Determine the market value of shares
A start-up company wishing to make an offer of employee share scheme (ESS) interests under an ESS need to determine the market value of its shares to show that it satisfies the conditions of the start-up concession.
Our legislative instrument LI 2025/19: Methods for Valuing Unlisted Shares for the Employee Share Scheme start-up concession provides approved market valuation methods you can use. If you choose to use one of these methods, you have the certainty that we will accept the valuation (referred to as a 'safe-harbour' valuation).
The approved market valuation methods can be used for:
- ESS interests that are in the form of shares – showing that the discount doesn't exceed 15% of the market value of the share at the time it is acquired.
- ESS interests that are in the form of options – showing that the exercise price of the options is at least equal to the market value of the underlying shares when the option is acquired.
Safe harbour methods
The legislative instrument sets out 2 safe harbour methods.
Method one – Comprehensive method
This method allows a company’s Chief Financial Officer or a qualified independent valuer to determine the market value of shares. This valuation must take into account a range of commercial and financial factors, including the company’s assets, market comparables, control premiums, discounts for lack of marketability, key person risks, and projected future cash flows. To ensure governance and transparency, the valuation must be formally endorsed by the company’s board through a written resolution.
Method two – Net tangible asset method
This method offers a simplified approach based on the company’s net tangible assets. This option is only available to companies that meet specific eligibility criteria, such as not having raised more than $10 million in capital over the past 12 months, being either not more than 7 years old or classified as a small business entity, and having prepared or intending to prepare a financial report for the relevant year.
Under this method, the company calculates its net tangible assets, adjusts for any preference share obligations, and divides the result by the number of relevant shares on issue.
Using an alternative valuation method
The legislative instrument recognises that companies may sometimes use a valuation method that differs from the 2 approved methods outlined in the instrument. You will still be protected under the instrument if you use an alternative method as long as it produces a market value that is not less than the value that would have resulted from using an approved method that you were eligible to lose.
This flexibility ensures that companies are not penalised for using a more conservative valuation approach, provided it results in a higher or equivalent value. For example, if a company uses a method tailored to its specific circumstances – such as a discounted cash flow model or a valuation prepared for capital raising purposes – and that method produces a higher value than either method one or method two, the valuation will still be considered compliant.
For more information see: