The short answer, explained
Disputes about price on a buyout often turn on questions the agreement did not answer, not on the valuer's arithmetic. Typical questions are whether the departing holder's 25% is worth 25% of the company, which date the value is struck at, whether a shareholder loan is part of the price, and who chooses the valuer when the parties cannot agree. Each unanswered question becomes a point of argument at the moment the parties are least likely to agree.
This checklist is for the drafting stage. It sets out what a valuation clause should specify so the clause can operate without fresh agreement. For a buyout under an agreement that already exists, Oliver Group, the Valuo practice for restructures, tax and shareholder buyouts, explains the process in how to buy out a business partner, and our guide to preparing for a shareholder or partner buyout covers what both sides should gather.
The drafting checklist
Draft the clause in four blocks, basis first
Basis
Standard of value, the interest valued, discounts, premiums and special value.
Date and inputs
The valuation date, the accounts used, later events and loan accounts.
The valuer
Qualifications, independence, appointment fallback, role, process and reasons.
Running the clause
Costs, non-cooperation, payment terms and updating any fixed price.
| No. | Item | What the clause should specify | The dispute if it is silent |
|---|---|---|---|
| 1 | Trigger events | Which events start the mechanism (death, incapacity, retirement, breach, deadlock, voluntary exit) and which pricing basis applies to each | Whether a basis written for one trigger applies to another |
| 2 | Standard of value | The standard in words, for example market value between a willing but not anxious buyer and seller. See market value, fair value and special value | Whether "fair value" or "fair market value" means market value, pro rata value or something else |
| 3 | Interest valued | Whether the price is a proportion of the value of all the shares, or the value of the parcel itself, and the class of shares | Whether a 25% holding is worth 25% of the company |
| 4 | Discounts and premiums | Whether any discount for a minority interest or lack of marketability applies, and whether any premium for control applies | Whether the valuer may apply a discount, and how large |
| 5 | Special value | Whether any value the remaining holders gain by consolidating ownership is included or excluded | Whether the buyers must pay for their own synergies |
| 6 | Valuation date | A precise date tied to the trigger (for example the date a notice is given or the date of death) | Whether trading after the trigger, good or bad, belongs to the buyer or the seller |
| 7 | Information and accounts | Which accounts the valuer uses (for example the last audited or reviewed accounts plus management accounts to the valuation date) and whether events after the date may be considered | Whether the valuer may rely on later results |
| 8 | Loans and other balances | Whether loans between the company and the departing holder are settled separately at face value, and how other amounts owed are treated | Whether a loan is double counted or left out. See shareholder loans |
| 9 | Valuer qualifications and independence | The qualifications, experience and independence required; no prior work for either party within a stated period, if wanted | Whether the chosen valuer is suitable or conflicted |
| 10 | Appointment | A period for the parties to agree, then an independent appointing person, with a time limit | A stalled process because one party will not agree a name |
| 11 | Role and finality | Whether the valuer acts as an expert or an arbitrator, and whether the determination is final and binding except for manifest error (the legal effect is for the drafter) | Whether, and on what grounds, the determination can be challenged |
| 12 | Process | Written submissions from each party, access to records and management, a draft for comment on factual matters, and a timetable | Complaints that a party was not heard or a document was missed |
| 13 | Reasons | Whether the valuer must give written reasons and show the calculation | A bare number that neither party can test |
| 14 | Costs | Who pays the valuer, for example equally, or by the party whose figure was further from the result | Arguments about costs on top of the price |
| 15 | Non-cooperation | What happens if a party does not provide information or sign the engagement, for example the valuer proceeds on the information available | A clause that cannot run without both parties |
| 16 | Payment terms | Timing, instalments, interest on unpaid amounts and security | A price that is agreed but cannot be funded |
| 17 | Review of fixed prices | If an agreed value or formula is used, how often it is updated, and a fallback to valuation if it has not been | A stale figure years after the last update |
| 18 | Effect of the trigger | Whether the value reflects the loss of the departing holder (for example on death or incapacity), and how insurance proceeds received by the company or holders are treated | Whether a key-person loss lowers the price, or insurance money is counted twice |
| 19 | Dividends before completion | Whether dividends declared or paid between the valuation date and completion belong to the departing holder or the buyers, and whether the price is adjusted for them | Whether a dividend is paid out of value the buyers have already paid for, or a holder misses a dividend they expected |
Worked example: the same holding, three prices and a loan
This example is hypothetical. The figures are round numbers chosen to show how drafting choices change the result.
A company's shares, valued as a whole after deducting all its liabilities, including a $100,000 loan from the departing shareholder, are worth $2,400,000 at the date the departing shareholder gives notice. The departing shareholder holds 25% and that loan is repayable to them. By the date the transfer completes, trading has improved and the whole company is worth $2,600,000.
The same 25% holding is priced at $480,000, $600,000 or $650,000
- Market value of the parcel, notice date (assumed valuer conclusion)$480,000
- 25% of all the shares, notice date, no discount$600,000
- 25% of all the shares, completion date, no discount$650,000
With the loan repaid separately, the departing shareholder receives $700,000
- Shares: 25% of $2,400,000$600,000
- Loan to the company repaid at face value+$100,000
- Total received$700,000
Check: 25% of $2,400,000 is $600,000; 25% of $2,600,000 is $650,000; the date choice alone moves the price by $50,000 ($650,000 less $600,000); $600,000 plus $100,000 is $700,000.
The $480,000 figure is an assumption, not a standard discount: whether a parcel's value differs from its pro rata share depends on its rights and the evidence, as explained in whether a minority shareholding is worth its percentage. A drafter who chooses the wording in advance removes the argument.
The loan is a separate trap. If the clause is silent, one party may say the $100,000 is already reflected in the share value and the other that it must be repaid on top. The loan should be counted once: either deducted as a company liability in valuing the shares and repaid separately at face value, as in the second diagram, or treated as part of the equity and not repaid. The clause should say which. The enterprise to equity value calculator shows where a shareholder loan sits in the bridge.
When the clause does not resolve the dispute
The Corporations Act 2001 gives the Court power, under section 233, to make orders where the conduct of a company's affairs, or an act, omission or resolution, is contrary to the interests of the members as a whole or is oppressive, unfairly prejudicial or unfairly discriminatory against a member (section 232). The orders the Court can make include an order for the purchase of any shares by any member (section 233(1)(d)). Section 234 sets out who may apply. Those proceedings can be costly and take time, and the price question is then decided by the Court on the evidence. A clause that answers the checklist questions reduces the room for that kind of dispute. How a clause interacts with those remedies is a legal question for the drafter.
Tax points to flag
A transfer of shares between related parties may be a non-arm's length transaction for tax purposes, and the ATO's guide to market valuation for tax purposes notes that market value is used where assets are transferred to a related party. The price agreed under a clause is not automatically the market value for tax. Capital gains tax, Division 7A on loans, and any small business concessions are for each party's tax adviser; the clause can require the valuer to state the basis adopted so the tax advisers can see what was valued.
Limitations
- This checklist addresses valuation mechanics only. It is not a precedent clause and not legal advice on drafting, enforceability or the effect of particular words.
- No reported decisions are summarised here. The drafter should consider the case law on valuation clauses and expert determination in the relevant jurisdiction.
- Trusts, partnerships and unit trusts have their own documents and rules; the same questions apply, but the terms differ.
- A well drafted clause reduces disputes but cannot remove judgement from a valuation; reasonable valuers can still differ within the agreed basis.
Next steps
- Use the table as a review list for an existing agreement and mark each item as answered, partly answered or silent.
- Settle the standard of value and interest wording first, then the date, discounts and loans.
- Agree the appointment mechanism, process and costs so the clause runs without fresh agreement.
- Ask each shareholder's tax adviser to review the price mechanism before the agreement is signed.
Questions
Is a fixed price or formula better than a valuation?
A fixed price is simple but goes stale as the business changes, and a formula can produce odd results in unusual years. If either is used, include a mechanism to update it and a fallback to a valuation if it has not been updated within a stated period.
Should the clause name a particular valuer?
Naming one firm risks the firm being unavailable, conflicted or no longer suitable when the clause is triggered. A drafter can instead state the qualifications and independence required, an agreement period, and an independent person who appoints if the parties do not agree.
Does a valuation clause stop a shareholder applying to court?
This page does not give legal advice on that question. The Corporations Act gives the Court power to make orders, including for the purchase of shares, where the conduct of a company's affairs is contrary to the interests of the members as a whole, or oppressive, unfairly prejudicial or unfairly discriminatory. A clear clause reduces the scope for a dispute about price.
Should the same rules apply on every exit?
Not necessarily. Agreements can treat death, incapacity, retirement, breach and voluntary exit differently. If the price differs by trigger, the clause should say which basis applies to each.
Sources
- Corporations Act 2001 (Compilation No. 149, 19 September 2026), Volume 1, Federal Register of Legislation. s232 grounds (conduct contrary to the interests of members as a whole, or oppressive, unfairly prejudicial or unfairly discriminatory); s233(1)(d) the Court may order the purchase of any shares by any member; s234 who may apply.
- Market valuation for tax purposes, Australian Taxation Office (Legal database). Ordinary meaning of market value (willing but not anxious parties); market value disregards value to a specific purchaser; instructions to a valuer should secure independence, access to records and a fee that does not depend on the outcome; market value is used where assets are transferred to a related party (Example 3).
Cite or reuse this page
Valuo Insights team (2026). Shareholders agreement valuation clauses: a drafting checklist. Valuo. https://valuo.com.au/insights/shareholders-agreement-valuation-clause-checklist/ (updated 14 November 2026).
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General educational information, not financial, tax or legal advice. Worked examples are hypothetical and do not value a real business. A valuation depends on its purpose, the evidence and the agreed scope.