value under Rule 11UA.

Neither is universally better. NAV suits asset-heavy or stable firms; DCF suits growth companies with reliable projections. The right method depends on the company and purpose.

Unlisted companies may face tax under Section 56(2)(viib) on premium above fair value, unless an exemption such as the DPIIT-recognised startup exemption applies.

Form PAS-3 is the return of allotment filed with the ROC after shares are allotted, and the valuation supports the pricing of that allotment.

They can be issued at par, but if fair value is higher, existing shareholders may be diluted unfairly, and pricing must still comply with the applicable law.

Fair value is a broad valuation concept; fair market value is the value defined for tax purposes under Rule 11UA. The terms overlap but are used in different legal contexts.

A valuation supports the exercise price and the perquisite calculation for ESOPs; a Merchant Banker valuation is commonly used for the tax perquisite value.

The Insolvency and Bankruptcy Board of India (IBBI) is the authority for registration and regulation of Registered Valuers under the Companies Act framework.

Under FEMA, the issue should generally be completed within 90 days of the valuation date; beyond that a fresh valuation is usually required.

It is a valuation to determine the exchange ratio of shares in mergers or share swaps, a related but distinct valuation exercise from a fresh allotment valuation.

A proportionate rights issue to existing shareholders under Section 62(1)(a) does not mandatorily need a Registered Valuer, unlike preferential allotment.

For listed companies, the SEBI ICDR Regulations prescribe a market-price-based formula for preferential issue pricing rather than a DCF or NAV valuation.

Yes, subject to FDI policy and FEMA pricing, with the shares issued at or above the certified fair value and reported in Form FC-GPR.

Revenue growth, margins, discount rate (cost of capital), and terminal value assumptions drive DCF outcomes and are the areas most scrutinised.

Yes, if projections are unrealistic or unsupported. Courts have held that assumptions must be reasonable and made on the valuation date.

Bonus shares are issued from reserves without fresh consideration, so a fair value valuation for pricing is generally not required.

The premium is the amount received above the face value of a share, credited to the securities premium account and governed by the Companies Act.

A Chartered Accountant, a SEBI-registered Merchant Banker, or a practising Cost Accountant, as permitted under the FEMA pricing framework.

No. Backdating a valuation is improper. A valuation states the analysis as on its stated date and the date of signing.

It is the discount rate used in DCF to convert future cash flows to present value, reflecting the risk and expected return for the business.

Yes. Early-stage startups often use DCF on projections, while mature asset-heavy companies may be valued on NAV or market multiples.

Yes. The valuer maintains confidentiality and uses the information only for the engagement and the stated purpose.

It is the account where the premium on issue of shares is credited, with restrictions on its use under the Companies Act.

Only if they hold the right authorisation for each purpose; often a Registered Valuer or Merchant Banker addresses multiple regimes, but the correct signatory per law must be ensured.

A large premium over book value, aggressive DCF projections, or funding from certain investors can trigger scrutiny under Section 56(2)(viib).

Verify the UDIN on the ICAI portal and, for Registered Valuer reports, check the valuer’s IBBI registration details.