Jonathan Cronin explains why minority positions in LLCs are worth less than their share of assets. A typical lack-of-control discount runs 20 to 35 percent, so a $100,000 stake might be valued at $70,000 instead.
Questions this video answers
20–35%
Approximately $70,000
Chapters
The first is that there is a discount for the lack of control. You're a limited partner, you're a minority member of the llc. How much control do you have? Very little to none. You might have the right to occasionally ask a question at a meeting, and you got a right to look at the books other than that, nah. So we see a discount ratio that lack of control to be somewhere between 20 and 35%, depending upon a host of variables, depending upon how slanted the operating agreement is in these deals and the more power that is retained by the managers, and how little control the little minority member has, that will move up to a higher percentage of the discount in that sliding scale between 20 and 35. So you can say, well, Jeff, what does that mean? Well, that means that if we take that discount and we apply it to the $100,000, we've now discounted that $100,000 down to, say, $70,000, because that's what an independent, reasonable third party person might pay for that position, given the lack of control. But wait, it gets better.
