What is 'Controlling Interest'
Controlling interest occurs when a shareholder, or a group acting in kind, holds a majority of a company's stock. By definition, this figure is 50% of the outstanding shares, plus one. However, controlling interest can be achieved with less than 50% ownership in a company if that person or group owns a significant proportion of its voting shares as in many cases, not every share carries a vote in shareholder meetings.
BREAKING DOWN 'Controlling Interest'Controlling interest gives a shareholder or group of shareholders significant influence over the actions of a company. However, this means that controlling interest can be achieved as long as the ownership stake in a company is proportionately significant in relation to total voting stock. With the majority of large public companies, for example, a shareholder with much less than 50% of the outstanding shares can still have a lot of influence at the company. Single shareholders with as little as 5-10% ownership, for example, can push for their own seats on the board or enact changes at shareholder meetings by publicly lobbying for them, giving them control.
An Example of Controlling Interest
The upside of controlling interest in a company can come in many forms. The computer company Dell Technologies, for example, after ousting its founder and CEO Michael Dell, was repurchased and privatized by Dell and the financial firm Silver Lake Management. This gave controlling interest back to Dell and his financial backers, allowing him to make company decisions without having to consult other shareholders, among other things.
Benefits of Controlling Interest
Beyond this example, controlling interest provides so much more. First, whether the company is public or private, it gives a person or group of people massive influence. Since controlling interest automatically has the majority vote, much like in the case of Dell Technologies, it allows those with controlling interest to veto or overturn decisions made by existing board members. This gives people who have controlling interest in a company the ability to take ownership over the operational and strategic decision-making processes.
What's more, sometimes controlling interest makes a person the chairman of a company's board of directors. This gives a person powers above and beyond the massive influence discussed above. Rather than simply being able to veto a board vote and remain active during shareholder meetings, he can effectively make board decisions on his own, which includes hiring C-level executives.
Finally, it grants a person leverage to increase shareholding stake in a company in the event of a merger or acquisition. This means that, in the case of a strategic merger that involves a share swap, the person with control is able to structure the deal in such a way that he continues to have majority voting power over the new entity.