What is a Majority Shareholder
BREAKING DOWN 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. 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 market capitalization in billions of dollars, the firm’s investors may include other institutions that hold a larger number of shares.
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. Even though a majority shareholder may hold more than half of company shares, they may not have 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 in the minority, both of 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 pay a specified price if required.