What is minority interest?
Minority interest refers to the ownership stake held by investors or shareholders who own less than 50% of the total shares or voting rights in a company. As a result, these minority shareholders have less control over the company's decision-making processes and have limited influence. In accounting terms, minority interest represents the value of shares or interests held by shareholders who do not hold a majority stake. These shareholders are also defined as non-controlling interest holders.
Moreover, in order to keep its holding position, a parent company must always possess more than 50% of the shares in its subsidiary company.
Minority Interest Explained
Minority interests typically refer to the portion of a company or stock that is not owned by the parent company, which holds the majority interest. This minority stake often falls within the range of 20% to 30% ownership.
While the majority stakeholder, usually the parent company, possesses the voting rights and wields influence over policy and decision-making, minority stakeholders, also known as non-controlling interests (NCIs), generally have limited power and influence in shaping the company's direction.
In certain cases, minority stakeholders may possess specific rights, such as participating in sales or having access to audit information as provided by relevant laws. They may also have the opportunity to attend shareholder or partnership meetings.
Within the field of private equity, companies and investors holding minority interests may negotiate for control rights. For instance, venture capitalists might seek a position on the board of directors in exchange for their investment in a startup.
From an accounting standpoint, corporations disclose minority ownership on their balance sheets. Additionally, the minority interest is reported on the consolidated income statement as the share of profit attributable to minority equity holders