What is a Non-Controlling Interest?

A non-controlling interest is an ownership position in a corporation that is not sufficiently large for an investor to exercise operational control over the entity. The bulk of all investors have a non-controlling interest, since the number of shares they own in proportion to the total is so small.

A non-controlling interest does not have to be one that has less than 50% of the shares outstanding. A lesser proportion of ownership can result in a person acquiring a board seat, which does provide a measure of control.

Characteristics of a Non-Controlling Interest

A party that owns a non-controlling interest in another business likely has some or all of the following characteristics:

Lack of control over decision-making. Non-controlling interest holders generally lack the ability to influence the company's strategic or operational decisions. They do not have voting power sufficient to impact key decisions, which remains with the controlling interest holders (typically those who own more than 50% of the company).
Limited influence over financial policies. Those with a non-controlling interest usually have little to no say in financial policies such as dividend distributions, acquisitions, or financing decisions. Control over these decisions is retained by the majority (controlling) interest.
Minority ownership. Parties with a non-controlling interest own less than 50% of the company, meaning they have a minority interest.

Presentation of a Non-Controlling Interest

An investor with a non-controlling interest does not consolidate the results of the investee with its own financial statements. Consolidation refers to the process of combining the financial statements of several entities in order to produce one set of financial statements. When an investor does have a controlling interest, then it must present consolidated financial statements from which inter-company transactions have been stripped out.