Minority interest
Encyclopedia
Minority interest in business is an accounting concept that refers to the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 50% of outstanding shares
, else the corporation would generally cease to be a subsidiary of the parent. It is, however, possible (e.g. through special voting rights) that a controlling interest requiring consolidation be achieved without exceeding 50% ownership depending on the accounting standards being employed. Minority interest belongs to other investors and is reported on the consolidated balance sheet
of the owning company to reflect the claim on assets belonging to other, non-controlling shareholders. Also, minority interest is reported on the consolidated income statement
as a share of profit belonging to minority shareholders.
Minority interest is an integral part of the enterprise value
of a company. The converse concept is an associate company
.
Under IFRS the minority interest (non-controlling interest) is reported in the Equity section of the consolidated balance sheet. Under US GAAP, minority interest can be reported in the liabilities section, the equity section, or the mezzanine section of the balance sheet. The Mezzanine section is located between liabilities and equity. FASB FAS 160 and FAS 141r significantly alter the way a parent company accounts for NCI in a subsidiary. It is no longer acceptable to report minority interest in the Mezzanine section of the balance sheet.
Shares outstanding
Shares outstanding are common shares that have been authorized, issued, and purchased by investors. They have voting rights and represent ownership in the corporation by the person or institution that holds the shares. They should be distinguished from treasury shares, which is common stock held by...
, else the corporation would generally cease to be a subsidiary of the parent. It is, however, possible (e.g. through special voting rights) that a controlling interest requiring consolidation be achieved without exceeding 50% ownership depending on the accounting standards being employed. Minority interest belongs to other investors and is reported on the consolidated balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
of the owning company to reflect the claim on assets belonging to other, non-controlling shareholders. Also, minority interest is reported on the consolidated income statement
Income statement
Income statement is a company's financial statement that indicates how the revenue Income statement (also referred to as profit and loss statement (P&L), statement of financial performance, earnings statement, operating statement or statement of operations) is a company's financial statement that...
as a share of profit belonging to minority shareholders.
Minority interest is an integral part of the enterprise value
Enterprise value
Enterprise value , Total enterprise value , or Firm value is an economic measure reflecting the market value of a whole business. It is a sum of claims of all the security-holders: debtholders, preferred shareholders, minority shareholders, common equity holders, and others...
of a company. The converse concept is an associate company
Associate company
An associate company in accounting and business valuation is a company in which another company owns a significant portion of voting shares, usually 20–50%. In this case, an owner does not consolidate the associate's financial statements. Ownership of over 50% creates a subsidiary, with its...
.
Under IFRS the minority interest (non-controlling interest) is reported in the Equity section of the consolidated balance sheet. Under US GAAP, minority interest can be reported in the liabilities section, the equity section, or the mezzanine section of the balance sheet. The Mezzanine section is located between liabilities and equity. FASB FAS 160 and FAS 141r significantly alter the way a parent company accounts for NCI in a subsidiary. It is no longer acceptable to report minority interest in the Mezzanine section of the balance sheet.
See also
- Associate companyAssociate companyAn associate company in accounting and business valuation is a company in which another company owns a significant portion of voting shares, usually 20–50%. In this case, an owner does not consolidate the associate's financial statements. Ownership of over 50% creates a subsidiary, with its...
(the converse concept) - Articles of IncorporationArticles of IncorporationThe Articles of Incorporation are the primary rules governing the management of a corporation in the United States and Canada, and are filed with a state or other regulatory agency.An equivalent term for LLCs in the United States is the Articles of Organization...
- Business valuationBusiness valuationBusiness valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to consummate a sale of a business...
- Consolidation (business)Consolidation (business)Consolidation or amalgamation is the act of merging many things into one. In business, it often refers to the mergers and acquisitions of many smaller companies into much larger ones. In the context of financial accounting, consolidation refers to the aggregation of financial statements of a group...
- Drag-Along rightDrag-along rightDrag-Along Right is a legal concept in corporate law. The right assures that if the majority shareholder sells his stake, minority holders are forced to join the deal. This right protects majority shareholders. Drag-along rights are fairly standard terms in a stock purchase agreement...
- Equity methodEquity methodEquity method in accounting is the process of treating equity investments, usually 20–50%, in associate companies. The investor keeps such equities as an asset. The investor's proportional share of the associate company's net income increases the investment , and proportional payment of dividends...
- Pre-emption rightPre-emption rightA pre-emption right is a right to acquire certain property in preference to any other person. It comes from the Latin verb emo, emere, emi, emptum, to buy or purchase, plus the inseparable preposition pre, before. It usually refers to property newly coming into existence...
- Share capitalShare capitalShare capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value...
- Tag-Along rightTag-along rightA tag-along right is a legal concept in corporate law. The right assures that if the majority shareholder sells his stake, minority holders have the right to join the deal and sell their stake at the same terms and conditions as would apply to the majority shareholder. This right protects minority...
- Voting interestVoting interestVoting interest in business and accounting means the total number of votes entitled to be cast on the issue at the time the determination of voting power is made, excluding a vote which is contingent upon the happening of a condition or event which has not occurred at the time.This notion is...