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Registered Valuer vs Merchant Banker – Which one do you need?

Registered Valuer vs. Merchant Banker: The Complete Valuation Guide for Startups

In the world of Indian fundraising, “Valuation” is the most important word. But when a founder says they need a valuation report, the next question is always: Which one? In India, two different professionals handle valuations for two different regulators. If you get the wrong one, the Registrar of Companies (ROC) or the Tax Department will reject your filings.

1. What is the Difference?

The main difference lies in the Law that requires the report.

  • Registered Valuer (RV): Regulated by the IBBI (Insolvency and Bankruptcy Board of India). You need this to comply with the Companies Act, 2013.

  • Merchant Banker (MB): Regulated by SEBI (Securities and Exchange Board of India). You need this to comply with the Income Tax Act, 1961.

FeatureRegistered Valuer (RV)Merchant Banker (MB)
Governing LawCompanies Act, 2013.Income Tax Act, 1961.
Primary RegulatorIBBI.SEBI.
Mandatory ForIssuing shares, mergers, and buybacks.Raising funds at a Premium (Angel Tax).
Methods UsedNAV, DCF, or Market Multiple.DCF (Discounted Cash Flow) is mandatory for tax protection.

2. When is a Registered Valuer Report Mandatory?

You cannot issue a single share in India without an RV report if you are doing a Private Placement. Under Section 247 of the Companies Act, an RV report is required for:

  • Fundraising: Issuing Equity, CCPS, or CCDs to new investors.

  • Non-Cash Issues: Giving shares in exchange for assets or “Know-how” (Sweat Equity).

  • Mergers & Acquisitions: To determine the fair value of companies joining together.

  • Buybacks: When the company wants to buy back shares from shareholders.

3. When is a Merchant Banker Report Mandatory?

The Merchant Banker report is all about Tax. Under Rule 11UA of the Income Tax Rules, you need this report to avoid “Angel Tax”.

  • Issuing Shares at a Premium: If your share’s face value is ₹10 but you sell it for ₹100, the Tax Department wants to know why. Only a Merchant Banker’s DCF report is legally accepted to justify that premium.

  • Share Transfers: When unlisted shares are sold between parties at a premium, an MB report ensures the transaction is at “Fair Market Value” so no one gets a tax notice.

4. Steps to Get Your Valuation Done

We manage both these reports in a single, unified process so you don’t have to talk to two different firms.

  1. Data Collection: You provide the last 3 years of audited financials and 5-year projections.

  2. Assumption Building: We help you build the “story” behind your numbers (Growth rates, Attrition, etc.).

  3. Method Selection: We choose the best method (usually DCF) that satisfies both the RV and MB.

  4. Drafting & Review: We share a draft with you to ensure the valuation reflects your business reality.

  5. Final Issuance: The RV and Merchant Banker sign the final reports for your ROC and Tax filings.

5. Documents & Timeline

  • Documents Needed: PAN/TAN, Incorporation Certificate, Audited Financials, and 5-Year Business Plan.

  • Time Needed: * RV Report: 4–5 business days.

    • MB Report: 8–10 business days.

  • Validity: A valuation report is generally valid for 90 days from the date it is issued.

6. Common Mistakes Founders Make

  • Using a CA for Everything: While Chartered Accountants are great, they are no longer authorized to issue these specific valuation reports for fundraising. Only RVs and MBs can do it.

  • Mismatched Dates: The “Valuation Date” in your RV report and MB report must align. If they don’t, your tax assessment could fail.

  • Aggressive Projections: If your projections are too high and you don’t meet them, the Tax Department may question the validity of the report later.

7. What are the charges to get the registered valuer and the merchant banker report

  • The registered valuer report gererally costs from Rs 35000
  • The Merchant Banker report generally costs Rs 75000

FAQ

Q: Do I need both reports for a seed round?

A: Yes. You need the RV report for the ROC filing (Companies Act) and the MB report to protect your company from Angel Tax (Income Tax Act).

Q: Is a valuation needed for Convertible Notes?

A: No. One of the biggest advantages of Convertible Notes is that they do not require a valuation report at the time of raising money.

Q: What is the cost difference?

A: RV reports are generally more affordable (starting around ₹25,000), while Merchant Banker reports are more complex and expensive (starting around ₹65,000).

Would you like me to move on to the blog for “Gratuity and Leave Encashment Valuations” next?

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