What is a Majority Shareholder?
A majority shareholder is a person or entity that owns and controls more than 50 percent of a company's outstanding shares. It gives the person or entity significant sway over the direction of the company, if their shares are voting shares, since they can hold a vote and then vote in favor of their desired direction.
Understanding the Majority Shareholder
A majority shareholder is often the founder of the company or, in the case of long-established businesses may be the descendants of the founder. By controlling more than half the voting interest, the majority shareholder is a key stakeholder and influencer in the business operations and strategic direction of the company. Their powers may include replacing a corporation’s officers or board of directors. A majority shareholder is more common in private companies than public companies, and not all companies have a majority shareholder.
Majority shareholders differ in their management style. Some remain involved in daily operations while others leave management to company executives. Majority shareholders who seek to exit a business or dilute their position may make overtures to their competition or to private equity firms, with the objective of selling their stake or the entire company for a profit. Because the majority shareholder usually controls the fortunes of the company, a hostile bid for it is unlikely to succeed.
The majority shareholder of a company may or may not be a member of upper management, such as the chief executive officer. In smaller companies with a limited number of total shares, the CEO may also function as the majority shareholder. In larger firms with a market capitalization in billions of dollars, the firm’s investors may include other institutions that hold a larger number of shares.
- A majority shareholder is a person or entity who holds more than 50% of shares of a company.
- If the majority shareholder holds voting shares, they dictate the direction of the company through their voting power.
- The exception to a majority shareholder's voting power is if a super-majority is required for a particular voting issue, or certain company bylaws restrict the power of the majority shareholder.
Majority Shareholders and Buyouts
In order for a buyout to occur, an outside entity must acquire over 50 percent of a target company’s outstanding shares, or have the votes of at least 50 percent of the current shareholders who will vote in favor of the buyout.
Even though a majority shareholder may hold more than half of company shares, they may not have the authority to authorize a buyout without additional support, depending on stipulations in the company’s bylaws. In cases where a supermajority is required for a buyout, the majority shareholder can be the sole deciding factor only in cases where they hold enough stock to meet the super-majority requirement and the minority shareholders do not have additional rights to block the effort.
Minority shareholder rights can include the declaration of a derivative action or fraud which effectively block completion of a buyout. If the minority shareholders believe the terms of the buyout are unfair and they wish to exit the targeted business, they can exercise appraisal rights. This allows a court to determine if an offered share price is fair and has the option to compel the business initiating the buyout to offer a specified price.
Majority Shareholder Example
Majority shareholders are often companies that own a controlling stake in many companies. Berkshire Hathaway, of which Warren Buffett is CEO, has a controlling interest in many companies.
Berkshire Hathaway (class A) has shareholders itself, with Feri Wealth Management being the largest holding an 18% stake. This means Berkshire doesn't have a majority shareholder.
Of well-known companies, it is fairly rare to find one with a majority shareholder, since household-name companies are often so large. One exception is Dell Inc. After taking the firm private in 2013, and then bringing it back to the public market in 2018, as of 2019 Micheal Dell controls about half of the company's equity and about 75% of the voting shares according to Bloomberg. This was achieved through the issue of public low-voting shares in 2018, resulting from a complex share structure that was in place prior to the company going public again.