What Is a Majority Shareholder?
A majority shareholder is an individual or entity that holds and controls more than 50% of a company’s outstanding shares. Having a majority share means possessing a significant amount of influence over the company, particularly if the shares are voting shares. Voting shares authorize the shareholder to vote on various corporate decisions, including the composition of the company’s board of directors.
When the majority shareholder owns voting shares, their influence can significantly guide the company’s direction.
Key Takeaways
- A majority shareholder owns more than 50% of shares in a company.
- Holding voting shares means the shareholder can steer the company’s decisions through voting.
- Specific circumstances, such as super-majority requirements or company bylaws, can limit the majority shareholder’s control.
The Role of a Majority Shareholder
Majority shareholders often include founders of a company or their descendants in long-established enterprises. By holding a controlling stake, they become key stakeholders, greatly influencing the company’s operations and strategic direction. This influence extends to pivotal decisions like the appointment of corporate officers or the board of directors.
It’s important to note that not all companies have a majority shareholder. Private companies are more likely to have majority shareholders as opposed to public companies. The level of involvement of a majority shareholder varies by company—some are deeply engaged in day-to-day operations, while others delegate management to senior executives. This is more prevalent in smaller companies with limited shares.
In larger corporations with substantial market capitalizations, institutional investors often emerge as significant shareholders, holding numerous shares.
Majority Shareholders and Buyouts
When majority shareholders aim to exit a business or reduce their stake, they often connect with competitors or private equity firms to sell their shares or the entire company. For a buyout to occur, another entity must acquire over 50% of the target company’s outstanding shares or secure votes from more than half of the current shareholders in favor of the buyout.
A buyout involves gaining a controlling interest in a company, frequently used interchangeably with ‘acquisition.’ Despite holding more than half of the shares, a majority shareholder may need additional support to authorize a buyout if the company’s bylaws impose restrictions. In cases requiring a super-majority for approval, the majority shareholder can be decisive if they own sufficient stock. Conversely, minority shareholders can invoke rights to oppose a buyout, including derivative actions or fraud claims, potentially blocking the buyout if the terms are deemed unfair.
Example of a Majority Shareholder
Majority shareholders are often significant companies. For instance, Berkshire Hathaway, led by Warren Buffett, controls many companies and has a substantial influence as a majority shareholder. However, Berkshire Hathaway itself doesn’t have a majority shareholder.
Most companies that have majority shareholders are relatively small. However, in some notable cases, larger recognizable companies like Dell Technologies Inc. have majority shareholders. Michael Dell controls approximately 52% of Dell Technologies’ equity.
Related Terms: stakeholder, market capitalization, private equity, buyout.
