A minority interest is ownership or interest of less than 50% of an enterprise. The term can refer to either stock ownership or a partnership interest in a company. The minority interest of a company is held by an investor or another organization other than the parent company. A minority interest shows up as a noncurrent liability on the balance sheet of companies with a majority interest in a company.
Minority interests are the portion of a company or stock not held by the parent company, which has a majority interest. Most minority interests range between 20% and 30%.
While the majority stakeholder—in most cases, the parent company—has voting rights to set policy and procedures, the minority stakeholders generally have very little say or influence in the direction of the company. That’s why it’s also referred to as non-controlling interests (NCIs). In some cases, a minority may have some rights such as the ability to take part in sales. There are laws that also allow minority interest holders to certain audit rights. They also may be able to attend shareholder or partnership meetings.
Minority Interests can be of two types- Passive and Active
In passive minority interest, the controlling stake is usually below 20%. Under passive minority interest, a subsidiary company does not exert influence over the major company. On the other hand, the controlling stake of an active minority interest ranges between 21% to 49%, and a subsidiary, in this case, enjoys voting rights to influence the major company.
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