Majority Shareholder: Everything You Need to Know
A majority shareholder is an individual or company who owns more than 50 percent of a company's shares of stock. Shareholders own shares of stock in public or private limited companies but do not own the actual corporation.3 min read
A majority shareholder is an individual or company who owns more than 50 percent of a company's shares of stock. Shareholders own shares of stock in public or private limited companies but do not own the actual corporation. However, they are considered stakeholders since they contribute a financial investment to the corporation.
Characteristics of Majority Shareholders
The majority shareholder is sometimes called a controlling shareholder. It can be a person, company, or government. In many cases, the majority shareholder is the company's original owner or his or her ancestors. The majority shareholder's controlling interest means he or she has more voting power and can influence the company's strategic direction and operation. Some companies do not have a majority shareholder; this role is more common in privately held companies than in public ones.
The majority shareholder may be the chief executive officer (CEO) of the company. This individual sets strategic goals for the corporation and takes steps to ensure that they are met. In larger firms, corporations, mutual funds, banks, pension funds, and hedge funds often hold large blocks of shares.
In many cases, CEOs and directors are paid all or part of their salary in stock options, so they may also hold large stock percentages. When stock is bought or sold by a corporate executive, this information must be made public and reported to the Securities and Exchange Commission using Form 10-Q.
Some majority shareholders do not participate in the everyday management of the company, while others are intimately involved in its inner workings. If a majority shareholder wants to reduce or completely sell his shares, he may choose to sell to competition or private equity firms to get the best price.
Corporate shareholders can vote in their own interest as long as they do not violate the fiduciary duty they owe to other shareholders.
Some shareholders may have elevated privileges depending on the class of stock they hold. These may include:
- Voting rights
- Board of director election
- The right to buy newly issued shares
- The right to assets if the company is liquidated
- The right to receive profit distributions
Most shareholders are in the secondary market, which means they purchase shares from other investors who have purchased them directly from the company in exchange for capital. Thus, shareholders typically do not actually own the corporation, have a right to claim its profits, or act as investors who contribute capital.
A company is considered a separate legal entity and is thus the sole owner of its assets. Shareholders do not have the right to use a company's assets, including but not limited to equipment, materials, and buildings. Even shareholders with a large ownership percentage do not have power in the corporation. However, in most cases, the board of directors and managers of the company are required to act in the best interests of the shareholders.
Shareholders do have a right to elect the board of directors. Typically, each has a vote weighted by the percentage of his or her share. If the shareholders are unhappy with the direction of the company, they can elect a new board of directors that will, in turn, appoint new managers.
Shareholders are not responsible for a company's insolvency, and their personal assets are not at risk if the company has debts or financial obligations. However, shareholders do not receive dividends and other cash assets until liabilities have been settled.
Types of Shareholders and Stock
Shareholders may own either common or preferred stock. Common stock has no fixed value. These stockholders are last in line to receive company assets and profits but may receive dividends with board of director approval. Preferred stockholders are first in line to receive profits and assets after creditors are paid.
Redeemable stock can be repurchased by the company in the future. Convertible stock consists of preferred shares that can be exchanged for common shares.
Shareholders are usually considered either individual or institutional investors. Individual investors purchase shares of the stock using their own money, while institutional investors are purchasing shares on behalf of others. The latter category includes banks, insurance companies, investment companies, and pension funds.
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