Is there a standard or benchmark discount for lack of marketability?
No. There is no standard, typical or benchmark discount for lack of marketability, and asking for one skips the question that decides most disputes: whether the proceeding permits a marketability discount at all. That is not an appraisal judgment. It is fixed by the statute the matter runs under, by the cause of action pleaded and by the law of the forum, and it is argued as law. The Colorado Supreme Court put it directly 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.” What the discount should be, in the proceedings where one is available, is the other layer entirely — a finding of fact on the record of a single matter, reviewed for abuse of discretion with deference to the trial court (Fir Tree Value Master Fund, LP v. Jarden Corp., No. 454, 2019 (Del. 9 July 2020)).
The valuation profession’s own binding standard states the dependency in one sentence. American Society of Appraisers Business Valuation Standard BVS-VII, Valuation Discounts and Premiums, must be followed in all valuations developed by ASA members (I.A), though by its own terms it applies to appraisals and may not apply to limited appraisals and calculations (I.C). It provides at II.A that “A discount has no meaning until the conceptual basis underlying the base value to which it is applied is defined,” and at III.B that “The base value to which the discount or premium is applied must be specified and defined.” A percentage carried in from a study, a chart or another matter has no defined base. It is not a large discount or a small one; it is not an answer to anything.
This is also why “fair value means no discounts” is a category error rather than a shorthand. A standard of value is a definition; a discount for lack of marketability is an adjustment on a different axis, the level of value; and whether the standard permits that adjustment is a third question, answered by law. ASA BVS-VIII §IV requires a comprehensive written report to state and define the standard of value (IV.C), the premise of value (IV.D) and the level of value (IV.E) as separate things, alongside the effective date and the report date (IV.F), and IV.B requires that where a valuation is performed pursuant to a particular statute, the statute be referenced. Collapsing those axes is how a report ends up applying an adjustment the statute forbids — a legal error, not a difference of methodological opinion. See Discounts and premiums for how the three axes fit together.
Can a court apply a marketability discount in a shareholder buyout?
It depends on the statute and the state, and in the jurisdictions that have enacted the Model Business Corporation Act’s appraisal definition the answer in an appraisal proceeding is no, on the face of the statute. That definition is a single three-part sentence fixing the date, the methodology instruction and the discount rule together, and the third part is a bar. Virginia enacts it at Va. Code §13.1-729: fair value is the value of the corporation’s shares determined “[i]mmediately before the effectiveness of the corporate action to which the shareholder objects,” “[u]sing customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal,” and “[w]ithout discounting for lack of marketability or minority status except, if appropriate, for amendments to the articles of incorporation pursuant to subdivision A 5 of §13.1-730.” Iowa carries the same three-part definition at Iowa Code §490.1301(3), Maine at 13-C M.R.S. §1301(4) — the wording varies in small ways between enactments, Maine and Colorado using “effectuation” where Virginia and Iowa use “effectiveness,” and each state’s articles-amendment exception pointing to its own section. That exception is omitted from most secondary summaries, and it is the kind of clause an opponent reads aloud.
Delaware reaches the same result through case law rather than through a definition. In Cavalier Oil Corp. v. Harnett, 564 A.2d 1137 (Del. 1989), an appraisal under 8 Del. C. §262 following a short-form merger of a closely held Delaware corporation, the Supreme Court of Delaware affirmed the refusal of a minority or marketability discount, holding that the court’s task is to value what was taken from the shareholder, “viz. his proportionate interest in a going concern” — the phrase it takes from Tri-Continental Corp. v. Battye, 74 A.2d 71, 72 (Del. 1950) — and that “[t]he dissenting shareholder’s proportionate interest is determined only after the company as an entity has been valued. In that determination the Court of Chancery is not required to apply further weighting factors at the shareholder level, such as discounts to minority shares for asserted lack of marketability.” The reasoning is the sentence other states quote: “to fail to accord to a minority shareholder the full proportionate value of his shares imposes a penalty for lack of control, and unfairly enriches the majority shareholders who may reap a windfall from the appraisal process by cashing out a dissenting shareholder, a clearly undesirable result.” Contested public-company merger appraisal — deal price weight, unaffected trading price, synergy stripping — is covered by our Economic Damages Institute rather than here.
New York separates the two discounts, which is the single fact most likely to catch out a writer treating “fair value” as one rule. Friedman v. Beway Realty Corp., 87 N.Y.2d 161, 661 N.E.2d 972 (N.Y. 7 December 1995), a Business Corporation Law §623 dissenters’ appraisal, held that there is no difference in analysis between fair value determinations under §623 and under §1118, and that a minority discount is barred, because it “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.” A marketability discount is permitted, and Friedman itself remitted for a new determination of the discount for unmarketability. Permitted is not the same as predictable: in a 2022 compilation, the valuation analyst Z. Christopher Mercer surveyed 31 New York statutory fair value cases decided since 1985, yielding 32 marketability-discount conclusions through 2020, and reports a bimodal distribution in which half the conclusions were nil and a quarter clustered at a single much higher figure, with an overall mean of 8.5% that describes almost no actual case. Those are outcomes on particular records rather than a range to select from, and the survey is best read as informed advocacy: Mercer testified for a nil discount in several of the matters surveyed, argues that New York’s discounts should trend to zero, and the compilation mixes trial and appellate outcomes.
Whether a marketability discount applies can also turn on the proceeding rather than the state, and the New Jersey Supreme Court proved it twice in one day. On 14 July 1999 that court decided two shareholder-valuation cases as companions, both written by Justice Garibaldi, both unanimous, and held that application of the equities in the two “dictate[] opposite results” on the marketability discount. 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 court reversed the Appellate Division in part and upheld the trial court’s marketability discount on the oppressor’s shares, reasoning that the oppressor should not be rewarded and that the oppressed buyer should not otherwise absorb the company’s entire illiquidity when he later sells — while remanding for reconsideration of the capitalisation rate the appraiser had used and of whether marketability was already embedded there. In 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 court held that marketability discounts generally should not be applied when determining fair value in a statutory appraisal action, left room only for the American Law Institute’s “extraordinary circumstances” exception, found none, and struck the discount the lower courts had allowed. One guiding principle produced both outcomes: “a marketability discount cannot be used unfairly by the controlling or oppressing shareholders to benefit themselves to the detriment of the minority or oppressed shareholders.” That is New Jersey law, not a national rule — Balsamides itself surveys a real split among states.
Lists of “states that allow a marketability discount” are the wrong tool, because several of the entries have been legislated out from under them. Ohio has never used the term “fair value” in its dissenters’ rights statute — it entitles the dissenter to “fair cash value” under Ohio Rev. Code §1701.85, defined as what a willing seller under no compulsion would accept and a willing buyer under no compulsion would pay — and under the pre-2012 version of that section the Colorado Court of Appeals, in its 2001 decision in Pueblo Bancorporation v. Lindoe, Inc., grouped Ohio with jurisdictions expressly allowing a marketability discount, citing English v. Artromick International, Inc., 2000 WL 1125637 (Ohio Ct. App. 10th Dist., 10 August 2000). That is no longer Ohio law. Effective 4 May 2012, H.B. 48 (129th General Assembly) added §1701.85(C)(1)(b), which now requires that “[a]ny premium associated with control of the corporation, or any discount for lack of marketability or minority status” be excluded in computing fair cash value. Colorado moved from the other direction: after the Colorado Supreme Court in Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353 (Colo. 2003), held that fair value means the dissenter’s proportionate interest in the corporation as a going concern and barred a shareholder-level marketability discount — while expressly declining to decide whether an equitable exception might permit one in a rare case — the General Assembly repealed and re-enacted Article 113 (SB 19-086) effective 1 July 2020, adopting the Model Act definition, so C.R.S. §7-113-101(3) now carries the statutory bar with only a narrow exception for article amendments under §7-113-102(1)(e). Every statute cited in this article was checked against the enacting jurisdiction’s current code text, verified as of 10 September 2026. This Institute publishes no fifty-state chart, because the compilations in circulation are snapshots of law that has since moved.
Where does the 30% to 35% marketability discount come from?
From studies of restricted stock sold under a version of SEC Rule 144 that stopped existing on 29 April 1997. The classic restricted stock studies compare the price paid for unregistered shares of a public company against the contemporaneous market price of that same company’s freely traded shares, and the illiquidity being priced in those transactions was a two-year one. The Securities and Exchange Commission reduced the Rule 144 holding period from two years to one, effective 29 April 1997 — Release No. 33-7390, Revision of Holding Period Requirements in Rules 144 and 145, 62 Fed. Reg. 9242 (28 February 1997): “As amended, the holding period for resales of limited amounts of restricted securities by any person has been reduced from two years to one year” — and reduced it again effective 15 February 2008 to six months for restricted securities of an issuer subject to Exchange Act reporting, one year remaining for securities of non-reporting issuers. Those two dates date every study in the field, and the first thing to do with any published discount is to check the study’s transaction window against them.
The effect is visible inside the restricted stock data itself. The Stout Restricted Stock Study Companion Guide (Stout Risius Ross, 2025), covering 783 private placements of unregistered common stock by publicly traded companies from July 1980 through March 2025, reports overall median discounts of 22.1% for the 243 transactions under the two-year holding period, 15.7% for the 342 under the one-year period and 11.7% for the 198 under the six-month period. Those are the reported medians of one published database as of March 2025. They are not a discount for any particular interest, they are not offered here as typical, market or reasonable, and this Institute publishes no figure of its own. What the breakdown does establish is narrower and more useful: an expert quoting a benchmark drawn from the pre-1997 studies is quoting the price of a differently encumbered asset, and can be walked through the holding-period split on the stand.
The Tax Court made that comparability objection qualitatively thirty years ago, before anyone had the data to quantify it. In Mandelbaum v. Commissioner, T.C. Memo. 1995-255, the court criticized the Commissioner’s own expert for relying primarily, if not entirely, on the restricted stock studies, observing that “[b]ecause the restricted stock studies analyzed only ‘restricted stock’, the holding period of the securities studied was approximately 2 years,” that the expert “has not supported such a short holding period” for the subject company and that the court found “no persuasive evidence in the record to otherwise support it,” and adding that “the restricted stock studies analyzed only the restricted stock of publicly traded corporations. Big M is not a publicly traded corporation.” The distance between the studied transactions and the subject interest is the whole argument, and it has been since 1995.
Do restricted stock studies actually measure marketability?
Not cleanly. Restricted stock studies measure the price gap between a registered and an unregistered block, and that gap bundles marketability together with several things that have nothing to do with it. The Internal Revenue Service’s Discount for Lack of Marketability Job Aid for IRS Valuation Professionals (Engineering/Valuation Program, 25 September 2009) frames the identification problem as a pair of questions an observer of a discounted private placement should ask: “Were the shares priced below-market because they were restricted?… Or were the shares restricted because they were priced below-market?” That two-line formulation turns the marketability discount from a measurement exercise into a causal-inference problem. The Job Aid carries on every page the statement that it “is not Official IRS position and was prepared for reference purposes only; it may not be used or cited as authority for setting any legal position,” which is worth reproducing whenever it is quoted — it is a candid internal survey, not a rule.
The drivers riding inside the restricted stock study medians are large enough to swamp the thing being measured. In the Stout Restricted Stock Study Companion Guide (2025), transactions with block sizes under 30% show a median discount of 15.3% against 38.8% for blocks over 30%, a spread of 23.5 percentage points; transactions where registration rights were granted show a median of 12.9% across 380 transactions against 20.0% across the 254 without; and in the guide’s volatility analysis — 333 one-year-holding-period transactions from February 1997 to November 2007, excluding blocks over 30% — those above the 60th percentile of the VIX show a median of 25.7% against 12.0% below it. Block size, contractual registration rights and market-wide volatility on the transaction date are not attributes of a subject interest’s marketability. Attempts to strip them out leave a much smaller residual: the Job Aid reproduces the conclusion of Bajaj, Denis, Ferris and Sarin, “Firm Value and Marketability Discounts,” 27 Journal of Corporation Law 89 (Fall 2001), that “controlling for all other factors influencing private placement discounts, an issuer would have to concede an additional discount of 7.23% simply to compensate the buyer for lack of marketability,” while recording the Job Aid’s own view that the isolated figure “is supported by his model but seems to be too low to survive the application of a sanity check,” and cataloguing the criticisms of the study’s sample choice and its treatment of registration status. Stout is candid about its own screening in the same spirit: of eleven screens applied to the raw data, the eleventh removes “[t]ransactions indicating premiums (negative discounts),” which mechanically lifts the reported central tendency.
Pre-IPO studies are not a second, corroborating data source. The Job Aid tells reviewers flatly that “[t]hese studies are overstate DLOM and are unreliable for assessing the size of a discount for lack of marketability” — the grammatical error is in the original — and gives its reasons: the data include only successful initial public offerings, which “artificially inflates the discount by ignoring unsuccessful IPO’s”; “[t]he discount reflects more than lack of marketability—it includes risk that an IPO may not occur”; the transactions “[a]lmost always involve related-party transactions with employees or service providers who are compensated by a bargain price”; the pricing is not contemporaneous with the offering; and there are indications that some 1999 and 2000 study data may be skewed by the dot-com bubble. The Tax Court reached the same place in McCord v. Commissioner, 120 T.C. 358 (2003), rev’d on other grounds sub nom. Succession of McCord v. Commissioner, 461 F.3d 614 (5th Cir. 2006), where the court wrote that the government’s expert “has convinced us to reject as unreliable” the taxpayer expert’s opinion “to the extent it is based on the IPO approach.” Note what the court did not say. The proposition that a pre-IPO discount prices something other than marketability — the risk that the offering never happens — is the Job Aid’s own reasoning and its experts’, and should never be attributed to the Tax Court as a holding.
Can an appraiser justify a marketability discount by citing what courts have allowed in similar cases?
No, and the bluntest statement of why comes from the tax authority rather than from an advocate. The Internal Revenue Service’s Discount for Lack of Marketability Job Aid (2009) describes the practice — reviewing the discounts accepted in a handful of decided cases and choosing a figure inside that range, then asserting that the subject is similar to those subjects — and then dismantles it: “It must be remembered that judges are not valuators and are not constrained to the environment in which professional valuators operate.” 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,” so that “[i]f one side argues persuasively while the other side disappoints the court for one reason or another a discount may emerge without any real justification for why it has been chosen. In fact, the discount selection may not be based on any clear valuation logic at all.” The Job Aid’s conclusion is the sentence to keep: the courts “are an excellent source of information when legal precedent is in question but can be a very questionable source when valuation guidance is desired,” and “basing one’s results on the results of another assignment whether litigated or not is a failure of proper diligence with regard to the assignment presently at hand.” The Job Aid is not an official IRS position and may not be cited as authority, and says so on every page.
Averaging the published studies fails for a related reason, and the courts have said so in their own words. The Job Aid records the court in Temple v. United States, No. 9:03-CV-165 (E.D. Tex., 10 March 2006), stating that “[t]he better method is to analyze the data from the restricted stock studies and relate it to the gifted interests in some manner,” and paraphrases the Tax Court in Peracchio v. Commissioner, T.C. Memo. 2003-280 (25 September 2003), as holding that while restricted stock data are helpful in determining a discount for lack of marketability, merely referencing the average discount found in a study or a group of studies is insufficient. A study median is a fact about a population of transactions. It becomes evidence about a subject interest only through an argument connecting the two, and building that argument is the work the average is being used to avoid.
This Institute does not publish a table, chart or database of discounts courts have allowed, and it does not publish a marketability discount figure of its own. A court’s concluded discount is a litigation outcome on one record, produced by whatever the parties put in front of that judge on that day, and republishing a collection of them as a reference is the exact practice the Job Aid condemns. It would also be the most-linked page on a site of this kind, which is a reason for caution rather than a reason to build it. Cases appear on this site as legal holdings about admissible reasoning, never as valuation precedent for a number.
If there is no standard figure, what does a defensible marketability discount look like?
A defensible marketability discount is one derived for the specific interest, at the specific date, under the standard of value the proceeding imposes, with the base value defined before the discount is named. ASA BVS-VII sets out what that requires in the six clauses of its Section III: a discount or premium is applied where the purpose, applicable standard of value or other circumstances of the appraisal indicate a difference between the base value and the subject interest (III.A); the base value “must be specified and defined” (III.B); each discount “must be defined” (III.C); “[t]he primary reasons why each selected discount or premium applies to the appraised interest must be stated” (III.D); “[t]he evidence considered in deriving the discount or premium must be specified” (III.E); and “[t]he appraiser’s reasoning in arriving at a conclusion regarding the size of any discount or premium applied must be explained” (III.F). The qualitative framework courts reach for is the non-exclusive list in Mandelbaum v. Commissioner, T.C. Memo. 1995-255, which the opinion enumerates as ten items and then analyses under ten numbered headings, though the profession’s shorthand has drifted to nine: the value of the corporation’s privately traded securities against its publicly traded securities; an analysis of the financial statements; dividend-paying capacity, dividend history and the amount of prior dividends; the nature of the corporation, its history, its position in the industry and its economic outlook; management; the degree of control transferred with the block; any restriction on transferability; the period an investor must hold the stock to realize a sufficient profit; redemption policy; and the cost of effectuating a public offering. The honest lesson of Mandelbaum is rarely told: the court found “limited refuge in the opinions of either expert,” rejecting the taxpayer’s expert for building fair market value around a hypothetical willing buyer while ignoring the hypothetical willing seller and the Commissioner’s for leaning almost entirely on the restricted stock studies, and then determined the discount itself.
Transfer restrictions are the most common qualitative justification offered for a large marketability discount, and Mandelbaum is also the cleanest judicial statement of when they do not support one. The court found the taxpayer expert’s heavy reliance on the shareholders’ agreements “especially troublesome, given the fact that the agreements specify no price or formula (such as book value per share) at which the shares must be offered to [the company] or to its other shareholders,” and held that “[i]n most cases, especially where an operating company is concerned, a right of first refusal without a fixed price has little, if any, effect on fair market value (which inherently includes any marketability discount),” because such a right “does not limit the buyers to whom a seller could sell his or her stock, or the price for that stock, but merely governs the order in which prospective buyers must stand in line to buy the stock.” A restriction that reorders the queue is not a restriction that fixes the price, and the two are argued very differently.
The quantitative models bracket the answer rather than solve it. Francis Longstaff’s 1995 lookback-option model assumes perfect market timing and therefore derives an upper bound; the Job Aid reproduces a table of its outputs showing 106.70% at a two-year term and 70% volatility and 198.50% at five years and 70% volatility, notes that volatilities above 30% would most likely be used as a proxy for privately held stock, and concludes that the model “may produce results which are not realistic.” David Chaffee’s Black-Scholes European put formulation is the mirror image — the Job Aid records that “Chaffee considered his results as ‘downward’ biased and as such his findings are considered a minimum DLOM” — and it says of both approaches that each “has not been vetted in any meaningful way by the courts.” John Finnerty’s average-strike put model was corrected after Stillian Ghaidarov showed in September 2009 that the original formula produced values above the bound implied by geometric-average options, and the corrected model, published as “An Average-Strike Put Option Model of the Marketability Discount,” The Journal of Derivatives, Vol. 19, No. 4 (Summer 2012), 53–69, is bounded — absent dividends it converges toward roughly 32.3% however high the volatility or long the holding period, which can understate the discount at extreme inputs. Ghaidarov’s competing formulation is unbounded and instead approaches 100% over long horizons. A shareholder-level discounted cash flow approach has fared no better in the Tax Court: in Estate of Weinberg v. Commissioner, T.C. Memo. 2000-51, where the Quantitative Marketability Discount Model was used by the government’s own expert, Dr. Kursh, the court disagreed with the resulting discount because slight variations in the model’s assumptions produce dramatic differences in the results, and in Janda v. Commissioner, T.C. Memo. 2001-24, it recorded “grave doubts about the reliability of the QMDM model to produce reasonable discounts, given the generated discount of over 65 percent.”
None of that rescues a report that got the threshold question wrong, and the threshold question is legal. Applying a marketability discount in a proceeding whose statute forbids it is an error of law rather than a difference of methodological opinion, and it sits alongside the wrong valuation date and a report prepared for a different intended use among the failure modes that end an opinion’s usefulness regardless of how carefully the discount was derived. Nothing on this page states what standard of value governs any particular matter, what any interest is worth, or what an opposing expert’s figure should have been: the Institute maps the frameworks, counsel chooses and the appraiser opines. See Fair value and fair market value for how the two definitions differ and who imposes each, Appraisal and dissenters’ rights for how the statutory bar operates in a buyout, and Estate and gift valuation for the regime that runs the other way, where a discount is not merely permitted but expected.