Minority Equity Investment: Everything You Need to Know
A minority equity investment refers to any investment made into a business that doesn't represent the majority of ownership or give the investor control.3 min read
When an investor has a minority interest in a business, they hold a significant percentage of ownership, but do not have the ability to control business decisions. In business accounting, only the minority interest dividends are included on the balance sheet, unless the owner maintains enough ownership interest to have some type of influence over business decisions, but does not have complete control. If this is the case, both the ordinary income and dividends must be included on the balance sheet.
On the parent company's balance sheet, a liability indicates how much of a subsidiary company is not owned by the parent. For example, when a parent company owns 90 percent of a subsidiary company, and the other 10 percent is traded on the public market, that 10 percent's dollar amount would be included as a liability on the balance sheet. In accounting terms, a minority interest refers to when a parent company owns less than 100 percent of an affiliated or subsidiary company.
The term may also refer to a proportional ownership of a business that isn't enough to maintain complete control. In general terms, a minority interest is when a business or individual owns less than 50 percent of the shares for voting. When the combined shares of all shareholders are less than 50 percent of the total issued shares, those shareholders hold a minority interest in the corporation.
In many cases, the holdings of those classified as minority shareholders combined are much less than half of the total issued by the business. In the example of a partnership, a partner who owns a smaller percentage of the business than any other partner has a minority interest in the company. It is a challenge in most cases for minority interest investors, members or owners to have any type of major influence on business policies.
If a portion of a subsidiary company is not owned by the company that holds it, this portion is referred to as share capital. When a holding company has ownership of over 50 percent of the subsidiary company's issued shares, the holding company maintains control of the business. However, if the holding company owns less than 100 percent of the issued shares, the subsidiary company's other shareholders must be recognized, even those that are considered to have a minority interest.