Handbook of Business Valuation

By Thomas L. West; Jeffrey D. Jones | Go to book overview

CHAPTER THIRTY-FIVE
Perspectives on Valuing
a Minority Interest in
a Private Company

YALE KRAMER

Appraisal literature is filled with articles, studies, and discussions on the perennially popular topic of the application of control premiums and minority interest discounts in privately held companies. Over the years, legislation, court decisions, and Internal Revenue Service rulings have more often added fuel to the controversies rather than put out the fires. Nevertheless, the debate over this aspect of business valuation has created a healthy theoretical climate, which has spawned useful, practical applications of valuation techniques. Those practical applications that have gained wide acceptance and usage are the focus of this chapter.


What Is a Minority Interest?

The topic “How to value a minority interest” may sound like a candidate for a 1-2-3 step approach; but in valuing privately held companies, the considerations are simply not that simple. The types of minority interest may involve voting or nonvoting stock, restricted or freely transferable stock, a single class of stock or several classes, or it may be stock of a corporation or an interest in a partnership or joint venture.

To keep this discussion to the point, however, while still covering the basic issues, let's assume the particular minority interest under consideration here has these characteristics: It is defined as a stock ownership interest in a private, closely held corporation that consti-

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