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%).
FAQs
A majority shareholder owns and controls more than 50% of a company's outstanding shares. This type of shareholder is often company founders or their descendants. Minority shareholders hold less than 50% of a company's stock, even as little as one share.
What rights does a majority shareholder have? ›
A majority shareholder is an entity or individual that owns over 50% of a company's outstanding shares, granting them significant control and influence within the organisation. This control is exercised through voting power, board representation, and decision-making rights.
What are the rights and privileges of shareholders? ›
Shareholders make money in two main ways: Capital appreciation and dividend payments. Common shareholders are granted six rights: voting power, ownership, the right to transfer ownership, a claim to dividends, the right to inspect corporate documents, and the right to sue for wrongful acts.
What is the definition of majority shareholder? ›
A majority shareholder is a member who hold more than 50% of the shares in a company that has voting rights attached, meaning that it can pass ordinary resolutions (or, where it holds 75% or more of the shares, special resolutions or any other resolution that must be passed by a higher majority) and therefore has a ...
What are the protections of majority shareholders? ›
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.
What powers do majority shareholders have? ›
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.
Can a 51% owner fire a 49% owner? ›
No owner can be fired or demoted without good cause. Outlining the responsibilities of both parties. The majority can't sell the business unless it's to the minority shareholder.
What information is a shareholder entitled to? ›
Company Finances
In addition, shareholders are entitled to be provided, on demand and without charge, with a copy of the company's last annual accounts and the last directors' report and any auditor's report on those accounts (together with any statement on the auditor's report).
What is the 10 shareholder rule? ›
(B) 10-Percent shareholder The term “10-percent shareholder” means— (i) in the case of an obligation issued by a corporation, any person who owns 10 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote, or (ii) in the case of an obligation issued by a ...
Can shareholders tell directors what to do? ›
However, shareholders with at least 5% of the voting rights can force the company to call a general meeting of shareholders. The shareholders can then propose resolutions that address the decisions taken by the board and they can ask the board to reconsider or overturn an earlier decision.
One of the significant advantages of being a majority shareholder is the power to make decisions. As a majority shareholder, you have the power to vote on important issues, such as mergers, acquisitions, and major investments.
Can a majority shareholder force a buyout? ›
In most cases, majority shareholders cannot unilaterally sell the company without any input from the other shareholders. But it's possible that a majority shareholder can successfully vote to sell the company, and few or none of the minority shareholders agree to the sale.
What rights does a 25% shareholder have? ›
Shareholders holding 25%+
For example, and amongst other things, the minority shareholder(s) may prevent the company; amending the company's articles of association; disapplying statutory pre-emption rights on a new share issue; and. approving the purchase of a company's own shares out of capital.
Can a majority shareholder be oppressed? ›
Common Examples of Shareholder Oppression
Draining company profits through inflated salaries and bonuses to the majority, leaving little or nothing to distribute in dividends.
What are the 3 main shareholder protections? ›
The three basic shareholder rights are: the right to vote, the right to receive dividends, and the right to the corporation's remaining assets upon dissolution or winding-up. Where a corporation only has one class of shares, the three basic rights must attach to that class.
Can a majority shareholder be fired? ›
If you own more than 50% of your company's shares, you might think you have ultimate control. While it's true that a majority stake will likely prevent the company from being sold without your consent, it doesn't protect you from being fired.
Can a majority owner fire a minority owner? ›
Can a minority shareholder be fired? If a minority shareholder serves on the board of directors, they can be dismissed by the controlling owners of the business through proper voting procedures. This termination may lead to a decrease in value for their stake in the company.
Can a majority shareholder fire the CEO? ›
If the shareholders feel that the CEO is not doing their job properly, they can vote to have them removed. In other cases, the CEO may be fired by the board of directors but not by the shareholders. This can happen if the CEO has committed misconduct or if they have violated their contract.
