Posted in Finance, Accounting and Economics Terms, Total Reads: 512
Definition: Minority Interest
A corporation may be held by a number of investors and other corporations. The power and voting rights are determined by the percentage share of individual stakeholders. Parent Corporation is the one which holds more than 51% of the outstanding shares. All other stakeholders, i.e., stakeholders holding less than 50% voting rights, are minority stakeholders. This portion of the corporation which is not owned by the parent corporation but by minority stakeholders is called minority interest. It is generally lesser than 50%, except few special cases.
As per the accounting practices followed, the parent corporation consolidates the balance sheet of the subsidiary as if it is the full owner of the company, even though it is a partly owned subsidiary. The share of other partial owners is reflected by two line items in the consolidated balance sheet. These are the net difference between what would have been the income to common and the common equity if the subsidiary was fully owned by parent organization, versus the actual ownership of the subsidiary. These line items cause concern to some investors since this method of accounting leads to uncertainty in assessing value, leverage and liquidity of the company.