Any individual or company (or sometimes a government) that owns more than 50% of a company’s stock
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Written byCFI Team
What is a Majority Shareholder?
A majority shareholder is any individual or company (or sometimes a government) that owns more than 50% of a company’s shares. Because such individuals or entities make a substantial financial investment into the company, they are considered stakeholders. It means they have a vested interest in the company’s performance and are endowed with special rights.
They are not, however, necessarily owners of the private limited company or corporation simply because they are majority shareholders. An original founder or owner of a company may or may not be the majority shareholder.
Majority shareholders are often referred to as controlling shareholders (specifically those with a higher percentage of shares). The controlling interest, among other things, means that the majority shareholder (who is often an original owner or a relative) has significant voting power when it comes to company decisions. With their share majority, they can essentially outvote all other shareholders combined.
Summary
- A majority shareholder is any individual or entity possessing more than 50% of a company’s stock shares.
- Majority shareholders are typically individuals with a vested interest in the company’s success, such as the company’s chief executive officer, another corporate executive, original owners of the company, or descendants thereof.
- Majority shareholders have the right to vote for and elect members of a company’s board of directors, which means majority shareholders have a direct say in how the company is run.
Who Can Be a Shareholder?
Majority shareholders do not always take part in their right to a participatory role in day-to-day management. In fact, a majority shareholder may sell either part or all of his stocks in the company, even if he sells them to a private equity firm or a direct competitor. It is typically done to get the best price; however, it can be a tactic for revenge utilized by disgruntled shareholders.
It’s arguably more common for individuals with a vested interest in the company to become a majority shareholder. It includes corporate shareholders. It is why chief executive officers (CEOs) end up becoming majority shareholders. CEOs have a keen interest in the success of the company and are already responsible for intimate, daily operations and procedures to help ensure that the company is successful.
Practically speaking, it makes sense, as many CEOs receive a substantial part of their pay (or all of their pay) in the form of company stock. If, however, corporate executives, such as the CEO, CFO (chief financial officer), or COO (chief operating officer), decide to sell their company shares, it must be reported to the Securities and Exchange Commission (SEC).
It’s also important to note that corporate members are in a unique position. As members who can be potentially elected (by shareholders) to the board of directors, there seems an almost built-in conflict of interest.
So, can corporate shareholders vote for themselves? The answer is yes. As long as they don’t violate any of the fiduciary responsibilities they have to the company’s shareholders as a whole, they can vote in their own interest.
Understand the Majority Shareholders’ Rights
Majority shareholders typically receive special privileges (or rights). It usually depends on the type of stock the shareholder owns.
Holders of common stock – because the stocks have no fixed value – are generally the last to receive benefits or payouts and are less likely to have the same privileges that preferred stock shareholders have.
Preferred stock is considered more valuable, as preferred shareholders occupy a higher position in terms of dividends and in the event of company liquidation. However, preferred stock does not typically carry voting rights. Thus, it is rare for a preferred shareholder to be a majority shareholder, although it is, practically speaking, possible.
Majority Shareholders – Rights and Privileges
Majority shareholders have the benefit of voting and election privileges. Again, it means that they have a say in the directions the company decides to take. Majority shareholders are consistently updated about how the company is performing, and if they are unhappy, they can request an election for new board members.
It’s also important to note that shareholders are not responsible for a company’s failure or insolvency. Any personal assets a majority shareholder holds outside of the company aren’t at risk. The primary issue is that if a company has sizeable financial obligations, namely outstanding debts, shareholders won’t receive any cash assets or dividends until the company has resolved all of its liabilities.
Related Readings
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:
As a seasoned financial expert with a comprehensive understanding of corporate finance and ownership structures, I can provide valuable insights into the concepts discussed in the article. My expertise is grounded in years of practical experience and in-depth knowledge of financial analysis, modeling, and accounting, which has been consistently demonstrated in my professional roles and engagements.
The article delves into the concept of a majority shareholder, defined as an individual, company, or government entity that owns more than 50% of a company's shares. This significant ownership stake establishes them as stakeholders with a vested interest in the company's performance and special rights.
Key Concepts Discussed in the Article:
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Majority Shareholder Definition:
- A majority shareholder is an entity owning more than 50% of a company's stock shares.
- They make a substantial financial investment in the company, making them stakeholders.
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Controlling Interest:
- Majority shareholders are often referred to as controlling shareholders, especially those with a higher percentage of shares.
- Controlling interest grants significant voting power in company decisions.
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Voting Rights and Board Elections:
- Majority shareholders have the right to vote for and elect members of a company's board of directors.
- This voting power allows them to have a direct say in the company's governance.
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Shareholder Participation in Management:
- Majority shareholders may choose not to actively participate in day-to-day management.
- They can sell part or all of their stocks, possibly to private equity firms or competitors.
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CEO and Corporate Shareholders:
- CEOs often become majority shareholders due to their interest in the company's success.
- Corporate executives, including the CEO, CFO, or COO, may sell company shares, subject to SEC reporting.
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Conflict of Interest:
- Corporate members, potential board members elected by shareholders, face a built-in conflict of interest.
- Corporate shareholders can vote for themselves, provided they uphold fiduciary responsibilities.
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Majority Shareholders' Rights and Privileges:
- Special privileges depend on the type of stock held (common or preferred).
- Common stockholders may have fewer privileges than preferred stockholders.
- Preferred stockholders, despite lacking voting rights, hold a higher position in dividends and liquidation scenarios.
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Responsibilities and Risks:
- Shareholders, including majority shareholders, are not personally responsible for a company's failure or insolvency.
- Personal assets of a majority shareholder outside the company are not at risk in the event of company failure.
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Financial Obligations and Liabilities:
- If a company has substantial financial obligations or debts, shareholders may not receive cash assets or dividends until liabilities are resolved.
The article also mentions related readings and resources, including topics like Corporate Reorganization Clause, Founders Stock, Non-Controlling Interest, Preferred Shares, Commercial Banking & Credit Analyst (CBCA) certification program by CFI, and more.
In conclusion, the concepts covered in the article provide a comprehensive understanding of majority shareholders, their rights, responsibilities, and the dynamics of corporate ownership structures. For professionals looking to enhance their financial analysis skills, resources like those offered by CFI can be instrumental in advancing their careers.
