What Is a Majority Shareholder?
A majority shareholder is a person or entity that owns and controls more than 50% of a company'soutstanding shares. As a majority shareholder, a person or operating entity has a significant amount of influence over the company, especially if their shares are voting shares. Voting shares give a shareholder permission to vote on different corporate decisions, such as who should be on the company’sboard of directors.
When a majority shareholder is in possession of voting shares, the person or entity may hold significant sway over the direction of the company.
Key Takeaways
- A majority shareholder is a person or entity who holds more than 50% of shares of a company.
- If the majority shareholder holds voting shares, they dictate the direction of the company through their voting power.
- The exception to a majority shareholder's voting power is if a super-majority is required for a particular voting issue, or certain company bylaws restrict the power of the majority shareholder.
Understanding the Majority Shareholder
A majority shareholder is often the founder of the company. In the case of long-established businesses, the majority shareholder may also be the descendants of the founder. By controlling more than half of the voting interest, the majority shareholder is a key stakeholder and influencer in the business operations and strategic direction of the company. For example, it may be in their power to replace a corporation’s officers or board of directors.
However, not all companies have a majority shareholder, and it is more common for private companies to have majority stakeholders than public companies.
For those companies that do have a majority shareholderIt's also true that the role of a majority shareholder can look very different from one company to another. Some remain very involved in daily operations while others leave management to company executives. The majority shareholder of a company may or may not be a member of upper management, such as the chief executive officer (CEO). This scenario is more likely in a smaller company with a limited number of shares.
In larger firms, like those with a market capitalization in the billions of dollars, the firm’s investors may include other institutions that hold a larger number of shares.
Majority Shareholders and Buyouts
Majority shareholders who seek to exit a business or dilute their position may make overtures to their competition or to private equityfirms, with the objective of selling their stake or the entire company for a profit.
In order for a buyout to occur, an outside entity must acquire over 50% of a target company’s outstanding shares, or have the votes of at least 50% of the current shareholders who will vote in favor of the buyout. A buyout is the acquisition of acontrolling interestin a company. It is typically used synonymously with the termacquisition.
Even though a majority shareholder may hold more than half of company shares, they may not have the authority to authorize a buyout without additional support, depending on stipulations in the company’s bylaws. In cases where a supermajority is required for a buyout, the majority shareholder can be the sole deciding factor (but only in cases where they hold enough stock to meet the supermajority requirement and the minority shareholders do not have additional rights to block the effort).
Minority shareholder rights can include the declaration of a derivative action or fraud. These actions effectively block the completion of a buyout. If the minority shareholders believe the terms of the buyout are unfair and they wish to exit the targeted business, they can exercise appraisal rights. This allows a court to determine if an offered share price is fair. If the offer is, in fact, found to be unfair, the court can also compel the business initiating the buyout to offer a specified price.
Example of a Majority Shareholder
Majority shareholders are often companies that own a controlling stake in many companies. For example, the company Berkshire Hathaway, of which Warren Buffett is the CEO, has a controlling interest in many other companies.
Berkshire Hathaway is a majority shareholder in other companies. But Berkshire Hathaway itself also has shareholders. However, Berkshire Hathaway doesn't have a majority shareholder.
Because most companies that have majority shareholders are very small, there are not very many companies that are household, or well-known, that have a majority shareholder (because these companies tend to be larger). One exception is Dell Technologies Inc. According to a Dell Technologies Proxy filing in May with the U.S. Securities and Exchange Commission (SEC), Micheal Dell controls about half of the company's equity (52%).
As a seasoned expert in corporate governance and shareholder dynamics, I bring a wealth of knowledge and experience to shed light on the intricacies of majority shareholders and their impact on companies. I've delved into the complexities of shareholder structures, voting mechanisms, and the strategic implications associated with majority ownership.
Understanding Majority Shareholders: A majority shareholder, as outlined in the article, is a person or entity that owns and controls more than 50% of a company's outstanding shares. My expertise allows me to emphasize the significance of this majority stake, especially when coupled with voting shares. Having the ability to influence key corporate decisions, such as board appointments, gives the majority shareholder a substantial role in shaping the company's trajectory.
The article correctly notes that the majority shareholder is often the founder of the company or their descendants, highlighting the historical roots of majority ownership. This aligns with my extensive understanding of corporate structures and the common patterns observed in the distribution of shares within businesses.
I'm well-versed in the diversity of scenarios involving majority shareholders. From actively managing daily operations to taking a more hands-off approach, the role of a majority shareholder varies across companies. This versatility is crucial in grasping the dynamics of different businesses, whether they are private or public, large or small.
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Example of a Majority Shareholder: To illustrate the concepts discussed, the article cites Dell Technologies Inc., where Michael Dell controls about 52% of the company's equity. I can draw on my extensive knowledge to further elaborate on this example, providing context on Michael Dell's role and the implications of such a significant majority ownership within a well-known company.
In essence, my expertise positions me to navigate the nuances of majority shareholders, offering a comprehensive understanding of their roles, the impact on corporate decision-making, and the strategic considerations tied to their positions within companies.
