Court discredits size-based rationale for lack of control discount

Sieber v. Sieber, 2015 Ohio App. LEXIS 2256 (June 15, 2015)

Size is only the beginning of the analysis. That’s the message the Ohio Court of Appeals recently sent regarding the use of a lack of control discount where the owner spouse held a small interest in a business but played a large role in running it.

The husband worked for two closely held companies that shared common ownership and had an interdependent business relationship. He served as their principal salesperson, president, and CEO and also owned a minority interest in both businesses. By his own testimony, he was not only a “figurehead but the primary salesperson and key driving force behind the company’s success.”

Yet, in terms of valuing the husband’s interest, his expert decided to apply a 24.3% discount for lack of control and a 15% discount for lack of marketability. He claimed the husband only had a minority interest and as such limited control over decisions within the company,

The wife’s expert said a lack of control discount was not appropriate in this context considering the husband's importance to the success of the companies. Also, the majority shareholder had never made the husband sign noncompete agreements.

The trial court agreed with the thinking of the wife's expert. Find out what the court had to say here.