What Is Non-Controlling Interest?

A non-controlling interest is an ownership position in which a shareholder owns less than 50% of outstanding shares and has no control⛦ over decisions. It’s also known as a minority int🔯erest.

Non-controlling interests are measured at the 澳洲幸运5官方开奖结果体彩网:net asset value of entities. They don’t account for potential 澳洲幸运5官方开奖结果体彩网:voting rights.

Most 澳洲幸运5官方开奖结果体彩网:shareholders of public companies would be classified as holding non-controlling interests even with a 5% to 10% equity stake that would be considered to be a large holding in a single company. A non-controlling interest may be contrasted with a controlling or majority iꦕnter﷽est in a company where the investor does have voting rights and can often affect the course of the company.

Understanding Non-Controlling Interest

Most shareholders are granted a set of rights when they purchase common stock, including the right to a cash dividend if the company has sufficient earnings and declares a dividend. Shareholders may also have the right to vote on major corporate decisions, such as a merger or coꦗmpany sale. A corporation can issue different classes of stock, each with different shareholder ri♏ghts.

There are generally two typ🌄es of non-controlling interests: a direct non-controlling interest and an indirect non-controlling interest. A direct non-controlling interest receives a proportionate allocation of all pre- and post-acquisition amounts of recorded equity of a subsidiary. An indirect non-controlling interest receives a proportionate allocation of a subsidiary’s post-acquisit♒ion amounts only.

An investor generally can’t communicate specific proposals to the board and management unless they control 5% to 10% of the shares. They can’t propose changes to the board of directors, propose changes at shareholder meetings, or team with other investors to make their actions more likely to succeed until they control this number of shares. Such investors are termed 澳洲幸运5官方开奖结果体彩网:activist investors.

Financial Statements and Non-Controlling In💞terest

Consolidation is a set o𓃲f financial statements that combines the accounting records of several entities into one set of financials. These typically include a parent company as the majority owner, a subsidiary or a pu✤rchased firm, and a non-controlling-interest company. The consolidated financials allow investors, creditors, and company managers to view the three separate entities as if all three firms are one company.

A consolidation also assumes that a parent and a non-controlling-interest company jointly purchased the equity of a subsidiary company. Any transactions between the parent and the subsidiary company or between the parent and the non-controlling-interest firm are eliminated before the consolidated financial statements are created.

Example of Non-Controlling Interest

Assume that a parent company buys 80% of XYZ firm and that a non-controlling-interest company buys the remaining 20% of this subsidiary. The subsidiary’s assets and liabilities on the balance sheet are adjusted to 澳洲幸运5官方开奖结果体彩网:fair market value, and those values are used on the consolidated financial statements. The excess is posted to a goodwill account in the consolidated financial sta🐠tements if the parent and a non-controlling interest pay mo🍨re than the fair value of the net assets.

Goodwill is an additional expense incurred to buy a company for more than the fair market value. Goodwill is amortized into an expense account over time after an impairment test. This is done under the 澳洲幸运5官方开奖结果体彩网:purchase-acquisition accounting method approved by the Financial Accounting Standards Board (FASB).

According to the FASB, non-controlling interest can also refer to the percentage of the company not owned when more than 50% is owned.

The Bottom Line

A non-controlling interest is a minority interest. The shar෴eholder owns less than half the number of outstanding shares. This type of shareholding typically awards no contꦅrol over corporate decisions or votes. Shareholders with controlling interests have voting rights.

Always consult w꧟ith a professional if you’re unsure about the status of sౠhares of a company in which you’re thinking of investing.