# Private Company Valuation - Discount Lack of Control

The formula for DLOC is 1- (1/(1+control premium)) . What does control premium mean? Does that mean,a major shareholder % in the company? Let say B is a major shareholder in Company XYZ and B owns 35% shareholding in the Company. So the DLOC calculation will look like : 1- (1/(1+0.35)) ??

Control premiums can vary in size depending on the amount of control the shareholder has.

There are a number of studies that have been done to determine the appropriate control premium for a private company (Mergerstat Control Premium Study is one) so itâ€™s not as simple as your example. Generally, control premiums are viewed as the excess a buyer would pay over a minority interest in order to acquire control of the company.

For example, if the control premium for a given company was 25%, your minority interest discount (or discount for lack of control) would be 20% (1-(1/(1+0.25)). Here, a buyer would be willing to pay 25% to obtain control of the company. In order to calculate what the freely traded value of a minority interest, you would discount whatever the controlling interest value by 20% (the minority interest discount or discount for lack of control).