Discount for Lack of Control

Owning a controlling stake gives the power to choose management, set strategy, decide on dividends, sell assets or sell the whole company. A minority shareholder has none of these powers, which makes their shares less valuable per share than those of a controlling owner.

The discount for lack of control is the inverse of a control premium. For example, if a control premium of 30% applies, then a minority stake would be valued at roughly 23% less than its share of the controlling value, because 1 divided by 1.3 is about 0.77.

The size of the discount depends on the circumstances. It is larger when the controlling shareholder can act against minority interests, for example by paying high salaries to themselves instead of dividends, and smaller when minority shareholders are protected by strong legal rights or shareholder agreements.

This discount is commonly used when valuing minority stakes in private companies, such as for tax, estate planning or disputes between shareholders. It is often applied together with a discount for lack of marketability, since minority stakes in private companies typically lack both control and an easy way to sell.