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How valuation, control, marketability and transfer restrictions affect private-company shares
A minority shareholding in a private South African company can be worth millions in a divorce without giving the spouse who owns it control of the company, an easy way to sell it, or a straightforward valuation.
This article is part of MVA’s guide to high-net-worth divorce in South Africa. That is why simply multiplying the company’s value by the spouse’s percentage shareholding can produce a misleading result.
The matrimonial property regime, the rights attached to the shares, the degree of control they provide, their transfer restrictions and their practical marketability may all affect the analysis.
The distinction between share percentage, control, marketability and economic value is particularly important in private companies.
A minority interest may carry limited voting or governance rights, while restrictions on transfer may make the interest difficult to realise independently of other shareholders. Those characteristics may be relevant to valuation, but they do not automatically justify a particular minority or marketability discount.
The matrimonial property regime must first be established, together with the circumstances in which the shares were acquired and any applicable exclusions in an antenuptial contract. Only then should the legal, valuation and implementation questions surrounding the interest be addressed.
This article provides general information about South African law. It does not constitute legal, financial, tax or valuation advice and does not predict the outcome of an individual matter.
| Question | General position |
Is a 20% shareholding automatically worth 20% of the company? | No. Control, rights, restrictions and marketability may affect the value of the particular interest. |
Does a minority discount always apply? | No. It depends on the valuation basis, purpose and characteristics of the interest. |
Does a private-company shareholding automatically receive a marketability discount? | No. The actual transfer restrictions and realistic market for the shares must be considered. |
Does divorce automatically transfer shares to the other spouse? | No. Matrimonial entitlement and registered share ownership are separate issues. |
Should the whole company or the minority interest be valued? | The valuation mandate must identify exactly what is being valued and why. |
Can an ANC affect the treatment of the shares? | Yes. The acquisition history, commencement value and any valid exclusion may materially affect the matrimonial analysis. |
Must the entire business be sold to satisfy a divorce claim? | Not necessarily. Settlement structures may include other assets, refinancing, staged payments or security, depending on affordability and legal circumstances. |
Is business value the same as available cash? | No. A valuable business may be highly illiquid. Valuation and settlement funding are different questions. |
A minority interest, in ordinary corporate terms, is a shareholding that does not, on its own, give the holder control of the company.
The extent of control or practical influence depends on the rights attached to the shares, the company’s constitutional arrangements and the distribution of voting and governance rights among shareholders.
A 10%, 20%, 30% or even 40% shareholding can behave very differently depending on the surrounding structure. Relevant factors may include:
Two 30% shareholdings can therefore be economically and strategically different. One may carry meaningful influence where the other shareholders are divided; another may sit alongside a single 70% holder who controls the board and most shareholder decisions.
The percentage recorded against a shareholder’s name does not, by itself, establish the value, control rights or practical marketability of the interest.
A simple pro-rata calculation can be a useful reference point, but it may not answer the legal valuation question that arises in the divorce.
The relevant enquiry is not merely what percentage of the company the spouse owns, but what rights, restrictions and economic characteristics attach to that particular interest.
The treatment of a business interest during divorce cannot be determined without first establishing the matrimonial property regime governing the marriage.
That analysis should come before valuation or settlement strategy.
Before considering the company documents or valuation, the applicable matrimonial property regime must be established.
Depending on the marriage and the terms of any antenuptial contract, spouses may be married in community of property, out of community of property with accrual, or out of community of property without accrual.
The same shareholding can produce different matrimonial consequences under each regime. A shareholding forming part of a joint estate raises different questions from one held in a separate estate subject to an accrual claim.
A no-accrual marriage may raise a redistribution issue in qualifying circumstances, rather than an accrual calculation.
The starting point should therefore be the marriage documents and matrimonial regime, not the percentage of shares held.
Under the accrual system, each spouse ordinarily retains a separate estate during the marriage.
At dissolution, the spouse whose estate shows the smaller accrual may acquire a monetary claim equal to half the difference between the accrual of the two estates, subject to the Matrimonial Property Act and the terms of the ANC.
A business interest can therefore have considerable significance even though the other spouse does not own the shares.
The relevant question may be what value that shareholding or business interest contributes to the owner spouse’s estate for accrual purposes.
Even where shares fall within a joint estate, the non-registered spouse does not automatically become a registered shareholder merely because the marriage ends.
There is an important distinction between the proprietary relationship between the spouses, governed by matrimonial property law, and the company’s recognition of who is entitled to be entered in its securities register, governed by company law and the company’s constitutional arrangements.
This distinction arose in the De Sousa litigation. In De Sousa v Technology Corporate Management (Pty) Ltd and Others; De Sousa v De Sousa and Another [2018] ZAGPJHC 445, the Gauteng Local Division considered whether a former spouse married in community of property automatically became entitled, following divorce, to registration as holder or co-owner of shares registered in her former husband’s name.
The litigation should be treated cautiously for present purposes. The broader proceedings concerned company-law disputes involving minority shareholders, while the matrimonial issue arose in the context of an unresolved joint estate.
The later Supreme Court of Appeal decision, Technology Corporate Management (Pty) Ltd and Others v De Sousa and Another (613/2017) [2024] ZASCA 29, concerned alleged unfairly prejudicial conduct towards minority shareholders and should not be presented as a matrimonial valuation authority.
The narrower point is that a matrimonial entitlement arising from the division of an estate and registration as the holder of particular shares are not necessarily the same question.
Where a marriage is out of community of property with accrual, a minority shareholding may be relevant to the calculation of a spouse’s accrual, subject to the Matrimonial Property Act 88 of 1984 and any valid exclusions contained in the ANC.
Relevant questions may include the commencement value of the shareholding, whether the ANC excludes the shares or related interests, whether additional shares were acquired during the marriage, how those additional shares were acquired, and the value of the relevant interest at dissolution.
In B F v R F [2018] ZAGPJHC 699; 2019 (4) SA 145 (GJ), the majority held that an exclusion relating to existing shares did not, on the wording and facts before it, automatically extend to additional shares acquired during the marriage.
The case illustrates why the wording of an exclusion clause and the acquisition history of the shares must be examined carefully.
Where community of property and accrual have both been excluded, each spouse ordinarily retains their separate estate.
That does not mean that every divorce involving such a marriage is financially simple. Maintenance, contractual rights, ownership disputes, loan accounts, trusts and, where legally applicable, redistribution claims may still require careful analysis.
The precise ANC and the law applicable to the particular marriage must therefore be examined before conclusions are drawn.
The starting point is not necessarily the value of the company as a whole. The legal team and valuation expert should identify what interest is being valued, for what purpose, at what date and under what legal or contractual framework.
The exercise may need to distinguish between the value of the company as a whole, a simple pro-rata calculation based on the percentage holding, and the value attributable to the particular minority interest after its rights, restrictions and other characteristics are considered.
Before an expert is instructed, the attorney should establish whether the legal question requires the value of the company, the pro-rata value of the shares, the value of the specific minority interest, or a contractual “fair value” determined under a shareholders’ agreement or another legal framework.
Terms such as “fair value” and “fair market value” should not automatically be treated as interchangeable. Their meaning depends on the statutory, contractual or evidential context in which the valuation is required.
A valuation concept used in a Companies Act remedy or shareholders’ agreement should not automatically be imported into a matrimonial dispute. The applicable basis should follow from the legal question being answered.
A minority interest may have different economic characteristics from a controlling interest in the same company. Voting rights, board representation, reserved matters, dividend rights, information rights and the ability to influence strategic decisions may all be relevant.
Minority status alone, however, does not prove that a particular valuation adjustment should be applied. The rights attached to the actual shareholding matter more than the label “minority”.
Private-company shares generally do not have the continuously traded public market available to listed securities. A minority shareholder may face a limited pool of purchasers, pre-emption rights, consent requirements, contractual restrictions on transfer or limited exit mechanisms.
Marketability is distinct from control. A shareholder may have limited control but still have a practical route to realise the interest. Conversely, a shareholder may have meaningful influence while facing substantial restrictions on transfer.
A minority discount and a marketability discount address different characteristics. A minority discount generally relates to characteristics associated with a non-controlling interest. A marketability discount concerns the difficulty of selling or realising the interest. They should not automatically be treated as interchangeable or cumulatively applied.
No fixed percentage should be assumed merely because a shareholding is non-controlling or privately held. Whether an adjustment is appropriate depends on the valuation basis, the purpose of the exercise, the rights attached to the shares, the company’s circumstances and the legal or contractual framework.
Technology Corporate Management v De Sousa may provide company-law context on minority shareholder rights and exit mechanisms, but it should not be treated as establishing a general rule for matrimonial valuations.
The valuation of the company as a whole is not necessarily the same exercise as valuing the particular minority interest relevant to a divorce. A poorly framed mandate can therefore produce a technically competent valuation that answers the wrong legal question.
The mandate should identify:
The valuation approach should follow from the legal question rather than being selected merely because it is commonly used for private-company shares.
The nature, rights and value of a minority interest may require review of the following material:
Where shares are held indirectly through another entity or structure, registered ownership and the relevant beneficial or economic interest may need to be established separately. That issue should be distinguished from a broader hidden-assets investigation.
Once the matrimonial consequences have been established, the parties may need to decide whether the shares should remain with the existing shareholder or be transferred as part of the settlement.
In many divorces, transferring minority shares to the non-operating spouse is commercially undesirable because it can leave former spouses tied together inside the same private company.
Where sufficient liquidity or other assets exist, retaining the shares with the existing shareholder and equalising value elsewhere may be more workable.
An actual transfer raises issues that a purely notional valuation does not. The MOI, shareholders’ agreement, pre-emption rights, consent requirements and rights of other shareholders may all affect implementation.
Neither approach is inherently preferable. The correct mechanism depends on the matrimonial position, the corporate structure, the rights attached to the shares and the practical objectives of the settlement.
Where a divorce order or settlement requires shares to be transferred, it must be capable of practical implementation.
The order should identify the relevant shares clearly and should be drafted with the company’s records, transfer procedures and contractual restrictions in mind.
R v R [2023] ZACC 5 arose from later proceedings concerning enforcement and variation of a divorce order and included a dispute about the valuation of shares in Mozambican companies.
It should not be treated as establishing a general methodology for valuing minority shares. Its narrower relevance is that it illustrates the risks created by inadequately supported valuation evidence in later proceedings.
A private company is a separate juristic person from its shareholders. A shareholder owns shares in the company; the company itself owns its assets.
Divorce therefore ordinarily requires valuation or treatment of the spouse’s shareholding, not a direct division of company property between the spouses.
This distinction is especially important where clients refer loosely to “my spouse’s business assets”. The underlying company value and the value of the spouse’s shareholding are related, but legally distinct.
A formal expert valuation is not automatically required in every matter involving minority shares. It becomes more important where the value is material, the appropriate valuation basis is disputed, the company is complex, or the rights and restrictions attached to the shares materially affect the outcome.
Where expert evidence is required, the instructions should identify the legal question rather than simply asking for “the value of the shares”.
Depending on the matter, the expert may need to address company value, pro-rata value, the value of the particular minority interest, control rights, transfer restrictions, marketability and any proposed adjustment.
A minority interest can represent substantial wealth while providing limited control or limited ability to realise the investment.
Voting rights, board representation, reserved matters, different share classes and the distribution of the remaining shareholding may cause two interests with the same percentage ownership to have materially different characteristics.
Additional complexity may arise where the interest is held through an offshore entity, holding company or layered investment structure. The legal and economic interest should be identified accurately before its value is considered.
Cross-border ownership may also require specialist tax, company-law or valuation input.
Not necessarily. The matrimonial entitlement depends on the property regime, the acquisition history, any applicable exclusions and the mechanism used to implement the proprietary consequences of divorce.
No. Minority status may be relevant, but a discount must be justified by the valuation basis, rights attached to the shares and the legal context.
No. The actual restrictions, market and exit mechanisms must be considered.
No. Matrimonial entitlement and registration as shareholder are separate questions.
Not safely. The order still has to be capable of implementation within the company-law and contractual framework.
Not necessarily. The applicable valuation standard depends on the legal, contractual or statutory context.
The following examples are hypothetical and illustrative only. They do not indicate how a South African court would determine any particular dispute.
A spouse holds 25% of a private engineering company acquired several years into the marriage. Before considering value, the matrimonial property regime must be established.
The analysis may then require consideration of the ANC, acquisition history and whether the shareholding falls within the relevant matrimonial estate or accrual calculation. The 25% figure alone does not determine the spouse’s matrimonial entitlement or the value attributable to the interest.
A spouse holds 20% of a family business alongside a sibling who holds the remaining 80%. The shareholders’ agreement gives the sibling a right of first refusal over proposed transfers.
Even if the 20% interest has substantial value, an outright transfer to the other spouse may be commercially or contractually difficult. Retention by the existing shareholder, with value addressed elsewhere in the settlement, may be more workable.
Two experts produce materially different values for the same 15% private-company shareholding. One applies a minority discount and a separate marketability discount; the other does not.
Before either valuation can be assessed, the parties should establish what is being valued, the relevant date and basis, the rights attached to the shares, transfer restrictions, marketability and the legal purpose of the exercise.
The issue is not simply which expert used the larger discount, but whether the proposed adjustments are justified.
Identify the number and class of shares, voting rights, board or governance rights, dividend rights and any other rights affecting the economic characteristics of the interest.
Consider voting rights, board representation, reserved matters and the distribution of the remaining shareholding.
Review the MOI, shareholders’ agreement, pre-emption rights, consent requirements and other restrictions affecting transfer.
Establish the valuation date, legal or contractual purpose, applicable valuation basis and whether the exercise concerns company value, pro-rata value or the particular minority interest.
Treatment depends on the matrimonial property regime, the terms of any ANC, how the shares were acquired and held, and the mechanism used to implement the financial consequences of divorce. The shares are not automatically divided or transferred merely because the marriage ends.
Potentially. The nature of any entitlement depends on the matrimonial property regime, acquisition history and any relevant exclusions. The percentage of shares held does not, by itself, determine the matrimonial entitlement.
No. Minority status may be relevant, but a discount should not be assumed simply because the shareholding is non-controlling.
No. The absence of a public market may be relevant, but transfer restrictions, potential purchasers, contractual exit rights and the valuation mandate must be considered.
A minority discount generally concerns characteristics associated with lack of control. A marketability discount concerns difficulty selling or realising the interest. They address different characteristics and should not automatically be treated as cumulative.
It may be possible, but implementation depends on the wording of the order and the applicable company-law and contractual requirements, including the MOI, shareholders’ agreement and transfer restrictions.
Its meaning depends on the legal, contractual or statutory context. A valuation standard used in a corporate shareholder dispute should not automatically be assumed to govern a matrimonial valuation.
The valuation depends on what interest is being valued, the valuation date, the applicable valuation basis and the characteristics of the shares. Appropriately scoped expert evidence may be required where value or methodology is genuinely disputed.
A minority shareholding in a South African divorce cannot be assessed by looking at the percentage of shares held alone. The analysis may need to distinguish between matrimonial entitlement, ownership, control, economic value, marketability and the practical ability to implement any proposed transfer.
In high-value divorce proceedings, a private-company minority interest may represent substantial wealth and require coordinated matrimonial-property, company-law and valuation analysis. Where appropriate, tax and cross-border advice may also be necessary.
Martin Vermaak Attorneys Inc. advises on South African divorce and matrimonial-property matters involving businesses, private-company shares, accrual claims, excluded assets, shareholder interests and complex financial structures.
For related guidance, see MVA’s articles on Divorce and Business Ownership in South Africa, Shareholder Loans in High-Net-Worth Divorce, Liquidity in High-Net-Worth Divorce, The Expert Team in South African High-Net-Worth Divorce and Can You Exclude Assets From Accrual in an ANC?.
Author: Martin Vermaak, B.Proc, LLB
Attorney of the High Court of South Africa | Director, Martin Vermaak Attorneys | Over 20 years’ experience in divorce and family law
Disclaimer
This information has been prepared for general educational purposes only and is not intended to constitute legal, financial, tax or other professional advice. South African family law is fact-specific, and the applicable legal position may depend on the circumstances of the individual matter. Readers should obtain independent professional advice appropriate to their circumstances before making legal, financial or other decisions.
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