What is a Discount for the Lack of Control?

A Discount for Lack of Control is a fixed amount or percentage deducted from the selling price of a block of shares. The amount is deducted from the share value because that block of shares lacks some or all powers of control in the firm.

How Does aStock Discount for Lack of Company Control Work?

The minority shareholders usually do not have the authority to make decisions regarding the company’s strategies and operations. They also may not have the power to influence the election of the directors. They may even lack the control over the sales of their own shares or its return. All these disadvantages attached to the minority share reduces the value of minority equity shares against the total valuation of the company.

Example of Discount for Lack of Control

For example, a company has two shareholders owning 60% and 40% each. If the total equity value of the company’s share is $ 2,00,0000, the 40% would be $80,0000. But the buyer acquiring 40% wont agree to pay that much for the minority share because it lacks the power of control.