Insights · Valuation · July 20, 2026

Valuation: Fair Value v. Fair Market Value and Discounts for Minority Status

By Pierce Schultz, Esq., and Abhi Mathews, CFA, CBV, ABV

The endgame in co-owner disputes is very often a buyout. And where the case is heading toward a buyout, the valuation is not a detail of the remedy. The valuation is the remedy. It is easy to get caught up in fighting over liability and who wronged whom, but often the most pivotal issues in the case are those relating to valuation.

Given the importance of valuation concepts in co-owner disputes, this post will be the first of a series on the topic of valuation. Perhaps the most common, and one of the most important, of such issues is whether the buyout of the minority owner’s interest is at “fair value” or “fair market value.”

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The different value standards.

The first step in any valuation is deciding which of two valuation standards — that sound alike and behave very differently — applies. Fair market value is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” Because that hypothetical buyer is a stranger acquiring a minority stake he can neither control nor easily resell, fair market value generally includes certain discounts, most often for lack of control and lack of marketability. Fair value, by contrast, generally excludes those discounts: the minority owner receives his or her proportionate share of the value of the enterprise as a going concern. The gap between them is where much of the money in a buyout fight lives.

The discounts: quantifying the difference between fair market value and fair value.

After the enterprise is valued, the minority interest is often discounted. This is where minority owners often lose substantial value.

Discount for lack of control. A minority owner cannot set salaries, make distributions, or sell the company, so under a fair market value standard, appraisers often reduce the value of the interest to reflect those limitations. A discount for lack of control (“DLOC”) recognizes that a noncontrolling owner generally cannot direct the company’s operations, influence significant business decisions, or determine when and how cash is distributed to owners. The size of the discount depends on the specific rights attached to the ownership interest, the company’s governance provisions, and the particular facts and circumstances of the case.

Discount for lack of marketability. There is no public market for shares of most private companies, making them inherently less liquid than publicly traded securities. To account for this reduced liquidity, valuation professionals often apply a discount for lack of marketability (“DLOM”), which reflects the diminished value investors place on assets that cannot be readily converted into cash. The amount of the DLOM may depend on whether there are legal or contractual restrictions such as transfer restrictions, rights of first refusal, or financing covenants that limit an owner’s ability to sell their interest.

DLOMs are commonly supported through empirical evidence from restricted stock studies and pre-IPO studies, which compare the prices of illiquid securities to otherwise comparable publicly traded shares. Courts and valuation professionals also frequently consider the Mandelbaum factors, a widely recognized framework that evaluates company-specific characteristics affecting marketability, including financial performance, dividend policy, transfer restrictions, and the expected holding period before a sale. See Mandelbaum v. C.I.R., T.C. Memo 1995-255, 1995 WL 350881 (T.C. 1995). Depending on the facts and circumstances, DLOMs commonly range from 5% to 40%, although higher or lower discounts may be appropriate in exceptional cases.

Company-specific adjustments. Appraisers typically also make discounts for items such as management team/key person, customer concentration, supplier concentration, geographic concentration, competition risk, and technology risk, among other factors. These often get factored into the company-specific risk premium — often the most subjective part of the derivation of the cost of equity — which means they are negotiable and challengeable. However, they can also be taken as a separate discount.

Stack these discounts on top of each other, and the math can turn extreme; combined haircuts of 40–50% off a minority owner’s pro-rata share are not unusual under a fair market value standard. Strip them out, and the payout can double.

When does each standard apply?

This is where valuation starts becoming a legal question. Fair market value is most often applied when called for in a shareholder agreement, operating agreement, or partnership agreement. The Florida Statutes and the Model Business Corporations Act, on the other hand, typically use the term “fair value.”

However, the terms have at times been erroneously used interchangeably. Some courts have applied discounts in considering “fair value.” In Munshower v. Kolbenheyer, 732 So. 2d 385, 386 (Fla. 3d DCA 1999), the Third District Court of Appeal upheld a 20% discount for lack of marketability in a dissolution proceeding. The court concluded that “[a] discount for lack of marketability is properly factored into the equation because the shares of a closely held corporation cannot be readily sold on a public market.”

After Munshower was decided, the legislature amended Section 607.1301, Florida Statutes, to define fair value in the context of appraisal rights or “dissenter’s rights” as the value of the corporation’s shares determined “[w]ithout discounting for lack of marketability or minority status.” However, there is no analogous definition of “fair value” in Florida’s judicial dissolution statutes — where many forced buyouts actually happen.

More recently, in Agnelli v. Lennox Miami Corp., No. 20-22800-CIV, 2022 WL 2788875, at *11 (S.D. Fla. July 15, 2022), Judge Scola held that marketability and control discounts are inappropriate in dissolution proceedings. He reasoned that the express definition of “fair value” in the appraisal statutes excludes such discounts, and the “legislative policy does not suggest the application of minority discounts for lack of control or marketability in determining ‘fair value.’”

The result is a real gap in the law, an area rich for lawyers to create value for their clients.

Dealing with something like this?

If a buyout is reasonably foreseeable, you need a lawyer who understands valuation nuance, understands the contours of the caselaw, and understands how to advocate for or against the application of discounts. I would welcome a conversation.