3.18: Non-voting shares

Many companies have an ownership structure that includes both voting shares and non-voting shares. Technically voting shares control the company and non-voting shares do not. This suggests that when the en-bloc value of the company is allocated, non-voting shares should have less value than the voting shares. It is possible that some non-voting shares, especially those with no history of receiving dividends, have no value.

As with many other aspects of valuation reports, however, there is a need to look deeper before allocating the en-bloc value. There may be a shareholders’ agreement that overrides the stated terms of the shares such that non-voting shareholders still have influence, albeit that it may be confined to specific issues. Sometimes the company may be managed equally by all the shareholders without regard to their legal rights. There may be a history of paying dividends to the non-voting shareholders in line with, or more than, amounts paid to the voting shareholders. Family law rules may determine that, notwithstanding that one spouse has the voting shares and the other the non-voting shares, the en-bloc value should nonetheless be shared equally.

Non-voting shares do not vote; this does not mean they have no value.

A CBV will always look at the actual rights and influences of the different share classes before allocating the en-bloc value of the company. Depending on the circumstances, the non-voting shares may command a higher value than their lack of legal control suggests.

Ensure that MVI is aware of all the rights and privileges of the different share classes in your company before the valuation engagement is complete (especially if such rights are not apparent from the company’s financial and legal documents).