What is minority interest?

Introduction

Minority interest refers to the interest of the outsiders in the subsidiary or subsidiaries of a holding company. In the presentation of the consolidated balance sheet of a parent company and its subsidiaries, Minority Interest is shown just below Shareholders’ Funds.

Explanation

To understand the concept of minority interest, we need to first understand the relationship between a holding company and its subsidiary company or companies.

A holding company means a company that controls one or more companies by:

• Holding more than fifty percent of the total voting rights or equity share capital.
• having the power to appoint or remove the majority of the board members.

A subsidiary company is a company that is controlled by another company.

From the above, we can simply deduce that a holding company holds the majority of the equity in its subsidiary company or companies.

So, the equity of the subsidiary company which does not belong to the holding company, but to the outsiders is known as the minority interest as it is, in fact, the minority in comparison to the majority stake of the holding company.

Example

For example, A Ltd holds 75% of the equity in B Ltd, then the rest 25% which belongs to the outsiders will be the Minority Interest.

Minority Interest means the share of outsiders in the:

• Paid-up share capital of the subsidiary
• Reserve and Surplus

For example, B Ltd has the following particulars under Shareholders’ Funds.

B Ltd is a subsidiary company of the A Ltd. A Ltd holds 75% of B Ltd.

It means minority interest in B Ltd is 25% (100% – 75%)

Therefore, in the consolidated balance sheet of A Ltd and its subsidiary, the minority interest will be as follows:

Minority Interest in B Ltd (25%)