What Is Control Stock
Control stock refers to equity shares owned by major shareholders of a publicly traded corporation. These shareholders will have either a majority of the shares outstanding or a portion of the shares that is significant enough to allow them to exert a controlling influence on the decisions made by the firm.
When companies have more than one class of common shares, shares with superior voting power or vote weighting are considered to be control stocks, relative to the inferior class of voting rights shares.
BREAKING DOWN Control Stock
Shareholders who control a majority of a company's shares effectively have enough voting power to dictate the firm's decisions. As such, their shares can be referred to as control stock. A party can achieve this status as long as the ownership stake is proportionately significant in relation to total voting stock.
For example, suppose XYZ Corp. had two classes of common stock, Class A and Class B. Both types of these shares carry an equal claim to the firm's assets. In other words, if the firm has 100 common shares in total, 50 are Class A shares and 50 are Class B shares.
Let's assume that the B shares entitle the shareholder to one vote, but the A shares entitle the shareholder to 10 votes. If you owned one Class A share, you would own 1% of the company's assets, but wield 10 votes at company meetings. Meanwhile, an investor who owned one Class B share would have the same 1% claim to the firm's assets, but only be able to cast one vote at company meetings.