Reviewed by Aug 27, 2020| Updated on
What is Minority Interest?
A minority interest is less than 50 per cent ownership or interest in a company. The word can apply to either stock ownership or a shareholding interest in a company. An investor or other entity other than the parent company holds a minority interest in a company. Minority interests usually come with some of the stakeholder's rights, such as revenue participation and other audit privileges.
A minority interest shows up on the balance sheet of companies with a majority interest in a firm as a non-current liability. This reflects the proportion of its minority shareholders held subsidiaries.
Understanding Minority Interests
Minority interests are the part of a company or shares that the parent corporation does not own and that have a majority interest. Most minority interests range from 20 per cent to 30%.
While the majority stakeholder – the parent company in most cases – has voting rights to set policies and procedures, the minority stakeholders generally have very little said or influence in the direction of the company. That's why it's called non-controlling interests (NCIs), too.
In some cases, a minority may have certain rights, such as being able to participate in sales. There are laws which also require holders of minority interests to have some audit rights. They may also be in a position to attend shareholder or partnership meetings.
Companies and investors with a minority stake in the private equity environment can be able to negotiate ownership rights. Venture capitalists, for example, might seek to obtain a seat on the board of directors in return for his investment in a company.
A company reports minority interests in the business sector on the balance sheet. In addition to being represented on the balance sheet, minority interest is listed as a share of the income belonging to minority equity holders on the consolidated revenue statement.