Discount for Lack of Voting Rights (Stock) - Explained
What is a Discount for Lack of Voting Rights?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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What is a Discount for Lack of Voting Rights?
It is a fixed amount or percentage deducted for the selling price of a block of shares that lacks voting rights.
How Does a Discount for Lack of Voting Rights Work?
Some companies issue two types of shares in the market, each type having different rights attached to it. One class of stocks are issued in public which lacks the voting power while the other class is offered only to the founders, executives and family members who are allowed participate in the annual voting process or can elect the board of members. Due to the difference in voting power, the valuation of each type of share is different, and the difference is calculated as the discount for lack of voting rights. The nonvoting shareholders are entitled to receive dividends from the company but do have the right to participate in the voting. Preferred stocks generally do not have a voting right attached to it and thus the value of preferred stocks is lower than the voting stocks. This difference is known as the discount for lack of voting rights.