Minority Interest

Key Highlights

• Minority interest is the share of a subsidiary company that the parent company doesn’t own.

• It’s the share held by outside investors who don’t have control over the company’s decisions.

What is Minority Interest?

Minority interest is the share of a subsidiary company that the parent company doesn’t own. It’s like having a smaller partner at the table- someone who has a stake in the business but doesn’t call the shots. It’s the share held by outside investors who don’t have control over the company’s decisions.

Key Points

• Accounting Treatment: On the parent company’s balance sheet, minority interest is a separate line under equity, showing the value of the subsidiary’s assets owned by outside investors.

• Ownership: Minority interest usually shows up when a parent company owns more than half- but not all- of a subsidiary. The rest is owned by other investors, known as minority shareholders, who have a piece of the pie but not full control over the business.

• Profit Sharing: Minority shareholders get their fair share of the subsidiary’s profits and assets based on how much they own.

• Transparency: The parent company’s financial statements clearly list the profits and equity for minority interest to keep everything transparent.

Example

If Company A owns 80% of Company B, the 20% owned by other investors is the minority interest, shown separately in Company A’s financial reports.