The lack-of-marketability discount is separate and distinct from the minority discount. Each addresses a fundamentally distinct aspect of owning an equity interest in a closely held corporation. The minority discount is designed to reflect a minority owner’s inability to control the corporation’s affairs. The marketability discount, on the other hand, takes into account the illiquidity of any interest in a closely held corporation resulting from the absence of a ready market over which that interest can be sold and converted to cash. The marketability discount “bears no relation to the fact that the…shares in the corporation represent a minority interest.”1 While New York courts commonly permit the application of a marketability discount, there appears to be a bright-line rule against applying a minority discount.

Recently, in Cole v. Macklowe, 604784/99, NYLJ 1202472812444, at 1 (NY Sup Ct, Sept. 25, 2010), the Supreme Court, New York County, refused to allow the defendant to present expert evidence regarding either a minority or lack-of-marketability discount when valuing the plaintiff’s 10 percent equity interest in several real-estate holding companies. This decision misconstrues the fundamental differences between the two types of discounts and is inconsistent with existing lack-of-marketability jurisprudence from the Court of Appeals and Appellate Division. Moreover, the decision serves as a warning of the danger associated with introducing the minority discount into the valuation analysis.

‘Cole v. Macklowe’

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