Valuation discount, also known as a control premium, is a reduction in the fair market value of a minority interest in a company. This discount reflects the fact that a minority shareholder does not have the same level of control over the company as a majority shareholder. For example, a minority shareholder may not have the right to vote on major decisions or to elect directors.
Valuation discounts are important because they can significantly impact the price of a minority interest in a company. They can also be used to negotiate favorable terms for the sale of a minority interest. Historically, valuation discounts have been used to protect minority shareholders from being taken advantage of by majority shareholders.