Controlling interest

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A controlling interest is an ownership interest in a corporation that has control of a large enough percentage of voting stock shares such that no one stock holder or coalition of stock holders can successfully oppose a motion by that interest. In theory this could mean that controlling interest would be 33.4% or 50% of the voting shares plus one. A majority interest is always a controlling interest. In the greatest majority of Limited Companies, a shareholding in over of 50% of the issued share capital is enough to control the company, indicating that it is possible to make the Board of Directors and do most of the acts which are necessary to run the company. It is possible for those owning less than 50% of a company to protect themselves from being at the mercy of those holding over 50% of the shares in the company and this is one reason why shareholders should give serious consideration to agreeing a shareholders agreement or adopting professionally drafted Articles of Association.

In practice, though, controlling interest can be far less than that, as it is rare that 100% of company voting shareholders actively vote or that most opponents of the largest owner coalesce against the largest owner. While most small corporations do not have a 2/3 vote requirement, in the opposite, most large companies especially Delaware corporations, do have a 2/3 vote requirement.

A company that requires a 2/3 super-majority of shares to vote in favor of a motion can grant, in effect, veto power to a minority shareholder or block of shareholders that own more than 1/3 of the shares. Thus in some cases a single entity can essentially maintain control with only 33.4% of the outstanding shares. Ford Motor Company's former 33.9% ownership of Mazda North American Operations is an example of a controlling interest with minority shareholding that was granted by Mazda.

Controlling interest commands the vote along with sweeping powers to veto or overturn decisions decided by the board of directors or other senior managers. It therefore holds sway over motions, planning processes, and the implementation of programs in the business. The person or entity with the controlling interest are allowed to influence over the operational and strategic decision. Major shareholding stake make the holder the lion’s share in the distribution of benefits including share splits, dividends, retained earnings etc. Controlling interest guarantee membership to the board of directors. The person with controlling interest is able to take up the chairmanship of the board. Entities with controlling interest select second the election of individuals of chair the boards as well as hire the chief executive officer (CEO).

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