Legal Definitions - minority discount

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.