Family Limited Partnership: Why Can Minority and Marketability Discounts Matter?
An interest in a closely held family entity may be worth less than a pro-rata slice of the entity's underlying assets because the owner lacks control and liquidity.
Minority interest
A noncontrolling interest can be worth less because the holder cannot independently direct distributions, sales, or management decisions.
Lack of marketability
Closely held interests can be difficult to sell, which can reduce fair-market value relative to readily marketable assets.
Planning use
Family limited partnerships can centralize management and facilitate transfers of interests over time.
Scrutiny
Entity formalities, business purpose, retained control, transfer restrictions, and valuation support all matter because aggressive discounts can be challenged.
The takeaway
Valuation discounts depend on real economic restrictions and defensible valuation, not merely on placing assets into a family entity.
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FAQ
Can a minority interest be worth less than a pro-rata share of underlying assets?
Yes.
Does lack of marketability affect valuation?
Yes.
Are valuation discounts automatic merely because an FLP exists?
No.