Non-Controlling Interest

A non-controlling interest (NCI), also called a minority interest, is an ownership stake in a company in which the holder owns less than 50% of the outstanding shares and therefore lacks control over corporate decisions. NCIs appear in consolidated financial statements when a parent company owns a majority stake in a subsidiary and other investors own the remaining portion.

Key takeaways

• NCI = ownership of less than 50% of a company’s shares; minority investors normally lack control over corporate decisions.
• NCIs are presented in consolidated financial statements and are measured based on the underlying net assets (fair value) of the subsidiary.
• In consolidation, the parent’s financials are combined with the subsidiary’s; intercompany transactions are eliminated and the portion attributable to NCI is shown separately in equity.
• Activist investors often acquire roughly 5–10% of a company’s shares (average ~6%) to influence management, though influence depends on context and company size.
• Goodwill arises when purchase price exceeds fair value of net assets; under current accounting practices goodwill is tested for impairment rather than routinely amortized.

Types of non-controlling interest

• Direct NCI: receives a proportionate allocation of both pre‑ and post‑acquisition amounts of recorded equity in a subsidiary.
• Indirect NCI: receives a proportionate allocation of post‑acquisition amounts only.

How NCI is reflected in financial statements

When a parent acquires a controlling interest in a subsidiary but not 100%, consolidated financial statements show:
* The subsidiary’s full assets and liabilities at fair value on consolidation.
Any intercompany balances and transactions between the parent and subsidiary (or between the parent and other related parties) are eliminated.
The portion of the subsidiary’s equity and net income attributable to outside shareholders is reported as non‑controlling interest (typically within the equity section on the consolidated balance sheet and as a separate line in the consolidated income statement).

Measurement and accounting notes:
* NCIs are generally measured based on the fair value of the subsidiary’s net assets at the acquisition date.
If the purchase price exceeds the fair value of net identifiable assets, the excess is recognized as goodwill. Goodwill is subject to impairment testing under current accounting standards rather than systematic amortization.
Consolidation follows the acquisition method of accounting: fair value adjustments are recorded on acquisition and then reflected in subsequent consolidated results.

Example

A parent company buys 80% of XYZ Corp.; outside investors hold the remaining 20% (NCI). On consolidation:
* The parent records 100% of XYZ’s assets and liabilities at fair value.
The subsidiary’s net income is allocated between the parent (80%) and the NCI (20%).
The consolidated balance sheet shows NCI as a component of equity equal to the outside owners’ share of the subsidiary’s net assets (including their share of any recognized fair value adjustments and goodwill).

Related concepts

• Net Asset Value (NAV): the value remaining after liabilities are deducted from assets; used to measure the value of an entity’s equity. NAV is one input in assessing the value underlying an NCI.
• Activist investor threshold: while any ownership level can be meaningful in context, activist investors commonly acquire around 6% of outstanding shares to gain influence over company decisions.
• Goodwill: an intangible asset recognized when purchase consideration exceeds the fair value of identifiable net assets acquired; subject to impairment testing.

Bottom line

Non-controlling interest represents outside ownership in a consolidated subsidiary when the parent does not own 100% of the shares. It is measured based on the subsidiary’s net assets, shown separately in consolidated equity, and allocated a proportionate share of the subsidiary’s earnings. Understanding how NCIs are measured and reported is important for interpreting consolidated financial statements and assessing the economic interests of all shareholders.