Equitas Valuation has developed a toolkit that provides detailed, simplified instructions for developing both the discount for lack of control and the discount for lack of marketability based on the attributes of the minority ownership interest.  Equitas is currently offering this toolkit as a free download, with no credit card or other payment required. 

Because of the nuances involved with developing discounts for lack of control and marketability, business appraisers have historically been engaged to develop discounts applicable to transfers of minority ownership interests.  This has become problematic for owners of small businesses, as it is often quite expensive (often costing thousands of dollars) to hire an appraiser to develop discounts for each transfer.

To avoid the cost of hiring an outside appraiser, many accountants have simply estimated a combined discount of 30% to 40% for all minority ownership interests, regardless of the situation.  This is especially dangerous, especially since it appears the IRS has increased its scrutiny of the calculation of discounts for lack of control and lack of marketability. 

Discount for Lack of Control

The toolkit incorporates historical purchase price premiums for over 1,000 acquisitions of public companies to provide a supportable benchmark for lack of control for operating companies.  The benchmark for real estate holding companies is also provided, and this benchmark is based on share price data available for nearly 100 publicly traded real estate investment trusts.  The toolkit provides further guidance on adjusting this discount for the following:

     •  Size of the Minority Interest
     •  Swing Vote Potential
     •  Existence of Majority Owners

Discount for Lack of Marketability

The Equitas Discounts for Lack of Control and Marketability toolkit also provides benchmark discount for lack of marketability, which is based on a number of academic and professional research studies.  The toolkit provides guidance on refining the discount for lack of marketability based on:  

     •  Transfer Restrictions of Minority Interests
     •  Rights of First Refusal
     •  Size of Dividend Yield 

The toolkit includes a single-page summary of all calculations necessary to develop discounts for lack of control and marketability for a minority ownership interest.  As with all Equitas toolkits, no finance education is required to implement the valuation methods provided in the toolkit.

Click here to download the Equitas Discounts for Lack of Controland Marketability Toolkit at no charge