Discounts at Wal-Mart, But What About Your Minority Ownership Interest in an Iowa Business?

Iowa Shareholder Fair Value

Will your minority ownership interest in an Iowa business be discounted when determining fair value?

As described in detail here, on June 14, 2013, the Iowa Supreme Court issued an opinion that clarifies the definition of minority shareholder oppression in Iowa.  The opinion, however, also touches upon several other important legal issues that often arise in corporate disputes.  One of those issues relates to whether, when valuing a minority shareholder’s interest in a corporation (or a member’s ownership interest in a limited liability company), a minority discount (a.k.a. a “lack of control” discount) applies when establishing the fair market value of the ownership interest at issue.  On page 11, footnote 5 of the Baur opinion, the Iowa Supreme Court made its “disapproval” of applying a minority discount upon calculating fair market value clear:

Although the subject of a minority discount for jack’s shares was a subject of disagreement in the parties’ earlier negotiations, the record does not reveal whether BFI’s most recent offers to purchase Jack’s stock assumed such a discount.  We note, however, our recent disapproval of share valuations incorporating a discount for a minority interest in other corporations.

Baur, p. 11, n. 5.  The court went on to site several cases in support of its “disapproval” position.

The Iowa Supreme Court’s position on this important and frequently arising issue should provide minority shareholders in Iowa corporations (and minority members in a limited liability company) with further clarity as to whether a minority discount will apply in Iowa under certain circumstances.  Should you have questions about whether this seemingly narrow, yet important issue will impact your stock in an Iowa corporation or membership in an Iowa limited liability company, you should consider contacting an attorney that practices in the area of intra-corporate disputes.

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About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Business Owner, Director, Intra-corporate dispute, Litigation, Member, Partnership, Shareholder and tagged , , , , , , , , , . Bookmark the permalink.

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