When someone dies holding shares in a private company, the first question you’ll hear from executors is usually this: “What are the shares actually worth?”
It’s not an easy question. There’s no ASX ticker. No last sale price. And yet you need a defensible number for probate, for the ATO, and for beneficiaries who may well have different views about what the company is worth.
You’re about to navigate a process where valuation, tax, governance and family dynamics all collide. Get it wrong, and you’re looking at disputes with beneficiaries, questions from the ATO, or worse, personal liability as an executor.
This article explains how to approach valuing private company holdings in an estate. It’s written for executors, business owners and advisers who need to make sensible decisions under pressure.
Key Takeaways
- Shares, not assets, the estate owns shares in the company, not the company’s underlying assets. This distinction matters for control, rights and valuation.
- Fair market value at date of death, this is the starting point for probate and CGT purposes. You may need valuations again at the date of sale or transfer.
- Multiple methods, rarely one answer, valuers typically use net asset backing, earnings multiples or discounted cash flow depending on the company’s nature. Asset-holding companies differ from operating businesses.
- Documents drive value and rights, before any valuer can give you a number, you need financial statements, shareholders’ agreements, buy-sell clauses and ASIC records.
- Executor risk is real, rush a valuation or ignore governance documents and you expose yourself to beneficiary claims, tax audits or worse.
- Plan ahead if you own a company now, tidy up your records, keep valuations current, and align your will with your company’s succession arrangements. Your executors will thank you.
What the Estate Actually Owns: Shares, Not the Company’s Assets
Start here: a common misconception that causes confusion in almost every estate with a private company.
If the deceased owned shares in a company, the estate owns those shares. The estate does not own the company’s property, plant, inventory, or anything else on the company’s balance sheet.
This matters because you’re valuing a shareholding, not the underlying business or assets directly.
The company is a separate legal entity. It owns its own assets. The deceased’s interest was shares, a bundle of rights attached to those shares, including the right to dividends, voting power, and a claim on surplus assets if the company is wound up.
That distinction changes how you approach valuation, especially where:
- The deceased held a minority stake, so control of the company rests with others.
- There are restrictions in a shareholders’ agreement or constitution that affect what you can do with the shares.
- The company owns a single major asset like a property, but the estate doesn’t control the company’s decisions about that asset.
If this sounds technical, think of it this way: you can’t just open the company’s books, tot up the net assets, and call that the value of the estate’s shares. The shares might be worth more (if the company is highly profitable) or less (if you hold a minority stake with no control and no buyer).
So the first step is simple: establish what shares the estate owns, how many, and what rights attach to them.
The estate’s interest is the shares, not the company’s assets. Valuing shares means valuing a bundle of rights, control, dividends, liquidation preferences, not just adding up what the company owns.
When and Why Private Company Shares Need to Be Valued in an Estate
You can’t avoid this. At some point, you will need a defensible dollar figure for the private company shares. Here’s when and why.
Probate and Inventory of Estate Assets
Most estates require you to file an inventory of the deceased’s assets with the probate court. That inventory needs values. If the deceased held shares in a private company, you’re expected to provide a fair market value as at the date of death.
“Fair market value” is the price a willing but not anxious buyer would pay a willing but not anxious seller, dealing at arm’s length and fully informed. That’s the standard.
For listed shares, it’s easy: you look up the closing price on the date of death. For private shares, you need to work it out.
CGT Cost Base and Later Disposal
Under Australian tax rules, when someone acquires an asset from a deceased estate, the cost base for CGT purposes is generally the market value of the asset at the date of death. This is the foundation for calculating any capital gain when the shares are later sold or transferred.
If you under-value the shares now, you may create a higher CGT liability later. If you over-value them, the ATO may challenge the cost base if audited.
Either way, the date-of-death valuation matters. Document it properly and keep a clear record of how you arrived at the number.
Family Provision Claims and Disputes Between Beneficiaries
Estates rarely unfold exactly as planned. If someone challenges the will or argues they haven’t received adequate provision, the value of the estate’s assets becomes critical.
If the private company shares are significant, a beneficiary might argue the executors under-valued them to favour one party, or rushed a sale at below market value.
A proper valuation protects the executor and provides a defensible baseline if disputes arise.
Negotiating with Other Shareholders or Buyers
If the deceased was one of several shareholders, the remaining shareholders might have rights to buy the shares under a buy-sell agreement or pre-emption clause. You’ll need a value to negotiate from.
Even if there’s a formula in the agreement, you still need to know what the shares are worth independently. The formula might be outdated, unfair, or challengeable.
Can you avoid getting a formal valuation and just use a rough estimate? Only if all of these are true:
- The shareholding is small and not significant to the estate’s total value.
- There are no disputes or potential disputes among beneficiaries or shareholders.
- You’re not selling or transferring the shares.
- You’re confident the ATO won’t query the number if challenged.
If any of those don’t hold, get a proper valuation. The cost of the valuation report is trivial compared to the cost of disputes or rectifying mistakes later.
Don’t rely on an accounting estimate meant for another purpose (like historical management accounts). The ATO and beneficiaries expect a defensible valuation where the stakes are high. If there’s any chance of conflict, commission a valuation report now, not after someone threatens litigation.
How Valuers Approach Private Company Holdings
Valuing a private company is not a pure science. There is no single formula that works for every company. Valuers typically use a combination of methods and cross-check the results.
Here are the three main approaches you’ll encounter.
Net Asset Backing: When the Company Mainly Holds Assets
If the company doesn’t trade or earn income, and its value is really the value of what it owns, property, shares in other companies, cash, investments, the valuer will focus on net assets.
This is straightforward in concept: take the company’s assets at market value, subtract liabilities, and adjust for any tax or liquidation costs. The result is what shareholders would receive if the company was wound up and everything sold.
This method works well for:
- Property-holding companies where the main asset is a commercial building or development site.
- Investment companies that own listed shares or managed funds.
- Dormant companies or “bucket companies” that exist to hold wealth but don’t trade.
The complexity arises when:
- Some assets are hard to value (unlisted investments, intangible assets).
- There are contingent liabilities (tax, guarantees, environmental risks) that aren’t on the balance sheet.
- You hold a minority stake, so you have no power to force a liquidation. In that case, the valuer might apply a discount because a minority shareholder can’t compel the company to sell everything and distribute proceeds.
Net asset backing is the floor value. It’s what you’d get if everything was sold. But if the company is actually earning profits, the shares might be worth more.
Earnings-Based Methods: Multiples for Trading Businesses
If the company is an operating business, a manufacturing company, professional services firm, retail operation, whatever, its value is driven by the profits it generates.
Valuers typically use capitalisation of earnings: take a normalised level of annual profit (EBIT or EBITDA) and multiply it by a factor that reflects risk, growth, industry norms and control.
For example:
- A small contracting business with lumpy earnings and reliance on the owner might be valued at 2–3 times EBITDA.
- A more stable, profitable business with recurring revenue might attract 4–6 times.
- A high-growth tech or services business could be 8–10 times or more, depending on the market.
The multiple is not plucked from thin air. Valuers look at comparable transactions (if available), industry benchmarks, and the specific risk profile of the company.
They also normalise earnings: strip out one-off items, owner’s excessive salaries, related-party transactions, and anything that doesn’t represent ongoing profit.
If you’re an executor receiving a valuation report based on earnings multiples, ask:
- What period of earnings did they use, and why?
- How did they adjust for abnormal items?
- What comparables or benchmarks did they rely on?
- Does the multiple assume control of the company, or does it factor in a minority discount?
Earnings-based methods are powerful, but they depend on reliable financial information. If the company’s accounts are a mess, or profits are artificially inflated or depressed for tax purposes, the valuer’s job becomes harder.
Discounted Cash Flow: When Cashflows Are Irregular or Growth-Focused
For some businesses, past earnings don’t tell the full story. Maybe the company is early-stage, or it’s in a growth phase where profits are being reinvested.
In those situations, valuers might use discounted cash flow (DCF): project future cashflows, discount them back to present value using a rate that reflects the risk of the business.
DCF is theoretically the “right” way to value any business, because ultimately an investor is buying future cashflows. But it’s also the most subjective, because it depends on forecasts and assumptions about growth, margins, discount rates.
You’ll typically see DCF used for:
- Businesses with long-term contracts or predictable future revenue (e.g. infrastructure, SaaS companies).
- Companies in a growth phase where current earnings are low but projected earnings are strong.
- Businesses where the value is tied to future development or expansion plans.
If you’re reviewing a DCF-based valuation, scrutinise the assumptions. What growth rate did they use? What discount rate? How far out did they project cashflows? Small changes in assumptions can swing the value dramatically.
Why You Rarely Rely on Just One Method
Good valuers don’t just pick one method and call it done. They’ll typically use two or three approaches, compare the results, and explain why they’ve settled on a final figure.
For example:
- A trading company might be valued using both earnings multiples and net asset backing. If the earnings-based value is much higher, that tells you the business has goodwill and profitability beyond its tangible assets.
- An asset-holding company might be valued on net assets, but cross-checked against DCF if there’s rental or dividend income.
- A minority stake might be valued using an earnings approach, then adjusted downward for lack of control and lack of marketability.
The valuation report should explain the methods used, the assumptions made, and why the valuer concluded on the final range or figure.
There is no single “correct” method for valuing private companies. Valuers use multiple approaches and triangulate. If you’re told “it’s worth $X because of [one method]”, push back and ask what other methods were considered and why they were rejected.
The Documents and Information You’ll Need Before Anyone Can Sensibly Value the Shares
Before you engage a valuer, do your homework. You’ll need to gather documents and information. Without them, the valuer can’t give you a reliable number.
Here’s what to collect:
Financial Statements and Tax Returns
Start with the basics:
- Audited or reviewed financial statements for the last 3–5 years (balance sheet, profit and loss, cashflow statement, notes).
- Income tax returns for the same period.
- Management accounts if the company hasn’t prepared full financial statements recently.
The valuer will use these to understand the company’s financial position, profitability, trends, and any red flags.
If the accounts are incomplete or unreliable, tell the valuer upfront. They may need to adjust or qualify their report.
ASIC Records and Share Register
Pull an ASIC extract showing:
- Current directors and shareholders.
- Number and class of shares issued.
- Any charges or security interests registered against the company.
Check the company’s internal share register as well. Sometimes the two don’t match, especially in family companies where share transfers were done informally and never lodged.
Constitution and Governance Documents
The company’s constitution sets out the rights attached to shares. These can include:
- Dividend rights.
- Voting rights.
- Pre-emption rights (restrictions on selling shares to outsiders).
- Provisions about what happens on death of a shareholder.
Read the constitution carefully. It might limit the value or marketability of the shares.
Shareholders’ Agreement
If there’s a shareholders’ agreement, get a copy. These agreements often include:
- Buy-sell clauses triggered on death (e.g. the estate must sell the shares to other shareholders at a formula price).
- Valuation mechanisms (e.g. independent valuation, price based on net assets or earnings multiples).
- Restrictions on transfer.
- Drag-along and tag-along rights.
A shareholders’ agreement can override the constitution in some respects. It might also specify a valuation method that you’re contractually bound to use.
Don’t assume the shareholders’ agreement reflects current reality. It might be years old, drafted when the company was very different, or contain a valuation formula that no longer makes sense.
Option Deeds, Buy-Sell Agreements and Insurance Policies
Check whether there are any:
- Options granted to employees or other shareholders.
- Buy-sell agreements funded by life insurance.
- Cross-option agreements (one party can require the other to sell or buy).
These can affect the value or what you can do with the shares.
Loan Agreements and Related-Party Transactions
If the company owes money to related parties (including the deceased), or if the deceased lent money to the company, you need to understand the terms.
Related-party loans can inflate or depress the company’s apparent net asset value. The valuer needs to know whether these loans are genuine commercial debts or effectively capital contributions.
Once you’ve gathered all this, you’re ready to brief a valuer. Give them everything. Don’t hold back documents because you think they’re irrelevant.
Start collecting documents as soon as the death is registered. Tracking down shareholder agreements, old financials and governance records takes time, especially in family companies where record-keeping is informal. The sooner you gather everything, the sooner a valuer can start work.
Role of the Executor: Getting Advice, Managing Risk and Avoiding Disputes
You’re the executor. The shares are in the estate. You need a value, and you need to make decisions about what to do with them.
Here’s how to approach it without exposing yourself to liability or family conflict.
Understand Your Duties
As an executor, you owe duties to the beneficiaries, the court, and the ATO. Those duties include:
- Identifying and protecting estate assets.
- Obtaining proper valuations where necessary.
- Acting in the best interests of the estate, not favouring one beneficiary over others.
- Keeping proper records and being transparent about decisions.
If you ignore those duties, beneficiaries can challenge your conduct and potentially hold you personally liable for losses.
When an Accountant’s Letter Is Enough vs When You Need an Independent Valuation Report
For small shareholdings in closely held companies, where there’s no dispute and the value is relatively clear, you might get away with a letter from the company’s accountant estimating the share value.
But in these situations, you need a proper valuation report:
- The shareholding is significant relative to the estate’s total value.
- There are disagreements among beneficiaries, shareholders, or family members.
- The shares are being sold or transferred to other shareholders or third parties.
- There’s any risk of a family provision claim or challenge to the will.
- You’re dealing with complex structures (trusts, related entities, cross-holdings).
The cost of a valuation report, typically a few thousand to tens of thousands of dollars depending on complexity, is almost always justified by the protection it provides.
Practical Steps to Record Assumptions, Explain Decisions, and Keep a Clear Paper Trail
Do this:
If a beneficiary later challenges your decision, you can point to the paper trail and show you acted reasonably and diligently.
What Happens If You Get the Valuation Wrong?
Getting the valuation “wrong” can mean a few things:
- You under-valued the shares and sold them too cheaply, depriving beneficiaries of value. They might claim you breached your duties.
- You over-valued them for probate or CGT purposes, and the ATO challenges the cost base later.
- You relied on an outdated or inappropriate valuation method, and someone disputes it.
If you obtained a proper valuation from a qualified, independent expert, and you acted on that valuation in good faith, you’re generally protected from personal liability.
But if you cut corners, used a rough estimate when a proper valuation was needed, ignored governance documents, or favoured one beneficiary without justification, you’re exposed.
Can you avoid this risk? Yes. Engage a valuer early, get advice from lawyers and accountants where the situation is complex, and document everything.
Executor liability is not theoretical. If you rush a valuation or ignore red flags, beneficiaries can sue you personally for losses. The antidote is simple: engage qualified advisers, follow their advice, and keep a clear record of your decisions.
Common Pressure Points in Business Families
Private companies in estates are fertile ground for family disputes. Here are the scenarios that tend to blow up.
One Child Running the Company, Others Passive
You see this constantly: Mum or Dad owned 70% of a trading company. One child has been running the business for years. The other children have nothing to do with it.
The will leaves the shares equally to all children, or to the estate to be divided. The active child argues the company is only worth something because of their hard work, and they should get the shares cheaply or be given control. The passive children argue the shares are worth market value and they’re entitled to their share.
The valuer values the shares at, say, $2 million. The active child offers $500,000, saying “that’s generous, given the business would collapse without me”. The passive children say “we’ll take the $2 million valuation, thanks”.
What’s the executor to do?
First, get a proper valuation that accounts for key person risk. If the business genuinely depends on one person, that should reduce the value.
Second, if there’s a shareholders’ agreement or buy-sell clause, follow it. The agreement might specify a mechanism or price.
Third, if there’s no agreement and no consensus, consider whether the company can be sold to a third party or wound up. If neither is realistic, you may need to negotiate a compromise or seek court directions.
Don’t let family pressure push you into under-valuing the shares or giving them away cheaply. Document your reasoning and seek legal advice if the conflict escalates.
Disagreement Over “What the Business Is Worth”
This is common: three beneficiaries, three different views on value.
One says “the company owns a property worth $5 million, so the shares must be worth that”. Another says “but there’s debt, and we don’t control the company”. The third says “the accountant told me it’s worth $2 million, and that’s what we should use”.
Everyone has a number, and nobody agrees.
The solution is to get an independent valuation report. Let the valuer be the referee. Explain to beneficiaries that the valuer is independent, qualified, and using recognised methods. If they disagree with the valuation, they can commission their own expert and the parties can negotiate or seek a court ruling.
But don’t let disagreement over value paralyse the estate. Make a decision based on proper advice and move forward.
Offers from Existing Shareholders or Management That Look Low Compared to the Valuation
The deceased held 30% of a company. The other 70% is held by two people who now run the business. They make an offer to buy the estate’s shares for $X.
You commission a valuation, and it comes in at $2X.
You suspect the offer is low-ball. What do you do?
Negotiate. Share the valuation with them and explain you have a duty to the beneficiaries to obtain a fair price. If they won’t increase the offer, consider whether the company can be sold as a whole or whether you can force a buyout under oppression provisions (though that requires evidence of unfair conduct, not just a low offer).
If the shareholders’ agreement gives them a right of first refusal at a specified price, you may be stuck with that price, but check the agreement carefully and get legal advice.
Don’t accept the first offer just to close the estate quickly. That’s how executors get sued.
Family dynamics and business control rarely align with what’s fair on paper. When one party controls the company and another holds shares, expect tension. Your job as executor is to act impartially, follow proper process, and protect the estate’s interests, even if that makes you temporarily unpopular.
Planning Ahead If You Own a Private Company Now
If you currently own a private company and you’re reading this to understand what your executors will face, listen carefully: you can make their lives vastly easier by doing a few things now.
Tidy Up Governance Documents and Shareholder Arrangements
When did you last look at the company’s constitution? The shareholders’ agreement?
If the answer is “never” or “maybe 15 years ago when the lawyer drafted them”, pull them out and read them.
Do they reflect the current reality of the business? Are the share classes, voting rights, and transfer restrictions still appropriate? Is the buy-sell clause sensible?
If not, update them. Engage a lawyer to review and redraft if necessary.
Do the same with any buy-sell insurance. Is the policy still in force? Does it cover the current value of shares? Has the beneficiary been updated to reflect the shareholders’ agreement?
Tidy governance now means fewer surprises later.
Keep Valuations Current or at Least Document Your Rationale for Value
Consider commissioning a valuation every 3–5 years, or whenever something material changes (e.g. you acquire a major asset, profits double, you bring on a new partner).
If a formal valuation is overkill, at least document how you think about value. Write a note to your executors explaining:
- What method you think is appropriate (net assets, earnings multiple, something else).
- What assumptions you’re making (growth rate, key risks, how to treat related-party loans).
- Any recent transactions or offers that might inform value.
This gives your executors a starting point and shows beneficiaries you thought about the issue.
Make Sure Your Will and Succession Plan Match the Reality of the Company Structure
Your will might say “all my shares to my children equally”. But if there’s a shareholders’ agreement that requires your shares to be sold to the other shareholders on death, those two documents conflict.
Align them. Either amend the will or update the shareholders’ agreement. If you intend one child to take over the business, document that clearly and make sure the governance documents support it.
If you want the shares to stay in the family, consider whether a family trust or corporate structure makes more sense than individuals holding shares directly.
If you do nothing, your executors will be left guessing, and guessing creates disputes.
Consider Tax and Control Together, Not Just Value
Value is only one part of the equation. Also think about:
- Control: Who will control the company after you die? Does your estate need to retain control, or is it fine for others to take over?
- Tax: Are there CGT or stamp duty implications of transferring shares? Can you structure things to minimise tax?
- Liquidity: If your estate is mostly tied up in private company shares, will your executors have cash to pay debts, tax, and legacies? Consider life insurance or other liquidity sources.
Engage an adviser who can look at the whole picture: tax, estate planning, business succession, and family dynamics.
The best estate plans for private companies are done years before death, not weeks. Clean up your governance, document your intentions, align your will with shareholder agreements, and make sure someone competent can step in when you’re gone. Your executors and beneficiaries will avoid months of conflict and cost.
When to Involve Lawyers, Valuers and Tax Advisers
You know the situation is too complex for DIY when:
- The shareholding represents a significant portion of the estate’s value, or the company is large and operationally complex.
- There are multiple shareholders, family members or beneficiaries with conflicting interests.
- The company’s records are incomplete, or its financial affairs are tangled up with related entities and trusts.
- There’s a shareholders’ agreement with buy-sell clauses, or governance documents that restrict what you can do with the shares.
- You’re facing an offer from other shareholders and you’re not sure whether it’s fair.
- There’s any hint of a family provision claim, oppression claim, or dispute about who should control the company.
In those situations, engage:
- A qualified business valuer (forensic accountant or specialist valuation firm) to prepare a formal valuation report.
- A lawyer with experience in estates, companies, and shareholder disputes to advise on governance documents, executor duties, and dispute risks.
- A tax adviser to work through CGT, probate tax, and any income tax issues arising from dividends or distributions.
The benefit of having valuation, tax, and dispute perspectives in the same room early is that you avoid making decisions that solve one problem but create another. For example, rushing a sale to avoid family conflict might lock in a CGT liability that could have been deferred.
Get advice before you act, not after.
If you’re an executor dealing with a private company and you’re feeling out of your depth, trust that instinct. Engage advisers early, before decisions are made or disputes harden. The cost of proper advice is a fraction of the cost of getting it wrong.
Bringing It Together: Clarity, Documentation, and the Right Process
Valuing a private company holding in an estate is not straightforward, but it’s not impossible either.
It requires understanding that you’re valuing shares, not assets. It requires gathering the right documents, financial statements, governance records, shareholder agreements, and engaging qualified advisers where the stakes are high.
It requires recognising that valuation is both technical and strategic: the number matters, but so does how you arrive at it, who you consult, and how you manage family expectations.
If you’re an executor, your job is to act impartially, follow proper process, and document your decisions. Do that, and you protect yourself from liability and give beneficiaries confidence you’ve done the right thing.
If you’re a business owner, your job is to make sure your executors aren’t starting from zero. Tidy up governance, commission valuations periodically, and align your estate planning with the reality of your business.
And if you’re dealing with a dispute, family members who can’t agree, shareholders offering low-ball prices, or beneficiaries questioning the value, get legal advice before things escalate. Disputes about private company valuations are manageable if you involve the right people early.
The pathway isn’t simple, but it is clear. The right advisers, the right documents, and the right process will get you there.
Disclaimer: This article is for general information only and does not constitute legal, tax, or financial advice. Estate and business valuation matters are fact-specific and often complex. You should obtain advice tailored to your circumstances before making decisions about valuations, estate administration, or shareholder disputes.
