What is ownership interest?
Ownership interest refers to any stake a party owns in any property, company, real estate, product, etc. If there is only one owning party then only this party has ownership interest. If there are several parties involved ownership interest is either equally divided or according to the amount invested by each party.
Ownership interest in real estate
Ownership interest in real estate gives the owning party or parties the right to use the real estate however they want to in compliance with the law. They are free to live in it, rent it out, build on it or sell it. If there is more than one owning party, any of these actions have to be agreed upon with the other parties. If the real estate is damaged or somehow taken away ownership interest entitles owning parties to just compensation.
When purchasing real estate with a mortgage loan, the lender is given security interest in the real estate. Security interest, however, does not grant ownership interest, unless you violate the terms of your loan. In the event of a default on the mortgage the lender could then use the security interest in the real estate to foreclose and repossess it.
Ownership interest in a business
The percentage of ownership interest in a business is in relation to the percentage of stock a party owns in it. It governs how an owner has to document their income from this business as well as the voting privileges in a general assembly. If the ownership interest is above 25 percent, the owner is furthermore considered self-employed.
There are generally three different types of ownership interest with regard to being invested in a company:
- Passive interest: occurs when the investor holds under 20 percent of shares in the company. In this case an investor puts money into the company with expectations of a high return on investment.
- Significant influence: occurs when an investor holds between 20 and 50 percent of shares in a company. This gives an investor the power to participate in the operation and financial decision-making of the company they are invested in.
- Controlling interest: Applies to shares above 50 percent. In a situation like this, the investor is referred to as “parent company” and the company they are invested in as “subsidiary”. Ownership interest of this size is usually amassed when the investor aims to control the operation and financial policy of the subsidiary. However, some investors may acquire a controlling interest in a company in order to resell it or even just to secure its continued operations.