The question asks to identify the option that is NOT an internal variable related to a specific shareholding. Internal variables, in this context, refer to the inherent characteristics of the ownership interest itself that affect its value relative to the company as a whole. The size of the interest (control vs. minority), voting rights, and restrictive provisions are all intrinsic attributes of a specific block of shares. These factors are fundamental in determining valuation adjustments like discounts for lack of control or lack of marketability. Legal proceedings, however, are generally considered a company-specific risk factor or a contingent liability. While they can certainly impact value, they are an external event or condition, not an inherent characteristic of the shares themselves.

A. The size of an interest is a primary internal variable that determines whether a control premium or a discount for lack of control is applicable.

B. The right to vote is a fundamental, inherent characteristic of a shareholding that directly impacts its value and ability to influence the company.

C. Restrictive provisions, such as those in a shareholder agreement, are internal factors directly tied to the ownership interest that impact its liquidity and value.

1. Hitchner, J. R. (2017). Financial Valuation: Applications and Models (4th ed.). John Wiley & Sons.

In Chapter 13, "Discounts for Lack of Control and Minority Interests," and Chapter 14, "Discounts for Lack of Marketability," the text explicitly discusses factors such as the size of the interest, voting vs. non-voting rights, and contractual restrictions as key considerations in determining shareholder-level discounts. Legal proceedings are typically addressed as a company-specific risk factor affecting the overall entity's value, not as a basis for a shareholder-level discount.

2. Pratt, S. P. (2009). Business Valuation: Discounts and Premiums (2nd ed.). John Wiley & Sons.

Chapter 3, "The Control Premium," and Chapter 4, "The Discount for Lack of Control," directly link the size of the ownership block (Option A) and its associated rights (Option B) to valuation adjustments. Chapter 7, "The Discount for Lack of Marketability," details how restrictive provisions (Option C) impact value. Litigation (Option D) is discussed as a company-specific risk that affects the entire enterprise's cash flow or risk profile.

3. National Association of Certified Valuators and Analysts (NACVA). (2023). Fundamentals, Techniques & Theory (FT&T).

The core training materials for the CVA designation extensively cover the "Levels of Value." The adjustments between levels (e.g., from a controlling to a non-controlling interest) are based on internal variables like control characteristics and marketability restrictions (Options A, B, C). Contingent liabilities like lawsuits (Option D) are treated as adjustments to the overall enterprise value or as a component of company-specific risk within the discount rate.