In previous issues of A Potpourri, we have noted Illinois’ position regarding determination of fair value in connection with various corporate transactions such as corporate deadlocks and related corporate dissolutions, dissenters’ rights and fractional share retirement. Illinois courts, which are generally considered more protective of the rights of shareholders as opposed to those of management, traditionally have applied lack of marketability and minority discounts in such situations. These discounts generally fall in the range of 15% to 35%. However, this position is contrary to the prevalent trend toward rejection of such discounts. Courts in most jurisdictions now reject application of discounts because they fail to fully credit a minority shareholder’s stake in the value of a business in its entirety.
The Illinois legislature recently amended the Business Corporation Act to address the issue of applicability of minority ownership and lack of marketability discounts in such transactions. Under the revised Act, valuation for such purposes is to be made without any discount for minority status or, absent extraordinary circumstances, lack of marketability. This change brings Illinois into the majority position and should result in higher valuations in applicable corporate transactions. This change is effective January 1, 2007.