Start with the interest, not the percentage
The starting point is to identify the specific interest being valued. A 25% shareholding may have very different economic characteristics depending on voting rights, board representation, dividend policy, transfer restrictions, and the terms of any shareholdersʼ agreement.
The valuation should distinguish between:
The value of the company as a whole.
The value of a controlling interest.
The value of a minority or non-controlling interest.
The value of a specific shareholderʼs interest, including its contractual rights and restrictions.
A percentage ownership is only one input. The shareholderʼs actual ability to participate in cash flows, influence governance, and exit the investment is what determines economic reality.
1. Understand control in the specific company
Control is not determined solely by whether a shareholder owns more than 50%. It depends on the companyʼs governance structure and the rights attached to the interest.
Relevant considerations include:
Voting rights and quorum requirements.
Board composition and appointment rights.
Reserved matters requiring shareholder approval.
Rights to appoint or remove directors.
Dividend and distribution policy.
Ability to approve budgets, financing, or asset sales.
Veto rights over major decisions.
Shareholder agreements and restrictive covenants.
A shareholder holding less than 50% may still exercise meaningful influence through veto rights, board representation, or contractual protections. Conversely, a majority shareholder may face limits on control if key decisions require supermajority approval.
2. Distinguish control from marketability
Two adjustments are often considered when valuing minority interests: a discount for lack of control and a discount for lack of marketability. They address different economic characteristics and should not be treated as interchangeable.
Adjustment | Economic issue addressed |
Typical question |
Discount for lack of control | Ability to direct the business | Can the shareholder influence strategy, management, dividends, or major decisions? |
Discount for lack of marketability | Liquidity and ability to sell | Can the interest be sold readily, and at what transaction cost or time delay? |
A discount for lack of control reflects the absence of decision-making power. A discount for lack of marketability reflects restrictions or friction in converting the interest into cash.
3. Apply discounts only where appropriate
Discounts should not be applied mechanically. Their relevance depends on the applicable standard of value, the governing law, the terms of any shareholder agreement, and the facts of the dispute.
Under a fair market value standard, discounts for lack of control or marketability may be relevant where the evidence supports them. Under a fair-value standard in certain shareholder buyout or dissenting-shareholder contexts, the governing law may limit or exclude such discounts.
Before applying a discount, the valuer should establish:
The applicable standard of value.
The legal framework governing the dispute.
The shareholderʼs contractual and statutory rights.
Whether the interest is controlling or non-controlling.
Whether transfer restrictions or liquidity constraints exist.
Whether the evidence supports the size of any adjustment.
4. Use evidence to support the adjustment
International Valuation Standards recognise that discounts for lack of control and lack of marketability may be quantified using reasonable methods. Marketability discounts are commonly informed by restricted-stock studies, pre- and post-IPO studies, or option-pricing approaches. Control premiums and discounts for lack of control are often informed by observed acquisition premiums for controlling interests.
However, empirical studies are not automatically transferable to every dispute. The valuer should consider:
Whether the study population is comparable to the subject interest.
Whether the study reflects the same level of value.
Whether the study period is relevant to current market conditions.
Whether selection bias or other limitations affect the evidence.
Whether the companyʼs own transfer restrictions and shareholder rights support the adjustment.
A discount should be supported by a reasoned link between the evidence and the facts of the interest being valued.
5. Consider whether the discount is already embedded
The level of value used in the primary valuation analysis matters. If the valuation is based on minority-level market evidence, applying an additional minority discount may double count the same economic characteristic.
For example, guideline public company multiples often reflect minority trading prices. If those multiples are applied to a minority interest, a further discount for lack of control may not be appropriate unless the facts and valuation framework support it.
Similarly, if cash flows are modelled at the shareholder level, reflecting restricted distributions or limited exit rights, a separate shareholder-level discount may already be partly reflected in the analysis.
6. Reflect contractual rights in the analysis
Shareholder agreements can materially alter the economics of a minority interest. A minority shareholder with tag-along rights, put rights, dividend protections, board representation, or veto rights may have a more valuable interest than the ownership percentage alone suggests.
Conversely, transfer restrictions, compulsory transfer provisions, non-compete obligations, or restrictions on information access can reduce the value of an interest. The valuation should assess these rights as they affect expected cash flows, risk, and exitability.
7. Communicate the economic reality
A minority-interest valuation should explain the economic reality behind the conclusion. The report should identify the interest, describe its rights and restrictions, explain the level of value, and state clearly whether discounts or premiums have been applied and why.
A well-supported report should address:
The standard and date of value.
The ownership interest and its rights.
The companyʼs governance and distribution policy.
The treatment of control and marketability.
The evidence supporting any discount or premium.
The relationship between the company-level value and the shareholder-level conclusion.
Closing perspective
Valuing a minority interest in litigation requires more than applying a percentage to a company-level value. It requires an assessment of control, contractual rights, liquidity, the applicable standard of value, and the evidence supporting any adjustment.
The central question is not simply, “What percentage does the shareholder own?” It is, “What economic rights and constraints attach to that ownership interest, and how do they affect value under the applicable legal framework?”