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    • Home
    • About Us
    • Valuation Services
      • Business and Stock
      • Discount Studies
      • ESOP Valuations
      • Fairness Opinions
      • ASC 805
      • ASC 350 - Intangibles
      • Intangible & IP Assets
      • Transfer Pricing
      • 409A Stock Options SARS
      • ASC 360
      • Cost Segregation Study
      • Machinery and Equipment
      • Real Estate
      • Feasibility Study
      • Insurable Value
      • Franchise Valuation
      • Racetracks
      • Golf Course Valuation
    • M&A Advisory
      • M&A Advisory
      • Sell Side
      • Buy Side
      • Valuation
    • Clients Served
    • Contact
    • Leadership Team

(847) -776 -1976

Cambridge Partners & Associates

Signed in as:

filler@godaddy.com

  • Home
  • About Us
  • Valuation Services
    • Business and Stock
    • Discount Studies
    • ESOP Valuations
    • Fairness Opinions
    • ASC 805
    • ASC 350 - Intangibles
    • Intangible & IP Assets
    • Transfer Pricing
    • 409A Stock Options SARS
    • ASC 360
    • Cost Segregation Study
    • Machinery and Equipment
    • Real Estate
    • Feasibility Study
    • Insurable Value
    • Franchise Valuation
    • Racetracks
    • Golf Course Valuation
  • M&A Advisory
    • M&A Advisory
    • Sell Side
    • Buy Side
    • Valuation
  • Clients Served
  • Contact
  • Leadership Team

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Valuation Services | Discount Studies

Discount Studies

Discount studies assess how a lack of control and limited marketability may affect the value of an ownership interest in a business. These analyses are particularly relevant when valuing minority, fractional, or non-controlling ownership interests.

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Understanding DLOC & DLOM

Discount for Lack of Control (DLOC)

Discount for Lack of Marketability (DLOM)

Discount for Lack of Marketability (DLOM)

A minority or non-controlling ownership interest generally does not provide the authority to direct a company's operations or influence major corporate decisions. Because these ownership rights are limited, a non-controlling interest may have a lower value than an otherwise comparable controlling interest.


Examples of control rights include:

  1. Appointing management
  2. Setting strategic direction
  3.  Approving mergers or acquisitions
  4. Declaring dividends
  5. Selling significant assets

Discount for Lack of Marketability (DLOM)

Discount for Lack of Marketability (DLOM)

Discount for Lack of Marketability (DLOM)

Unlike publicly traded securities, ownership interests in privately held businesses generally cannot be readily sold through an established public market. This limited liquidity may affect the value of an ownership interest and warrant a Discount for Lack of Marketability (DLOM).


Factors affecting marketability include:

  1. Liquidity of the ownership interest
  2. Expected holding period
  3. Transfer restrictions
  4. Market conditions
  5. Company-specific risks

DISCOUNT STUDIES | NON-CONTROLLING INTERESTS

How Lack of Control Affects Value

A Discount for Lack of Control (DLOC), also referred to as a minority interest discount, reflects the absence of some or all of the powers associated with a controlling ownership interest. A minority or non-controlling owner generally lacks the authority to independently make significant operational, financial, or strategic decisions. 

Management & Governance

Business Strategy & Operations

Business Strategy & Operations

  1. Appoint or change operational management or members of the board of directors.
  2. Determine management compensation and perquisites.
  3. Amend the articles of incorporation or bylaws.
  4. Establish compensation for the owner and related-party employees.

Business Strategy & Operations

Business Strategy & Operations

Business Strategy & Operations

  1. Establish operational and strategic policies and determine the direction of the business.
  2. Select suppliers, vendors, and subcontractors and award contracts.
  3. Determine which products or services to offer and establish pricing.
  4. Identify and select target customer markets.

Transactions & Assets

Business Strategy & Operations

Equity & Financial Decisions

  1. Acquire, lease, or liquidate assets, including plant, property, and equipment.
  2. Negotiate and complete mergers and acquisitions.
  3. Select joint ventures and enter into joint venture or partnership agreements.
  4. Liquidate, dissolve, sell, or recapitalize the company.

Equity & Financial Decisions

Equity & Financial Decisions

Equity & Financial Decisions

  1. Sell or acquire treasury shares.
  2. Register the company's equity or debt securities for an initial or secondary public offering.
  3. Declare and pay cash or stock dividends.

Other Control Rights

Equity & Financial Decisions

Other Control Rights

  1. Enter into inbound or outbound licensing or sharing agreements involving intellectual property.
  2. Block any or all of the control-related actions described above.

DISCOUNT STUDIES | MARKETABILITY

How Marketability Affects Value

Marketability refers to the ability to quickly convert an ownership interest to cash at minimal cost. A Discount for Lack of Marketability (DLOM) reflects the reduction in value that may result when an ownership interest cannot be readily sold or converted to cash.


Shares of publicly traded companies can generally be sold through established securities markets, providing investors with access to liquidity. In contrast, ownership interests in privately held businesses typically lack an established market and may require significantly more time to sell.


The uncertainty surrounding the timing and ultimate proceeds of a future sale can increase the risk to a prospective buyer. Accordingly, an investor may require a discount when acquiring an ownership interest that cannot be readily converted to cash.

DISCOUNT STUDIES | FAIR MARKET VALUE

Fair Market Value Considerations

In performing a discount study valuation of an LLC membership interest or Family Limited Partnership (FLP) interest, a Fair Market Value appraisal must consider a number of factors specific to the business, the ownership interest, and the market in which the company operates.


Internal Revenue Service Revenue Ruling 59-60 identifies several fundamental factors to be considered when determining Fair Market Value.

Nature & History of the Business

Nature & History of the Business

Nature & History of the Business

The nature of the business and the history of the enterprise.

Economic & Industry Outlook

Nature & History of the Business

Nature & History of the Business

The economic outlook in general and the outlook for the specific industry in which the business operates.

Financial Condition

Nature & History of the Business

Financial Condition

The book value of the stock and the financial condition of the business.

Earnings Capacity

Goodwill & Intangible Value

Financial Condition

The historical and expected earnings capacity of the business.

Goodwill & Intangible Value

Goodwill & Intangible Value

Goodwill & Intangible Value

Whether the business has goodwill or other intangible value.

Dividend-Paying Capacity

Goodwill & Intangible Value

Goodwill & Intangible Value

The dividend-paying capacity of the company being appraised.

Prior Stock Transactions & Market Comparisons

Prior Stock Transactions & Market Comparisons

Prior Stock Transactions & Market Comparisons

Prior sales of stock, the size of the block being valued, and market prices of corporations engaged in the same or similar lines of business whose shares are actively traded in a free and open market.

DISCOUNT STUDIES | OWNERSHIP INTERESTS

Minority or Fractional Ownership

Minority or Fractional Ownership

Minority or Fractional Ownership

A minority or fractional ownership interest generally provides limited authority over a company's operations, financial decisions, and strategic direction. The value of the interest may also be influenced by restrictions contained in partnership agreements, LLC operating agreements, or other governing documents.


Factors that may affect value include:

  1. Size of the ownership interest being appraised
  2. Restrictions on transfer or ownership
  3. Historical dividends and expected dividend-paying capacity
  4. Historical profitability of the business
  5. Future outlook of the enterprise
  6. Tax basis of the ownership interest
  7. Net asset value of the underlying assets

100% or Controlling Ownership

Minority or Fractional Ownership

Minority or Fractional Ownership

A 100% ownership interest generally provides full control over a company's operations, management, financial decisions, and strategic direction, subject to applicable legal and contractual restrictions. Unlike minority interests, controlling ownership interests typically provide the authority to make significant business decisions, which may influence their value.


 A controlling owner may have authority to:

  1. Appoint or replace company management
  2. Establish business strategy and operational policies
  3. Approve major acquisitions or asset sales
  4. Determine dividend and distribution policies
  5. Make significant financial and ownership decisions

Fractional & Partnership Interest Valuations

Trust & Estate Planning

IRS Form 706 / Estate Tax

IRS Form 706 / Estate Tax

Valuations of fractional ownership and partnership interests for trust and estate planning, wealth transfers, and business succession planning.

IRS Form 706 / Estate Tax

IRS Form 706 / Estate Tax

IRS Form 706 / Estate Tax

Valuations of businesses and ownership interests for federal estate tax reporting, including valuations prepared in connection with IRS Form 706.

Gift Tax Planning

IRS Form 706 / Estate Tax

Divorce & Marital Matters

Valuations of fractional ownership and partnership interests transferred through gifting to support gift tax reporting and wealth transfer planning.

Divorce & Marital Matters

Divorce & Marital Matters

Independent valuations of businesses, partnership interests, and minority ownership interests in connection with divorce proceedings and other marital matters.

Buy / Sell Agreement Valuations

Valuations of business and ownership interests to establish or support value in connection with buy-sell agreements, ownership transfers, and related transactions.

Joint Ventures & Rollover Equity

Valuations of ownership interests for joint venture contributions and the determination of minority interest values associated with rollover equity transactions.

Gift & Estate Valuation Guide

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Discuss Your Discount Study Needs

Cambridge Partners & Associates provides independent valuation analyses of minority, fractional, partnership, LLC membership, and other non-controlling ownership interests. Contact our team to discuss your specific valuation needs and how we can assist.

Request a consultation

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