Reviewed by Aug 27, 2020| Updated on
Non-controlling interest is also known as a minority interest. It is a scenario in which a shareholder holds less than half of the overall outstanding shares and thereby not having any control over the decisions made in the company. Non-controlling interest is gauged at the NAV (net asset value) of companies and not going to factor possible voting rights.
Majority of the shareholders of public companies are classified as holding interest which is non-controlling, while even smallholdings in the range of 5-10% of the equity stakes being considered as fairly large in a single large company. A non-controlling interest can be contradicted with the majority or controlling interest in the company, wherein the investors do not have any voting rights and may generally impact the company’s interest.
Breaking Down Non-Controlling Interest
The majority fo the shareholders are granted with a slew of rights when they are going to purchase common stocks, that includes the right to get cash in the form of dividends when the company goes onto perform well and declares sufficient earning to pay out dividends. Shareholders might also be given with the right to cast their votes on a major business decision, such as acquisition or merger of the company. The company is allowed to issue various classes of stocks, each with varying rights of shareholders.
Types of Non-Controlling Interests
Typically, there exist two kinds of non-controlling interests, and they are direct non-controlling interests and indirect non-controlling interests. The direct non-controlling interests will go on to get a portion of the allocation of all recorded equities of subsidiaries, and it includes both post and pre-acquisition costs. The indirect non-controlling interests would go on to accept only a portion of the allocation of the subsidiary’s amounts of post-acquisition.