When one company purchases less than 50% of equity securities in a second company,which of the following statements is true?

Question

Quizplus · Accepted Answer

When one company purchases less than 50% of equity securities in a second company, it is considered a non-controlling interest (also known as minority interest). In this case, the company whose securities are purchased is called the investee. Therefore, option D is the correct answer.

Option A is incorrect because the purchaser cannot be referred to as the parent unless it acquires more than 50% and gains control over the investee.

Option B is incorrect because the term subsidiary refers to a situation where one company owns more than 50% of another company's equity securities and has control over it.

Option C is incorrect because the company whose securities are being purchased cannot be referred to as the subsidiary unless the purchaser acquires more than 50% and gains control over it.

When One Company Purchases Less Than 50% of Equity Securities