Unlike valuing a controlling interest, minority shareholder valuations often involve applying discounts for lack of control (DLOC) and lack of marketability (DLOM). The DLOC reflects the inability of a minority shareholder to influence significant business decisions, such as dividends or strategic direction. The DLOM accounts for the difficulty in selling private company shares quickly, as there is no readily available public market.
These valuations are crucial in various scenarios, including shareholder disputes, estate planning, divorces, and buy-sell agreements. Professionals utilize methodologies like discounted cash flow, market approach (with adjustments for control and marketability), and asset-based approaches to arrive at a fair and defensible valuation. The complexities of state laws and specific shareholder agreements also influence the final assessment.
