Consider control perquisites for each holding entity when quantifying DLOC

BVWireIssue #99-3
December 15, 2010

In her article “Shades of Control,” Sherry C. Smith (Zephyr Financial Corp.) asks “does the Subject Interest exercise control of the business being appraised?” The answer isn’t surprising: “often not yes-or-no, black-or-white or binomial…often some shade of gray.” Smith recently appraised holdings of 11 different entities for estate settlement purposes.  Because each entity was unique, she considered the control perquisites for each along a spectrum. Before attempting to quantify a discount rate for lack of control, the appraiser must understand the subject interest’s legal entity, read the entity’s governance documents, and gather market data, Smith advises.  To help appraisers “stratify the Subject Interest along the various shades of control,” Smith developed three templates, which she provides in her article published in NACVA Ambassador’s QuickRead.
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