DEFINITION of Control
Control refers to having sufficient amount of voting shares of a company to make all corporate decisions. Also known as "corporate control," this privileged position exists due to majority shareholder support or a dual-class shareholder structure, but can change through a takeover or proxy contest.
BREAKING DOWN Control
In most situations, control lies in the hands of majority shareholders, who elect a Board of Directors to represent their interests. The board is charged with overseeing management of the company and thus the overall strategy and direction of the firm. The board members are given control, but only by virtue of majority (sometimes supermajority) support of the shareholders, or owners, of the company. In some cases, a dual-class structure gives control to a small cabal of founders/insiders, whose economic interest in the company can be a mere fraction of the holdings of all other shareholders. One class, typically designated Class A or Class B, will have a disproportionate number of voting rights for this select group of individuals. This means that they, not the majority of shareholders, have control over the company. Facebook and Google are two high-profile companies with a dual-class shareholding structure, but they have been criticized by some for shareholder-unfriendly corporate governance practices.
Change of Control
Change of control occurs when a company is taken over by another. When a takeover, whether friendly or hostile, is completed, the board or majority of the board is elected by the new owner. This new or revamped board now is responsible for the stewardship of the company. An activist shareholder can also force a change of control through a proxy fight. An activist investor, who believes that a company has much potential to improve performance - and thus the price of the stock - would nominate a slate of directors that he believes would serve his shareholder interests, and presumably, those of all other shareholders. His nominees, comprising a majority of the board, are put up for vote during the annual election period. If the activist is successful in his endeavor, he will gain corporate control.