What is a ‚Majority Shareholder‘
A majority shareholder is a person or entity that owns more than 50% of a company’s outstanding shares. The majority shareholder is often the founder of the company or, in the case of long-established businesses, the founder’s descendants. By virtue of controlling more than half of the voting interests in the company, the majority shareholder has a very significant influence in the business operations and strategic direction of the company, though not all companies have a majority shareholder.
BREAKING DOWN ‚Majority Shareholder‘
Majority shareholders differ in their approach to how the company is managed. While some continue to be heavily involved in the daily operations of the company, others may prefer to take a hands-off approach and leave the management of the company to the executives and managers. Majority shareholders who wish to exit their business or dilute their position may make overtures to their competition or private equity firms, with the objective of getting a good price for their stake. Since the majority shareholder usually has an iron grip on the fortunes of the company, a hostile bid for it is generally out of the question.
Who Is the Majority Shareholder?
The majority shareholder of a company may or may not be a member of upper management, such as the chief executive officer (CEO). In smaller companies with a limited number of total shares, the CEO may also function as the majority shareholder. In larger firms with significant market capitalization, such as numbers in the billions of dollars, the firm’s investors may include other institutions that possess a larger number of shares.
Majority Shareholders and Buyouts
In order for a buyout to occur, an outside entity must acquire over 50% of the target company’s outstanding shares. While a majority shareholder may hold more than 50% of a company’s stocks, he may not have the authority to authorize a buyout without additional support depending on certain corporate bylaws. In cases where a super-majority is required for a buyout, the majority shareholder can be the sole deciding factor only in cases where he holds enough of the company’s stock to meet the super-majority 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 in the minority, both of which effectively block the completion of the buyout. In cases where the minority shareholders believe the terms of the buyout are unfair and wish to no longer stay with the targeted business, they can exercise appraisal rights. This allows a court to determine if an offered share price is fair and has the option to compel the business initiating the buyout to pay a specified price if required.