Minority interest

This is an accounting term for the amount of a balance sheet not owned by a firm’s shareholders. This arises because of the way two companies’ balance sheets are combined when one buys the other, following UK rules. Say, for example, A plc buys 75% of B plc. A now controls B as it has a majority of the voting shares.

In a ‘consolidated’ balance sheet, you combine 100% of the assets A now controls – so all of A plc and B plc. But in the bottom of the balance sheet, in the shareholders’ funds section, you show what is owned by A plc. This means 25% of the net asset value of B plc is shown as a “minority interest” as it is technically owned by outside shareholders.

For example, if A and B have assets of £100m each, the combined balance sheet will show £200m of net assets. However, the shareholders’ funds section will show the same £200m total but with a line ‘minority interests’ showing the 25% of B – £200m x 0.25, or £50m – not owned by A.

Merryn

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