The Discount for Lack of Control (DLOC) reflects the reduced value of a minority ownership interest, recognizing the increased risk that comes along with being in a non controlling position. It is one of the three main business valuation discounts.
What Is Discount for Lack of Control?
Similar to DLOM and Key Person Discount, the concept of DLOC — Discount for Lack of Control — reflects a practical market reality: non-controlling interests are generally less desirable and command lower prices than controlling ones.
However, as with marketability, the degree and relevance of a control discount must be determined through informed judgment, not through mechanical reference to generalized studies.
Mitigating the Risk of a Minority Stake
In theory, lack of control increases investment risk, and investors expect to be compensated accordingly.
In practice, the significance of this risk varies widely. Some venture capital firms willingly invest in non-controlling stakes with little concern, while many private equity firms categorically avoid minority investments.
Moreover, shareholder attitudes toward control vary by company size, ownership dispersion, governance structures, and other specific factors.
Case-Specific Analysis is Always Needed for DLOC
While many valuators continue to rely on compilations of control premium and discount studies — many rooted in data sets from decades past — doing so without critical judgment violates both the analytical standards set forth in Revenue Ruling 59-60 and the realities of today’s markets.
Simply citing historical averages is no substitute for a case-specific determination based on the actual influence, protections, and limitations faced by minority holders in the business being valued.
In our valuations, the consideration of DLOC has been approached as a judgment-based exercise, consistent with RR59-60’s emphasis on reasoned, individualized analysis. Where applicable, the existence, magnitude, and rationale for any control-related adjustment are clearly articulated and tied directly to the facts of the case — not to boilerplate data or mechanical frameworks.
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