Skip to content
  • There are no suggestions because the search field is empty.

How to Summarize Your Company's Valuation for a New Subsidiary

Summary: This article provides guidance on how to summarize your company's valuation in a memo or when asked, particularly for a newly established subsidiary that has not yet commenced operations.

Approaches to Summarizing Company Valuation

When summarizing your company's valuation, especially for a newly incorporated entity that has not yet made sales or processed transactions, consider the following approaches:

1. Nominal or Par Value

  • Reference the amount of initial investment or the par value of shares issued.
  • Example statement: “The current value is equal to the total paid-in capital of $X, which reflects founder funding and no operating activity to date.”

2. Book Value Approach

  • If any assets have been transferred into the company, use the book value, which is the sum of assets minus liabilities.

3. Minimal or Zero Value

  • It is acceptable to state that there is “no current commercial valuation” or that the current valuation is “nominal,” since there has been no revenue and the entity is pre-operational.

4. Reference the Transfer Pricing Study

  • If applicable, mention that a transfer pricing study is being prepared. This indicates that you are addressing compliance requirements professionally.
  • Example statement: “We are in the process of preparing a formal transfer pricing study in consultation with our legal advisors to ensure arms-length compliance for future intercompany arrangements.”

Example Summary for a Memo

Here’s how you might summarize this in your memo or when asked: “The newly incorporated U.S. subsidiary is wholly owned by the Israeli parent company. As of this date, the U.S. entity has not commenced sales activities and has not processed any transactions or revenue. Its current valuation reflects the paid-in capital by the parent and any nominal expenses incurred. We are in the process of preparing a formal transfer pricing study in consultation with our legal advisors to ensure arms-length compliance for future intercompany arrangements.”

Additional Recommendations

  • If asked by an accountant or regulatory authority, providing the transfer pricing memo once completed will further validate your approach.
  • For corporate filings, use the minimal actual value reflected in your books unless otherwise instructed by your accountants or legal counsel.
  • It is advisable to consult with a qualified CPA for a more secure approach and deeper insights into your situation.

Conclusion

Summarizing your company's valuation effectively involves clearly stating the current financial position, referencing any relevant studies, and ensuring compliance with regulatory requirements. This structured approach will help convey the necessary information accurately and professionally.