When Do Marketability Discounts Apply to Controlling Business Interests?

ARTICLE | October 29, 2024

Authored by Vasquez + Company

Marketability discounts often apply to minority interests, but recent cases highlight situations where controlling interests might also warrant these discounts. The article, “Can Marketability Discounts Apply when Valuing Controlling Business Interests?”, examines the controversy surrounding these discounts and explores factors impacting their application and size.

Key Points:

• Minority Interests: Marketability discounts are well established for noncontrolling interests in closely held businesses, with discounts often between 30% and 45%.
• Controlling Interests: While contentious, some experts argue that even controlling interests may justify a smaller marketability discount due to the time and cost of selling a business.
• Judicial Precedent: Recent case law, such as an Iowa court's affirmation of a 10% discount in a divorce valuation, offers perspective on applying these discounts fairly.
• Professional Judgment: Given the nuanced factors, marketability discount decisions are complex and vary by case.

Understanding when and how to apply marketability discounts is essential for equitable business valuations.

For a deeper look, read the full article here.

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