How To Work Out Share Price For Startups And SMEs

If you’re running a UK startup or SME, there’ll often come a point where you need to decide what your shares are “worth” - whether you’re raising investment, bringing in a co-founder, issuing shares to an employee, or selling part of the business.

That’s where a lot of founders get stuck. You might know your product is strong and your business is growing, but when someone asks how to work out a share price, it can suddenly feel like you need a finance degree and a crystal ball.

The good news is: you don’t need to overcomplicate it. In practice, share pricing is usually about (1) agreeing a sensible valuation framework for the company, (2) understanding your share structure, and (3) making sure you follow the right legal process and paperwork so the deal actually holds up.

Below, we’ll walk you through practical ways to work out a share price, what “price” even means in different contexts, and the key legal considerations UK businesses should keep in mind.

Why Does Share Price Matter For Private UK Companies?

Unlike public companies, most startups and SMEs in the UK don’t have a live market price for shares. So a share price is usually set by negotiation, supported by a valuation approach that makes commercial sense for your situation.

Getting it right matters because it can affect:

• How much equity you give away for a given amount of investment.
• Tax outcomes (especially when shares are issued to employees, founders, or connected persons).
• Control (e.g. voting power if different share classes exist).
• Founder relationships - nothing strains things faster than “I think my shares are worth X” with no clear basis.
• Future fundraising (your next investors will look closely at what you did last time).

It’s also worth saying upfront: “share price” can mean different things depending on what you’re doing. For example:

• Issuing new shares (allotment): the company sets an issue price and new shares are created.
• Selling existing shares (transfer): a shareholder sells their shares, and the price is agreed between buyer and seller.
• Tax valuations (e.g. employee equity): you may need a valuation basis that HMRC is comfortable with.

How To Work Out Share Price: A Step-By-Step Approach

If you want a practical, founder-friendly way to approach working out a share price, start here. The aim is to get to a number you can explain and document - not just a number you “feel” is right.

Step 1: Be Clear On What Transaction You’re Doing

First, identify the scenario:

• Fundraising: you’re issuing new shares to an investor.
• Co-founder buy-in / exit: someone is buying existing shares from a founder or early shareholder.
• Employee equity: you’re granting options or shares as part of an incentive plan.
• Internal restructure: you’re moving shares between companies or family members.

This matters because the “right” share price might look different depending on whether you’re trying to reflect fair market value, incentivise someone, or meet tax and compliance requirements.

Step 2: Work Out Your Fully Diluted Share Count

Next, you need the right denominator.

Many founders make mistakes by pricing shares off an outdated share count (for example, ignoring option pools, convertible notes, or planned future share issues). If you’re fundraising, investors will often look at a fully diluted basis.

At a minimum, list:

• Total shares currently issued
• Any options already granted (and how many could be exercised)
• Any agreed option pool you’ve promised to create
• Any convertible instruments that may convert into shares

Step 3: Choose A Sensible Company Valuation Method

For private companies, a share price is often derived from a company valuation - but it’s rarely as simple as one formula. The right valuation depends on context (for example, whether you’re issuing new shares, transferring existing shares, or setting a value for tax purposes), plus any special rights attached to different share classes.

Step 4: Translate Valuation Into A Price Per Share

Once you have a valuation and the relevant share count, the maths is often straightforward. A common starting point is:

Indicative Share Price = Company Value ÷ Number Of Shares

Example:

• Pre-money valuation: £2,000,000
• Shares currently issued: 2,000,000 ordinary shares
• Indicative price per share: £2,000,000 ÷ 2,000,000 = £1.00 per share

If you issue 250,000 new shares at £1.00 per share, the investor pays £250,000 (ignoring fees and any special terms).

Step 5: Reality-Check The Outcome

Before you commit to the number, sanity-check it:

• Does it align with recent deals in your sector and stage?
• Does it give away more equity than you intended?
• Does it leave room for future fundraising (without crushing founders)?
• Are there any tax red flags (especially for employee or founder share issues)?

Common Ways To Value A Startup Or SME (So You Can Price Shares)

There’s no single “correct” method for valuing a private company - but there are common approaches that are easier to justify to investors, accountants, and advisers. (This article is general information only, not financial or tax advice. For anything tax-sensitive, it’s worth getting tailored advice and, where appropriate, aligning with HMRC practice.)

If you want a deeper dive on valuation mechanics, How to value your company shares is a useful reference point when you’re pressure-testing your numbers.

1) Recent Investment (The “Last Round” Method)

If you’ve raised money recently, your latest investment price is often the strongest reference point.

Founders and investors commonly use:

• your last round’s pre-money/post-money valuation, and
• the share price paid in that round

This works best when the last round was fairly recent and the business hasn’t changed dramatically since then.

2) Revenue Multiple (Common For SMEs And Some SaaS)

Some businesses use a multiple of revenue, particularly where revenue is predictable (e.g. subscription models).

Example approach:

• Annual recurring revenue (ARR): £500,000
• Comparable multiple: 3x revenue
• Indicative value: £1,500,000

Multiples vary widely by sector and market conditions, so you’ll want to base this on realistic comparables.

3) Earnings Multiple (EBITDA / Profit Multiple)

If your business has stable profits, an earnings multiple may be appropriate.

For earlier-stage startups, profits might be low (or negative), so this method may not reflect growth potential - but for established SMEs, it’s often a practical way to anchor discussions.

4) Asset-Based Valuation (When Assets Are The Story)

For asset-heavy businesses (e.g. property, equipment-heavy operations), valuation might focus on net assets.

This can be less useful for service businesses or tech startups where the real value is in IP, brand, and future earnings.

5) Discounted Cash Flow (DCF) (More “Finance Heavy”, But Sometimes Useful)

DCF values the company based on projected future cashflows, discounted back to present value. It can be persuasive, but it’s also sensitive to assumptions.

If your projections are early-stage or volatile, DCF can become more of a “storytelling spreadsheet” than a reliable pricing tool - so use with care.

Setting Share Price In Real-World Scenarios (Fundraising, Co-Founders, Employee Equity)

Now let’s bring this into the scenarios UK startups and SMEs commonly face.

Working Out Share Price For Fundraising (Issuing New Shares)

In a fundraising round, the share price typically reflects the negotiated valuation, plus the rights attached to the shares being issued.

Be careful here: in private companies, it’s not just about the number. Investors often negotiate for:

• pre-emption rights
• anti-dilution protections
• voting rights
• dividend rights
• drag-along/tag-along rights

Those terms can materially affect “value”, even if the headline share price is the same.

It’s also a point where your Shareholders agreement becomes crucial - because it sets the rules on control, future share issues, exits, and what happens if relationships break down.

Working Out Share Price For A Share Transfer (Buying Or Selling Existing Shares)

If a shareholder is selling existing shares, the company isn’t receiving funds - the seller is. The price is still usually based on a valuation method, but you’ll also need to consider:

• Is there a minority discount? (Minority shareholdings can be worth less per share due to lack of control.)
• Are there restrictions on transfers in the company’s constitution?
• Do other shareholders have pre-emption rights to buy first?

Mechanically, you’ll usually document the sale using a stock transfer form and handle the compliance steps properly. If you’re not sure what’s involved, Share transfer processes are something you’ll want to get right from day one to avoid disputes later.

Working Out Share Price For Employee Equity (Shares Or Options)

When equity is going to employees or consultants, you need to think beyond “what feels fair”. The biggest risks here are usually tax and documentation issues.

Many startups use option schemes because they can be more tax-efficient and easier to manage than issuing shares upfront - particularly for early hires.

If you’re looking at tax-advantaged options, EMI options are a common route for qualifying companies. However, eligibility and tax treatment are fact-specific, and the valuation process needs to be handled carefully - so it’s worth getting tailored tax advice and support with the legal documents before you implement a scheme.

What Legal Documents And Company Approvals Do You Need When Setting A Share Price?

Once you’ve worked out a share price, you need to make sure the company can actually do what you’re proposing - and that you document it properly.

This is where startups often trip up: the number might be fine, but the legal steps haven’t been followed, or the paperwork doesn’t match what was agreed.

Your Articles And Share Rights Matter

Your company’s constitution (the Articles) often sets the rules on:

• how shares can be issued
• whether directors need shareholder authority to allot shares
• pre-emption rights on new issues
• transfer restrictions
• different classes of shares and their rights

Before you quote a share price to anyone, check your Articles of association to confirm the company has the power to issue or transfer shares in the way you’re planning.

Share Issue: Use The Right Subscription Paperwork

If you’re issuing new shares to an investor or a new co-founder, you’ll typically need a document setting out the key commercial terms of the allotment - who is subscribing, how many shares, the price, and when funds are due.

In many cases, that’s handled through a Share subscription agreement, often alongside updated constitutional documents and shareholder arrangements.

Don’t Ignore Shareholder And Board Approvals

Depending on your setup, you may need:

• a board resolution approving the allotment/transfer
• shareholder resolutions (particularly if directors don’t have authority to allot shares, or if you’re disapplying pre-emption rights)
• updated statutory registers (register of members, PSC register where relevant)
• Companies House filings (for example, where shares are allotted)

The legal steps aren’t just admin - they help prevent disputes, protect directors, and ensure your cap table is actually reliable when you need it for investment or exit.

Make Sure Your Shareholder Deal Matches Your Growth Plan

Even if you agree the “perfect” share price today, you’ll want to think about what happens next:

• Will you raise again in 6–18 months?
• Do you want veto rights reserved for founders?
• Are you building an employee option pool?
• What happens if someone leaves the business?

These rules are usually baked into a Shareholders agreement and should be aligned with your long-term plan, not just your immediate funding need.

Key Takeaways

• Working out a share price usually starts with an agreed company valuation and a relevant share count (often on a fully diluted basis), but the “right” figure can vary depending on share rights and the specific transaction.
• Private UK companies don’t have a public market price, so share price is typically negotiated, supported by a valuation method that makes sense for your stage and sector.
• The “right” share price depends on the context - issuing new shares in a fundraising round is different from pricing a shareholder’s share sale or setting a tax-sensitive employee equity value.
• Always check your Articles of association before issuing or transferring shares, so you don’t accidentally breach pre-emption rights or allotment rules.
• For fundraising and new share issues, documenting the deal properly (often through a Share subscription agreement) can help avoid misunderstandings and protect the business.
• If you’re granting employee equity, consider whether EMI options (if you qualify) are more appropriate than issuing shares outright, and make sure valuation and paperwork are handled carefully. This article is general information only, not legal, tax, or financial advice.

If you’d like help working out a share price, issuing shares, bringing in investors, or getting your shareholder documents in order, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.