WHAT IS 'Minority IPO'

A minority IPO is an initial public offering in which a parent company spins off one of its subsidiaries or divisions, but retains a majority stake in the company after issuance. This means that after the public offering, the parent company will still have a controlling stake of the new public company. Shareholders who purchase shares during the IPO will only be minority owners of the company, hence the name minority IPO. A minority IPO is also called a partial IPO.

BREAKING DOWN 'Minority IPO'

A minority IPO allows a parent company to guide a subsidiary through the initial public offering process while regaining enough to control to protect a vulnerable company from takeover or bad management decisions by retaining majority control of the subsidiary. The parent company may retain this majority stake forever or may slowly dissolve its ownership over time, depending on the parent company’s goals for the subsidiary.

Creating this type of IPO allows the parent company to raise funds, accessing the value of the subsidiary, to fund its own operation or return value to shareholders. It is also a way for the parent company to grow a valuable business line or maximize brand equity while preventing the parent company from becoming a conglomerate and losing efficiencies.

Benefits of a Minority IPO

A minority, or partial, IPO is a way for a company to raise significant amounts of capital on a brand or company it owns without giving up ownership or control of that company. In a regular IPO, enough shares are offered up for sale to the public that any one entity gaining control of those shares would have decision-making rights over the company by being the majority owner. Since the parent company retains majority rights in a minority IPO issue, even if another entity gained control over all the shares issued publicly during the IPO, it would never have majority control and could not make decisions for the company.

This structure benefits both the parent company, which is still connected to the subsidiary company and has born significant risk to scaffold the subsidiary through the IPO process, and the minority IPO company, which needs time to develop and mature as a publicly held company.

Depending on how the parent company acquired the subsidiary, the minority IPO may also be a way to prevent previous ownership from regaining control of the subsidiary. If the parent company acquired the subsidiary by buying it or merging with it, the previous owner may have a vested interest in regaining control, and a minority IPO structure will prevent that from happening.

RELATED TERMS
  1. Minority Interest

    A minority interest is ownership of less than 50% of a subsidiary's ...
  2. Parent Company

    A parent company is a company that has a controlling interest in ...
  3. Subsidiary

    A subsidiary is an independent company that is more than 50% ...
  4. Unconsolidated Subsidiary

    An unconsolidated subsidiary is treated as an investment on a ...
  5. Custodial Account

    A custodial account is a fund set up by an adult for a beneficiary ...
  6. Working Control

    Working control occurs when a minority shareholder (or shareholders) ...
Related Articles
  1. Investing

    What is a Spinoff?

    Businesses wishing to streamline their operations often sell less productive or unrelated subsidiary businesses as spinoffs.
  2. Financial Advisor

    New Parents Need a Financial Planning Checklist

    There are many areas of personal finance to consider throughout the journey of parenthood. Here are a few to review with your advisor.
  3. Investing

    Sneaky Subsidiary Tricks Can Cloud Financials

    Use consolidated financial statements to uncover a parent company's true performance.
  4. Taxes

    What's a Holding Company?

    A holding company is a corporation that owns enough voting stock in another company to control its management and policies.
  5. Managing Wealth

    How To Parent Your Aging Parents

    For sandwich generation, planning ahead is key to good elder care.
  6. Retirement

    Having the Tough Conversation With Aging Parents

    Here are the most important factors you'll want to cover with your parents sooner rather than later.
  7. Personal Finance

    5 Tips for Boomerang Millennials

    If you are a Millennial moving back home or a parent of one, consider these five tips to avoid putting a strain on the relationship.
  8. Retirement

    Should Aging Parents and Children Co-Own Assets?

    Many adult children suggest being a joint account owner to handle their aging parents' finances, however, there could be unintended consequences.
  9. Retirement

    Tips for Helping an Aging Parent

    Many Millennials and Gen Xers find themselves unexpectedly caring for their aging parents.
RELATED FAQS
  1. What is the difference between a subsidiary and a sister company?

    Discover the differences between subsidiary companies and sister companies, and understand how both are related to parent ... Read Answer >>
  2. What are the tax implications for both the company and investors in a divestiture ...

    Learn the tax implications for a company and its investors in divestiture events, such as spinoffs, equity carve-outs, and ... Read Answer >>
  3. How is taxation treated during a company spinoff?

    Learn how the potential tax implications of a spinoff can affect both parent and subsidiary companies and how taxes may be ... Read Answer >>
  4. Can minors invest in mutual funds?

    Not directly. Mutual fund investments can be made through a custodial account opened in a minor's name and overseen by a ... Read Answer >>
Trading Center