Market value starts with a willing buyer and a willing seller
In Australian valuation practice, market value describes the price that would be agreed between a willing but not anxious buyer and a willing but not anxious seller. Both parties are assumed to be reasonably informed about the business and its prospects, to act prudently, and to deal with each other at arm's length. Neither is forced to transact, and neither has a relationship with the other that would move the price.
The wording comes from long-standing case law rather than a statute, and it is applied in tax, compensation and commercial matters alike. Its meaning is settled; what changes from one matter to the next is the evidence and judgement used to reach the figure.
Market value is always assessed at a specific date. Facts known or reasonably foreseeable at that date are in; later events are generally out. Our guide on the valuation date explains why that boundary matters.
The buyer is hypothetical, not the person across the table
Market value asks what the market would pay, not what one identified buyer has offered. The hypothetical buyer is assumed to have the knowledge, skill and access to finance of a typical participant in the market for that kind of business. Where the real pool of buyers is thin, the report should recognise how that affects price.
This matters because an actual buyer often brings something particular. A competitor might value the customer list more highly, or a family member might pay more to keep an asset in the family. Those motivations are real, but they are not what market value measures.
The actual seller's circumstances are set aside in the same way. A seller who needs cash quickly, or who has fallen out with a business partner, is still assessed as willing but not anxious. The valuation describes the business, not the pressure on the person holding it.
Why the report must state its basis of value
The basis of value is the definition the valuer is applying. If a report does not name it, the reader cannot tell whether the conclusion is market value, a contractually defined value, a formula result or something else. Two competent valuers can reach different numbers for the same shares simply because they were answering different questions.
A clear report states the basis in its opening pages, explains what the basis requires, and applies it consistently through the analysis. Where an instruction or agreement defines the basis in its own words, the report should quote that wording and follow it. If the wording is unclear, ask your lawyer before the valuation starts rather than leaving the valuer to guess.
Market value, fair value and a strategic price are different questions
Fair value under a shareholder agreement is whatever the agreement says it is. Some agreements define it as a proportionate share of the whole company with no discount for a minority holding. Others adopt market value by name, or set out a formula. The word "fair" does not carry a single fixed meaning.
A strategic buyer's price includes benefits that only that buyer can obtain. It can sit well above market value and is legitimately what a seller might achieve in a negotiated sale. It is not the number a reviewer of a tax matter or a related-party transfer expects to see.
How three common measures of value differ
| Measure | Who the buyer is | Where it is typically used |
|---|---|---|
| Market value | A hypothetical, informed, arm's length participant | Tax matters, restructures, related-party transfers, many disputes |
| Fair value under an agreement | Whoever the agreement's definition describes | Buy-sell clauses, shareholder exits, constitutions |
| Strategic buyer's price | One identified purchaser with particular synergies | A negotiated sale of the business |
The measure that applies depends on the purpose. A report prepared on one basis should not be reused for a purpose that requires another without a fresh look at whether the conclusion still holds. Our guide on business valuation versus sale price takes this further.
Why tax and related-party transfers usually call for market value
When a business, its assets or its shares move between related entities, there is no independent negotiation to set the price. Tax provisions commonly look to market value rather than the figure the parties recorded, and a reviewer will want to see how that market value was reached. The same applies to restructures where value moves between a company, a trust and the individuals who control both.
Which rules apply, and what they require, is a matter for your tax adviser. The valuer's task is narrower: to assess market value at the transaction date on the evidence available then, and to document the method and assumptions so that a reviewer can follow the reasoning. A report cannot bind the ATO or any other reviewer, but it can make the conclusion transparent. The tax and restructure valuation service is built around that requirement.
What evidence supports a market value conclusion
The strongest evidence is what the market has actually done. Recent arm's length transactions in the business itself, offers received from unrelated parties and sales of comparable businesses all carry weight, provided the report explains how comparable they are. Older or dissimilar transactions carry less and should be handled with care.
Where transaction evidence is limited, the analysis turns to the business's own record: several years of financial statements, an assessment of maintainable earnings, the balance sheet at the date and a reasoned view of risk. The report should show the working, including how earnings were normalised and why the chosen capitalisation rate or multiple was considered appropriate. A figure asserted without that reasoning is an opinion, not evidence.
Before you commission a market value report
Confirm the purpose, the exact asset or interest, the valuation date and who will rely on the report. If an agreement or instruction defines the basis of value, send the wording with the financial statements rather than summarising it. Ask the valuer to confirm in writing that the report will state its basis and will suit the recipient you have in mind.
Valuation Group is based in Double Bay, Sydney, and prepares market value reports for owners and their advisers Australia-wide. Standard signed reports start from $1,495 + GST for suitable, straightforward matters, with a draft typically ready 5 to 7 business days after all requested information is received. The first conversation is free, so contact Jackson Wilson to discuss what your matter requires.
Apply it to your matter
A clear scope is the next step.
Discuss the business, purpose, valuation date and intended user with Jackson Wilson. Valuation Group is based in Double Bay and takes enquiries from Sydney and Australia-wide.
General educational information. Examples are hypothetical and do not value a real business. The appropriate treatment depends on the purpose, evidence and agreed scope.