Definition
A Minority Interest Discount is a reduction applied to the value of ownership interests that lack control over significant decisions. Minority owners cannot force sales, control distributions, or direct management, making their interests less valuable than proportionate shares of underlying assets.
Significance in Alternative Asset Valuation
Minority discounts apply to alternative assets held in entities:
Entity contexts:
- Family limited partnerships: Minority LP interests in art-holding FLPs
- Investment funds: Limited partner interests in collectible funds
- LLCs: Non-managing member interests in collection-holding LLCs
- Trusts: Beneficial interests without distribution control
Discount justification:
- Cannot force liquidation of underlying assets
- No control over timing of sales or distributions
- Subject to majority decisions on management and expenses
- May face restrictions on transfer of interest
Combined minority and marketability discounts can significantly reduce transfer tax values, making entity structures attractive for estate planning with alternative assets. However, the IRS scrutinizes aggressive discounting.
How Impossival Approaches This
We value underlying alternative assets, providing the foundation for minority interest discount analyses. Our valuations establish the 100% control value from which appropriate minority discounts are calculated.
Related Concepts
• Fractional Interest Discount - Related partial ownership discount • Marketability Discount - Discount for restricted transferability • Fair Market Value - Control value before discounts • Blockage Discount - Discount for concentrated holdings