Business Valuation Companies in India | Business valuation method consultant

September 16, 2018 | Author: | Posted in Advertising

There are two primary instances in which Valuation Discounts are used. These include entity or shareholder level discounts. Entity-level discounts affect the business as a whole while the shareholder level discounts affect certain ownership interest holders.

DISCOUNT FOR LACK OF CONTROL
When estimating the value of an ownership interest, typically controlling ownership interests sell at a higher value than non-controlling ownership interests. There are many reasons as to why a controlling interest in a business is generally worth more on a pro-rata basis than a minority position. Generally a controlling interest can confer the rights to the following:

Elect directors
Select and/or remove management
Dictate dividend policies
Determine compensation and benefits
Acquire and sell assets
Determine corporate strategy and long-term goals
Acquire other companies or merge with other companies
Revise articles of incorporation and bylaws

 

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DISCOUNT FOR LACK OF MARKETABILITY

Owners of closely held businesses are affected by the inability to readily convert their investment into cash. The term discount for lack of marketability is a general term referred to in Business Valuation for the impairment of value for reasons relating to liquidity. There is no quantitative formula to apply a discount for lack of Marketability to a privately held company. A valuation analyst will review several aspects of the business and organizational documents to determine if a discount for lack of marketability is appropriate. Some of the factors that can impact the marketability of a company are listed below:

  • Put Rights or Buy/Sell Agreements
  • Dividend/Distribution history
  • Recent offers to purchase the company
  • Ownership block size
  • Stock transfer restrictions

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