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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.
Our firm provides the information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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