Absolute interest is when someone holds complete and controlling rights to an asset. This means the same thing in business as in legal terms.
Absolute Interest Details
When a person has an absolute interest, it means that person has total control over the asset. It can be an asset, real estate, precious metals, and specific other properties. It also means that the individual has power over all benefits that the investment may produce. The ownership of the asset is not dependent on any conditions. It does not matter if the previous owner is not compliant because the investment owner is the person with an absolute interest.
Example of Absolute Interest
Here are a couple of different examples for absolute interest. One example is if John buys a piece of machinery from Steve. Once money has exchanged hands and John has the machinery in his possession, John has an absolute interest. Steve cannot stop John from changing the machinery in any way.
Another example is if Jane and John buy a house from Derek, Jane and John can do whatever they like to the property. They can paint the house inside or outside, they change gut it and completely remodel it, they can tear up all the grass and put in cement if they want. Derek has no say in the matter. He cannot stop Jane and John from doing anything.
The last example is if Susan is left a certain amount of money after her parents pass away. Once she has paid any applicable taxes, Susan can do whatever she wants with the money. Her siblings cannot stop Susan from spending the money how she wants or investing it if she wishes.
Absolute Interest vs. Conditional Interest
You need to understand that absolute interest does not mean conditional interest. Conditional interest means that if some term is unmet, then the interest or asset can be revoked or withheld. For example, if Jane allows Steve to rent land from her, so long as Steve pays the rent and keeps the land clean, he can use it. But if either of those terms is unfulfilled, then Steve loses interest in the land.
But if Steve had an absolute interest in the land, then Jane cannot take the land back for any reason. Jane cannot set any rules or conditions for the land.
Significance of Absolute Interest
When purchasing, receiving, and inheriting an asset, you need to know what type of interest you have on the investment. You need to be clear if you have an absolute or conditional interest. If you have conditional interest, you need to know the rules so you can follow them. Any time you rent anything, you most likely have a conditional interest.
If you have an absolute interest, you can feel comfortable modifying the asset any way you want. You can also feel confident that all benefits from the investment are yours free and clear. Most of the time, when you buy or inherit anything, it is pretty clear that you have an absolute interest.