MINORITY INTEREST DISCOUNT: 49% VS 50%
The use of discounting to reflect actual market conditions is well established. Buyers/investors will pay less for a non-controlling interest in an investment. It is the purview of a financial valuator to assess the extent of this discount. Known as a DLOC (discount for lack of control), this reduction from pro-rata value is contingent on numerous factors, including any written agreement among the parties.
Most valuators conclude a DLOC for any interest up to and including 50%. But should a 50% interest reflect a lower DLOC than a 49% interest? The key differences between the two follows:
49% Interest (Minority):
- Clearly a non-controlling interest
- Cannot block or direct decisions
- Subject to the will of the majority
- Valuation often reflects a full DLOC, typically in the 15%-35% range depending on facts
50% Interest (Equal Ownership):
- Often referred to as a “blocking interest” or “shared control”
- Can block major decisions if the operating agreement or bylaws require a majority over 50%
- Sometimes has tie-breaking or veto power depending on the governance structure
- The DLOC is lower than for 49%, or even zero, if the 50% owner has effective joint control