We express our appreciation to Henry Wise, now retired. He has been considered one of the leading authorities on fractional interest valuations in the nation for decades and we have quoted (with his permission), and utilized his research and logic liberally. Also we thank John Allen Chalk, an extraordinary attorney, in Ft.Worth, Texas, who handles cases for sophisticated investors of big and small entities.
The owner of a fractional interest generally has no (or only a limited) ability to liquidate the underlying asset in order to get total control of his pro-rata share, and faces a disorganized and limited marketplace should he or she attempt to sell the fractional interest to a third party. These problems of limited control and no organized market place are very similar for a closely held corporation, a limited liability company,(LLC), a family limited partnership (FLP), a limited liability limited partnership (LLLP), or for a tenant-in-common.
NOTE A FEW COURT CASES:
1. Marketability discount set by Connecticut Court at 35% for minority interest holder in a closely-held Connecticut corporation. Devivo v. Devivo, 30 Conn.L.Rptr.52, 2001 WL 5777072 (Conn. Super.Ct. f2001).
2. Marketability discount set by Connecticut Court at 35% for closely held corporation that was sold under a fraud allegation. In re Colonial Realty Co., 226 B.R. 513,(Bankr. D. Conn. 1998).
3. Alaska Supreme Court affirmed a marketability discount for value of a close corporation stock of 15%. Money v. Money, 852 P.2d 1158 (Alaska1993).See10 A.L.R.6th693, “use of Marketability Discount in Valuing Closely Held Corporation or Its Stock,” by Stephen A. Hess. American Law Reports ALR6th.
4. Other discounts include control premiums and minority discounts.See2 Am. Jur. Proof of Facts 2d 1,“Valuation of Stock of Closely Held Corporations,” by James L. Rigelhaupt, Jr..The reasons for discounting are simple. If you own a closely held company, are a minority interest investor, whether it is large or small, and your company is not traded on a public stock exchange, when liquidity, or "quick sale" buyers are often not readily available, then you may qualify for a discount of your asset value.