Minority Interest

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Minority Interest

What it is

A minority interest (also called a non-controlling interest) is an ownership stake in a subsidiary company that is less than the controlling share. The parent company retains control—usually by holding more than 50% of voting rights—while minority owners hold a smaller portion and typically have limited influence over major decisions.

Key takeaways

  • Minority interest represents ownership in a subsidiary that the parent company does not own.
  • It is reported separately on consolidated financial statements: as a portion of equity on the balance sheet and as net income attributable to non-controlling interests on the income statement.
  • Minority stakes can be passive or active, with different accounting treatments and levels of influence.
  • The term “non-controlling interest” emphasizes limited control and is used interchangeably with minority interest.

How it works (accounting and rights)

  • Consolidation: When a parent company consolidates a subsidiary, it combines the subsidiary’s assets, liabilities, revenues, and expenses with its own. The portion of subsidiary equity not owned by the parent is shown as minority interest in the equity section of the consolidated balance sheet.
  • Income attribution: A proportional share of the subsidiary’s net income is reported on the parent’s consolidated income statement as net income attributable to non-controlling interests.
  • Rights: Minority owners may have certain rights—such as attending shareholder meetings, participating in sales, and limited audit rights. In negotiated situations (for example, venture capital), minority investors may secure control rights like a board seat.

Example

ABC Corporation owns 90% of XYZ Inc., which has total equity of $100 million and generates $10 million in net income.
* ABC records $90 million of XYZ equity and reports $10 million as minority interest (the 10% ABC does not own).
* On the consolidated income statement, ABC reports $1 million (10% of $10 million) as income attributable to non-controlling interests.
* ABC increases the minority interest balance on the balance sheet by that $1 million.
* Minority investors record income only when they receive dividends; otherwise their ownership is reflected on the parent’s consolidated statements.

Types of minority interests and accounting methods

  • Passive minority interest (commonly <20%):
  • Investor has no material influence.
  • Accounting: cost method—investment recorded at cost; dividends recognized as income.
  • Active minority interest / significant influence (commonly ~20–50%):
  • Investor can influence operations and decisions.
  • Accounting: equity method—investor recognizes its share of the investee’s profits, which adjusts the investment carrying amount; dividends reduce the carrying amount.
  • Controlling interest (typically >50%):
  • Parent consolidates the subsidiary; minority interest is the portion of equity not owned by the parent.

Thresholds are conventional and may vary depending on specific facts and legal or contractual rights.

Important considerations

  • Control without majority ownership: Control can exist without a majority equity stake (for example, through contractual arrangements or variable interest entities). In such cases, consolidation may still be required.
  • Presentation: Accounting standards require that non-controlling interests be presented in the equity section of the consolidated balance sheet and that net income be split between the parent and non-controlling interests on the income statement.
  • Interpretation: Investors should review consolidated statements carefully—minority interest amounts provide insight into how much of a subsidiary’s equity and earnings belong to outside shareholders versus the parent.

Bottom line

Minority (non-controlling) interest reflects the portion of a subsidiary’s equity and income belonging to outside shareholders. It affects how consolidated financial results are presented and interpreted. Recognizing whether an investment is passive, represents significant influence, or is controlled by the parent determines the accounting treatment and the visibility of minority owners’ impact on financial statements. Understanding these distinctions helps investors evaluate earnings, equity structure, and the true economic interest a parent company has in its subsidiaries.