Consolidation and MI

Consolidation and MI

Didn't find your answer?

A minority shareholder of 10% has forfeited the right to dividends and will take an annual bonus of 10% of profit instead.

10% of the share capital is still owned by the minority interest and therefore in theory 10% of the net assets of the company are controlled by them. This should presumably therefore be shown on the consolidated balance sheet.

However, they are not entitled to 10% of retained profits as they have already been paid out in the form of a bonus.

The consolidation will not balance if the MI figure is changed, so I can only assume a note is required to state that the minority shareholder is not entitled to receive 10% of retained profits.

Is this right?
Mal

Replies (1)

Please login or register to join the discussion.

avatar
By neileg
12th Feb 2003 09:40

No, it's wrong.
Providing the MI holds ordinary shares, then 10 % entitlement of the net assets of the company is unchanged by the agreement you describe, under company law. A share will always rank pari passu with other shares of the same class.

I appreciate that this may not be the intention of the agreement, but that is the effect.

The division of assets on the sale of the company may be dealt with in a shareholders agreement that effectively negates the right of the MI to participate in the sale proceeds of the company, but that's a contract between the shareholders and does not affect either the company or its accounts.

I do not see the need to disclose the effect of this side agreement in the company or group accounts unless the true and fair view is materially affected.

Thanks (0)