Who decides whether a discount applies in a court-ordered buyout — the appraiser or the judge?
The court, and it decides as a matter of law rather than by weighing expert opinion. The Colorado Supreme Court put it in terms in Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353 (Colo. 2003): “The interpretation of statutory language is a question of law which we consider de novo,” and the meaning of fair value is “a question of law, not a question of fact to be opined on by appraisers and decided by the trial court.” The court reached that conclusion because it could not resolve the meaning of fair value from the plain language of the dissenters' rights statute and because its own court of appeals had gone four separate ways — one division barring discounts where the corporation was being liquidated, a second allowing a marketability discount case by case while barring a minority discount as a matter of law, a third leaving the whole question to the trial court's discretion on all relevant factors, and the division below barring all discounts as a matter of law.
What follows from the definition is reviewed very differently, and collapsing the two layers is how the question gets argued badly. Once the legal standard is fixed, the resulting valuation is a factual finding — the Colorado Court of Appeals said so in the same case: “A fair value determination is a factual one, and therefore, the trial court's valuation will not be disturbed unless clearly erroneous” (37 P.3d 492) — and in Delaware an appraisal award is reviewed for abuse of discretion, with significant deference to the trial court's findings (Fir Tree Value Master Fund, LP v. Jarden Corp., No. 454, 2019 (Del. 9 July 2020)). So the availability of a discount is briefable and appealable before an appraiser is engaged. Its size, where one is available, is found on the evidence.
Two limits on Pueblo Bancorporation v. Lindoe, Inc. are worth carrying, because the case is routinely over-read. Certiorari was expressly limited to the marketability discount, so the decision is not authority for Colorado's treatment of the minority discount, and the court declined to decide whether an equitable exception — such as the American Law Institute's “extraordinary circumstances” exception — might permit a discount in a rare case. Colorado has since legislated the point: the General Assembly repealed and reenacted Article 113 in 2019 (SB 19-086), replacing dissenters' rights with appraisal rights and adopting the Model Business Corporation Act definition, so C.R.S. §7-113-101(3), effective 1 July 2020, now requires that shares be valued “[w]ithout discounting for lack of marketability or minority status,” subject to a narrow exception for article amendments that cash out fractional shares under §7-113-102(1)(e).
Can a state bar the minority discount and still allow a marketability discount?
Yes, and New York does exactly that, which is why the two adjustments have to be briefed separately rather than as one “discount” question. A minority discount — more precisely a discount for lack of control — reduces value because the holder cannot direct distributions, compensation, a sale or a liquidation. A discount for lack of marketability reduces value because there is no ready market in which the interest can be sold at all. Appraisal practice generally prefers “discount for lack of control,” because control and minority status are not the same thing: a 40% holder may have effective control and a 51% holder may not. Statutes, however, say “minority status,” so that is the phrase to use when quoting a statutory bar.
In Friedman v. Beway Realty Corp., 87 N.Y.2d 161, 661 N.E.2d 972 (N.Y. 7 December 1995), the New York Court of Appeals held that fair value is the shareholder's proportionate interest in the going-concern value of the corporation as a whole, with no minority discount, and that there is no difference in analysis between fair value under the dissenters' appraisal provision, Business Corporation Law §623, and fair value under the oppression buy-out election at §1118. A minority discount, the court reasoned, “would result in minority shares being valued below that of majority shares, thus violating our mandate of equal treatment of all shares of the same class in minority stockholder buyouts.” The same opinion permits a discount for lack of marketability, and remitted for a new determination of one.
Friedman v. Beway Realty Corp. also did the analytical work the rule alone does not, and that is the half worth reading whenever a marketability discount is on the table in a jurisdiction that bars minority discounts. The trial court had stripped a supposed minority element out of the unmarketability discount, on the theory that the discount secretly embedded one. The Court of Appeals reversed, because the expert had derived the discount by comparing the prices of a marketable set of minority shares with the prices of the same stock when unmarketable, so “the difference in prices of the shares did not contain any additional minority discount element” — the trial court had removed “a nonexistent minority discount element.” Whether a marketability discount double-counts a barred minority discount is a question about how the comparison was constructed. It is not a presumption running in either direction.
Does “fair value” mean no discounts?
Not as a matter of definition, and treating it that way is a category error that misstates the law in both directions. A standard of value is a definition of what is being measured. A discount is a level-of-value adjustment applied to a base value once the measuring is done. Whether the standard permits the adjustment is a third and separate question, answered by the statute and the case law of the forum rather than by the words “fair value” themselves. The American Society of Appraisers states the sequencing point in BVS-VII §II.A — a Standard its members must follow in appraisals rather than an advisory guideline, though by its own §I.C it may not apply to limited appraisals and calculations: “A discount has no meaning until the conceptual basis underlying the base value to which it is applied is defined.”
Some legislatures answer the discount question inside the definition. Statutes derived from the Model Business Corporation Act define fair value as the value of the shares determined “[w]ithout discounting for lack of marketability or minority status” — verbatim at Va. Code §13.1-729 and Fla. Stat. §607.1301(5)(c). The Virginia and Maine versions (13-C M.R.S. §1301(4)(C)) carry the Model Act's exception for certain amendments to the articles of incorporation; the Florida subsection is flatter and carries none. Where that text is enacted, the discount question in an appraisal is over before it starts. Secondary commentary on these provisions goes stale fast, which is its own warning: widely circulated Florida commentary describes a regime in which the discount rule turned on whether the corporation had ten or fewer shareholders, and the current section contains no shareholder count at all.
Other legislatures name the standard and define nothing. Delaware's appraisal statute, 8 Del. C. §262(h), directs the Court of Chancery to determine “the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger,” and never says what fair value means, so Delaware's bar on shareholder-level discounts is judicial rather than statutory — it comes from Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989), quoted by the New York Court of Appeals in Friedman v. Beway Realty Corp. for the proposition that “to fail to accord to a minority shareholder the full proportionate value of his [or her] shares imposes a penalty for lack of control, and unfairly enriches the majority stockholders who may reap a windfall from the appraisal process by cashing out a dissenting shareholder.” Nor is fair value reliably the higher number: in Verition Partners Master Fund Ltd. v. Aruba Networks, Inc., 210 A.3d 128 (Del. 2019), the same statutory exclusion of merger-arising value produced an award of $19.10 per share, “the deal price minus the portion of synergies left with the seller,” against a deal price of $24.67. Contested public-company merger appraisal — deal price weight, unaffected trading price, deal price less synergies — is covered by our Economic Damages Institute rather than here; this page is about closely held companies. See Fair value and fair market value for how the two definitions differ and who imposes each.
Does it matter whether the buyout comes from a dissenters' appraisal or an oppression case?
In Model Act states it can decide the case, because the definition of fair value that bars discounts is expressly confined to the appraisal chapter. Model Business Corporation Act §13.01 defines fair value “in this chapter,” and its Official Comment states: “the definition of ‘fair value’ applies only to chapter 13. See the Official Comment to section 14.34 which recognizes that a minority discount may be appropriate under that section.” Section 14.34 — the corporation's or another shareholder's election to purchase a petitioning shareholder's shares in lieu of judicial dissolution — uses “fair value” four times and never defines it, and its own Official Comment says the section “does not specify the components of ‘fair value,’ and the court may find it useful to consider valuation methods that would be relevant to a judicial appraisal of shares under section 13.30.” That is guidance rather than a definition. Official Comments were not enacted by any legislature.
Nebraska closed the gap against the comment, and the reasoning is the template for how this gets litigated elsewhere. In Bohac v. Benes Service Co., 310 Neb. 722, 969 N.W.2d 103 (Neb. 14 January 2022), the Nebraska Supreme Court applied the appraisal definition of fair value at Neb. Rev. Stat. §21-2,171(3) in full to a buyout under Nebraska's analogue of §14.34, found that neither the minority nor the lack-of-marketability discount the district court had applied was applicable, reversed and remanded with directions to recalculate, and vacated the judgment amount together with its payment terms. It treated the choice as statutory interpretation, “a matter of law” on which an appellate court reaches an independent, correct conclusion, and ran it as “a multistep analysis”: the definition of fair value first, then whether that definition includes or excludes discounts, then the premise of value, then methodology. The Official Comment did not control because, in the court's reasoning, it was not adopted by the Legislature. Bohac v. Benes Service Co. is Nebraska law; in Model Act states that have not ruled, the space between §13.01 and §14.34 is still open and is the first thing to brief.
In some states the prior question is whether a court-ordered buyout exists at all. In Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014), the Texas Supreme Court reversed a judgment ordering a $7.3 million buyout of a minority holder's shares, held that the conduct at issue was not “oppressive” under the receivership statute it construed — former article 7.05 of the Texas Business Corporation Act — held that “appointment of a rehabilitative receiver is the only remedy that former article 7.05 authorizes for oppressive actions,” and declined “to recognize or create a Texas common-law cause of action for ‘minority shareholder oppression.’” A discount analysis prepared for a Texas oppression buyout can be answering a question the forum will never reach. See Shareholder oppression and business divorce for how the remedy itself varies.
Why would a court allow a marketability discount in one buyout and refuse it in another on the same day?
Because in New Jersey the discount question turns on the equitable posture of the proceeding rather than on the finance. On 14 July 1999 the New Jersey Supreme Court decided two shareholder-valuation cases as companions — both written by Justice Garibaldi, both unanimous — and reached what the court itself called “opposite results” on the marketability discount. Nothing about the underlying appraisal work explains the split. The caption on the pleading does.
In Balsamides v. Protameen Chemicals, Inc., 160 N.J. 352 (1999), an oppressed-shareholder buyout under N.J.S.A. 14A:12-7 in which the oppressed shareholder was the court-designated buyer, the New Jersey Supreme Court reversed the Appellate Division and upheld the trial court's 35% marketability discount applied to the oppressor's shares, reasoning that the oppressor should not be rewarded and that the oppressed buyer should not otherwise be left to absorb the company's entire illiquidity when he later comes to sell. The court described that figure as within the accepted range but remanded for reconsideration of the capitalisation rate and of whether the appraiser had already embedded marketability there — a double-counting check that recurs whenever a discount is layered on top of a capitalised value.
In the companion case, Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383 (1999), a statutory appraisal brought by dissenting shareholders under N.J.S.A. 14A:11 in which no oppression was raised, the New Jersey Supreme Court held that marketability discounts generally should not be applied in appraisal actions absent “extraordinary circumstances,” found none on the record, and struck the discount the lower courts had allowed. A single guiding principle produced both outcomes: a marketability discount cannot be used unfairly by controlling or oppressing shareholders to benefit themselves at the expense of the minority or the oppressed. Two limits belong with the pair. This is New Jersey law — Balsamides v. Protameen Chemicals, Inc. itself surveys a genuine split among states on discounts in oppression cases, so the rule is not a national one. And Balsamides expressly reserved what happens when the oppressing shareholder is the designated buyer.
If a discount is permitted, can its size be taken from what other courts have allowed?
No. A discount another court allowed is a litigation outcome on that court's record, not a valuation datum, and the Internal Revenue Service's own valuation professionals are the bluntest source on why. The Discount for Lack of Marketability Job Aid for IRS Valuation Professionals, issued 25 September 2009 by the Service's Engineering/Valuation Program — then part of the Large and Mid-Size Business Division, renamed Large Business & International in 2010 — warns that “judges are not valuators and are not constrained to the environment in which professional valuators operate,” that a judge “will often select one discount over another simply based on the ability or lack thereof that the two sides of the dispute display in arguing their respective cases,” that “the discount selection may not be based on any clear valuation logic at all,” and that the courts “can be a very questionable source when valuation guidance is desired.” It lists “reliance solely on court decisions” among the report-review situations its own reviewers are told to challenge. The Job Aid is not an official IRS position and states on every page that it “may not be used or cited as authority for setting any legal position.” This Institute publishes no table of discounts courts have allowed, for the same reason.
Where a marketability discount is permitted, the outcomes are not distributed the way practitioners assume, and the average is the wrong statistic to reach for. Valuation analyst Z. Christopher Mercer surveyed 31 New York statutory fair value cases decided from 1985 through 2020, yielding 32 marketability discount conclusions, and published the distribution in October 2022: half the conclusions were nil, a quarter sat at 25%, and the remaining quarter were scattered between 5% and 21%. The overall average he reports, 8.5%, describes almost no actual case in the set, and both the median and the most common outcome are zero. Two caveats belong with that survey wherever it is cited. Mercer testified for a nil discount in several of the matters surveyed and argues normatively that New York's discounts should trend to zero, so it is informed advocacy rather than a neutral base rate; and it mixes trial and appellate outcomes, including figures later disturbed on appeal.
The empirical bases a marketability discount is built from carry a dating problem, which is where cross-examination usually starts. The restricted stock studies behind the profession's familiar benchmark measured transactions under Rule 144's original two-year holding period. That period was cut to one year effective 29 April 1997, and to six months for reporting-company securities effective 15 February 2008, so a study whose transaction window closes before those dates is measuring the illiquidity of a different asset. Stout's Restricted Stock Study Companion Guide (2025 edition), examining 783 private placements of unregistered stock by publicly traded companies from July 1980 through March 2025, reports median discounts of 22.1% for the 243 transactions under the two-year period, 15.7% for the 342 under the one-year period and 11.7% for the 198 under the six-month period. Averaging published study results is a separate error, and the Job Aid names it: “Blanket approaches using historical averages are not sustainable; a case-specific analysis is needed.” None of those figures is a starting point for any matter. What a permitted discount should be is for the appraiser and the trier of fact on that record; whether it is permitted at all is the legal question this page is about, and nothing here says which standard governs any particular matter or what any interest is worth. For the level-of-value framework these adjustments sit on, see Discounts and premiums; for the mirror-image regime, in which the same block gifted to a family member carries discounts that are not merely permitted but expected, see Estate and gift valuation.