Minority interest, also known as non-controlling interest, is the share of ownership in a subsidiary that belongs to outside shareholders other than the parent company. In financial reporting, when a parent company represents its financial statements, it includes the total results of its subsidiaries. However, as part of this consolidation, the portion of profit, assets, and equity that belong to the outsiders is recognized separately and termed as minority interest.
For instance, if a parent company owns 80% of a subsidiary, the remaining 20% owned by other shareholders constitutes the minority interest. This interest is usually presented in the equity section of the consolidated balance sheet and indicates the claim of the outside shareholders on the subsidiary's net assets. For example, in a consolidated financial statement, you might see a line item for "Non-controlling Interest" in the equity section, showing the monetary value of this stakeholder's claim.
It plays a significant role in ensuring transparency in financial disclosures and gives an accurate representation of the actual ownership and responsibilities within a corporate group. Related terms such as financial statements, balance sheet, and consolidation are often associated with discussions on minority interest.