Generally speaking a minority shareholding is an interest in 50% or less of a corporation’s outstanding shares. The value of a minority shareholding may be less than the pro-rata value (percentage of outstanding shares multiplied by the ‘en bloc’ value of the company) due to a minority shareholder’s inability to control the corporation. In most cases, control is defined as the ability to elect a majority of a company’s directors. The lack of control can limit a minority shareholder’s ability to influence a company’s strategic direction as well as the timing and extent of the return on the shareholder’s investment.

In certain circumstances a minority shareholding may command a premium to the pro-rata value. This is generally due to the potential ‘nuisance value’ of the shares. A minority shareholder may have the ability to block, or delay, actions taken by a controlling shareholder or prevent the company from being acquired where a potential purchaser will not proceed with the acquisition if they are not able to acquire all of a company’s outstanding shares. In addition, a minority shareholding could be of significant value to existing shareholders where the acquisition of the minority shareholding would increase their ownership to a controlling interest.

There are many factors to consider when assessing the value of a minority shareholding, including:
• the size of the minority shareholding, relative to other shareholdings in the company and to the provisions of the relevant statutes outlining the rights of minority shareholders;
• the historical dividends that may have been paid on the shares;
• the terms and conditions of agreements among the shareholders; and,
• the sale of similar share blocks in the company.

Unfortunately there is no easy answer as to how to determine the value of a minority shareholding, as each situation must be assessed based upon the unique circumstances of the company and its shareholders.