What does Non Controlling Interest (NCI) refer to in a purchase of shares acquisition?

Non-Controlling Interest (NCI) refers to equity ownership in a subsidiary that is not attributable to the parent company. In the context of a purchase of shares acquisition, NCI specifically pertains to shareholders who own shares in a subsidiary but do not hold a majority stake. This means they have less than 50% of the voting rights or economic benefits of that subsidiary.

The presence of NCI highlights the interests of minority shareholders in financial reporting, as they are entitled to a portion of the subsidiary’s net assets and profits. When consolidating financial statements, the parent company must recognize this minority ownership interest to accurately reflect the total equity of the subsidiary, ensuring that stakeholders can see the portion of the company that does not belong to the parent.

This understanding is crucial for understanding corporate structures and financial reporting, particularly when assessing the contributions and obligations of all shareholders in the context of acquisitions and consolidations.