Illiquidity discount

The illiquidity discount (or marketability discount) is the reduction applied to the value of a stake in a private company to reflect the absence of an organised market allowing rapid sale at a certain price. It compensates for the additional holding cost, timing uncertainty and risk premium faced by an investor who cannot exit quickly. In business valuation, it typically ranges from 10% to 40% depending on company size, sector and relative liquidity. Both the French tax authorities and the Swiss FTA have documented practices on this discount — which must be justified quantitatively in any valuation report submitted to fiscal or judicial authorities.

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Example: a 25% stake in an unlisted Swiss industrial SME is valued at CHF 3.5 million based on sector multiples before discount. A 20% illiquidity discount (CHF 700,000) is applied to reflect the absence of a secondary market and the concentration of risk — producing a retained value of CHF 2.8 million for this minority interest, documented with reference to empirical DLOM (Discount for Lack of Marketability) studies.

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Hectelion justifies and documents every illiquidity discount with market references and defensible models compliant with French tax authority and Swiss FTA practice.