Valuing shareholdings

Minority Shareholder Discounts

The possibility of the value of any minority shareholding being discounted for the very fact that it is only a minority shareholding is discussed under the "Selling Your Shareholding" section.

Obviously, the question of a discount does not arise where the shareholding to be valued is a majority shareholding.

In most cases where a minority shareholder wishes to voluntarily sell his shareholding in a company, a discount will be applied to reflect the fact that the shareholding does not represent a majority (and therefore does not enable the owner to control the company).

However, where a minority shareholder is in effect being "forced" to sell his shares or is left with no alternative but to force the majority shareholder to purchase his/her shares, it may well be inappropriate for any valuation to "punish" the minority shareholder by applying a discount.

Most commonly, this situation will arise during the course of a dispute between shareholders in a small limited company.

Where a minority shareholder is forced to resort to legal proceedings against a majority shareholder (see the "Shareholder Disputes" section), he or she will normally seek an order of the court that the shareholding should be bought at a full value, namely without any discount being applied for the fact that it is a minority shareholding.