01Why holdings of the same company differ
A shareholder who controls a company can decide dividends, appoint directors, set salaries and decide whether to sell. A small minority shareholder can do none of these things, and in a private company may find it hard to sell the shares at all. A buyer of a minority holding will usually pay less per share than a buyer of control.
The reduction reflects two features: lack of control over the company's decisions, and lack of marketability because the shares are difficult to sell.
02Thresholds that matter
Under UK company law, certain percentages carry particular powers:
- More than 75%: can pass special resolutions, such as changing the articles
- More than 50%: can pass ordinary resolutions and usually controls the board
- More than 25%: can block special resolutions
- 50% exactly: can block ordinary resolutions but not pass them alone
03When a discount applies
Whether any discount applies depends on the basis of value and the purpose. Tax valuations generally value the actual holding, so lack of control and marketability are relevant. Articles may require a pro rata value with no discount. In unfair prejudice proceedings, courts have often ordered pro rata valuations in quasi-partnership cases while applying discounts in others.
04Why there is no standard percentage
Discounts quoted as rules of thumb can be misleading. The appropriate adjustment depends on the size of the holding, the distribution of other shares, the company's dividend record, the protections in the articles, the likelihood of a sale of the whole company, and the purpose of the valuation. A holding of 49% alongside a single 51% shareholder is in a very different position from a 49% holding where the rest is spread among many small holders.
Valuers explain the factors behind any adjustment rather than applying a fixed figure.
This guide is general information, not advice on any particular situation. The correct approach to a valuation depends on its purpose, the basis of value and the facts.
