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Simple English definitions for legal terms
minority discount
Read a random definition: long-term capital gain
A quick definition of minority discount:
A minority discount is when the value of a business's shares is reduced because the owner only has a small part of the business. This is because the shares owned by someone who can control the business are worth more than those owned by someone who cannot. However, when shareholders disagree with a corporate decision and want to sell their shares, it is not fair to reduce the value of their shares just because they are a minority owner.
A more thorough explanation:
A minority discount is a reduction in the value of shares of a closely held business that are owned by someone who has only a minority interest in the business. This means that the value of the shares is lower because the owner does not have control over the business.
For example, if a business is worth $1 million and one person owns 51% of the shares, they have control over the business and their shares are worth $510,000. However, if another person owns 49% of the shares, they do not have control over the business and their shares may be worth less than $490,000 due to the minority discount.
When dissenting shareholders object to a corporate act, such as a merger, and become entitled to have their shares appraised and bought by the corporation, many courts hold that incorporating a minority discount into the valuation of the dissenters' shares is inequitable and is not permitted. This means that if a shareholder disagrees with a decision made by the company and wants to sell their shares, the company cannot use a minority discount to lower the value of their shares.