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More Thoughts on the Discount for Lack of Control

In valuing a non-controlling interest, a valuation analyst may start with a control value and often reduces that amount by an estimate for the discount for lack of control. Yet, such a discount is not necessarily applicable in all valuations of non-controlling interests. All valuation discounts must be based on the facts and circumstances of the individual case; where the controlling owner is abusing his power to the severe detriment of the non-controlling owner(s) (i.e., large salary and perks, self-dealing, etc.), the discount for lack of control could be significant. However, if the controlling owner is operating the business “lean and mean,” it may well be that the non-controlling owner is not being harmed by not being the one in control. In this case, the discount for lack of control, if any, could be small.

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