When transferring a company—whether between related parties, within a group, or as part of a restructuring—it is necessary to determine the company’s value in a way that is defensible from both an accounting and tax perspective. In practice, complex expert appraisals are often not performed. For smaller companies with limited assets or no operating profit, a significantly simpler approach is possible.
In this article, we will show you how to perform such a valuation practically, quickly, and in accordance with the requirements of the tax authorities.
Why Create a “Company Value as of the Transfer Date” Document in the First Place?
In transactions between related parties, the tax authorities regularly check whether the price corresponds to arm’s- length terms. In practice, this is a simple test:
✔ Does the transfer price make economic sense?
✔ Can both the seller and the buyer justify it?
✔ Is there credible supporting documentation for the price?
The internal document “Company Value as of the Transfer Date” serves as a record that both parties made a rational decision based on the company’s actual economic reality.
How to do it: A 4-step process we use for clients
1) Describe the company’s financial situation
A brief overview is usually sufficient:
- the company’s business activities,
- whether the company is active or inactive,
- whether it has been operating at a loss for a long time or is not generating revenue,
- whether it has significant assets or not.
This description helps explain why the value is low or zero—which is very common for small businesses.
2) Map out the company’s assets
Assets typically include:
- cash,
- accounts receivable,
- any other assets (small inventory, software, equipment).
As a general rule in the market, if a company has neither operating value nor assets, its market value is minimal.
3) Sum up liabilities
Liabilities may include:
- liabilities to suppliers,
- liabilities to partners,
- loans,
- intra-group liabilities.
In the case of our client Doris, for example, a liability arose based on shared costs between Plan A and Vigilante—an Excel spreadsheet and an email agreement suffice as adequate documentation.
4) Calculate the Net Asset Value
The methodology is simple:
Company Value = Assets-Liabilities
If liabilities exceed assets, the value is negative.
If they are roughly equal, the value is close to zero.
For many smaller companies, this method is the most logical—the company has no goodwill, generates no profit, and its value is determined purely by the ratio of assets to liabilities.
Practical example: what the document might look like
For the transfers of companies we work with, the document typically includes:
- Purpose – why the document is being prepared
- Basic information about the company
- Selection of valuation methodology
- Table of assets
- Table of liabilities
- Calculation of net value
- Conclusion and transfer price recommendation
The document is typically only 1–2 pages long –that is perfectly sufficient.
Can the purchase price be paid solely by set-off? Yes.
A very common question regarding business transfers is:
Does a payment actually have to take place between the parties?
No.
If the buyer has a liability or receivable owed by the seller’s company, the purchase price can be settled purely on an accounting basis through a set-off.
This is a tax- and legally sound, standard, and often the simplest solution.
When does a simplified valuation make sense?
This approach is particularly suitable for companies that:
- do not have significant assets,
- have been operating at a loss for a long time,
- are not actively operating,
- are not the target of an external investor,
- are being transferred within a group or among shareholders.
If a company is being sold on the open market, a more comprehensive methodology (DCF, market multiples, expert opinion) would typically be used. However, this is not necessary for internal transfers.
Conclusion: A simple valuation is often the most sensible choice
Determining a company’s value does not have to be complicated-especially if the company:
- has no significant operational value,
- operates within a group,
- and the transfer is purely technical in nature.
In such cases, the simple Assets –Liabilities method is entirely sufficient and is commonly accepted by tax authorities, especially if there is high-quality supporting documentation (Excel, internal audit, emails).
If you need help preparing the document, we would be happy to handle the entire process for you.
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