Most partner disputes grow from one simple, wrong assumption: that the value of a stake equals its percentage of book equity. Book value records historical cost; fair value reflects the future ability to generate cash.
Why a stake gets discounted
- Discount for lack of control: a minority stake cannot set distributions or change management.
- Discount for lack of marketability: there is no organised market for a stake in an unlisted company.
- Shareholder agreement restrictions: pre-emption rights and consent requirements limit freedom to sell.
The least contentious approach is to agree the valuation methodology and the valuer in the shareholder agreement before the need arises — not to negotiate them in the middle of a dispute.
