What is Controlling Interest
Controlling interest is when a shareholder, or a group acting in kind, holds a majority of a company's stock.
BREAKING DOWN Controlling Interest
Controlling interest is, by definition, at least 50% of the outstanding shares of a given company plus one. However, a person or group can achieve controlling interest 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.
Controlling interest gives a shareholder or group of shareholders significant influence over the actions of a company. A party can achieve controlling interest 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 may still have a lot of influence at the company. Single shareholders with as little as 5% - 10% ownership can push for their own seats on the board or enact changes at shareholder meetings by publicly lobbying for them, giving them control.
Benefits of Controlling Interest
The upside of holding a controlling interest in a company can come in many forms. First, whether the company is public or private, controlling interest gives a person or group of people massive influence. Since, by definition, the party with controlling interest automatically has the majority vote, controlling interest then allows an individual 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.
Further, in some companies, if an individual has the controlling interest of the company, the company will automatically make that person the chairman of a company's board of directors. This gives the individual with controlling interest even more power than the majority vote. In addition to retaining veto power over a board vote, the individual can effectively make board decisions on their own, including hiring C-level executives.
Finally, controlling interest grants an investor leverage to increase their shareholding stake in a company in the event of a merger or acquisition. For example, in the case of a strategic merger that involves a share swap, the investor holding a controlling interest structures the deal in such a way that they continue to have majority voting power over the new entity.