What is a 'Principal Shareholder'

A principal shareholder is a person or entity that owns 10% or more of a company's voting shares. The company can be private or publicly traded. This is not to be confused with a majority shareholder or majority stakeholder, which is a person or entity that owns 50% or more of a company's voting shares. Principal shareholders are subject to special Securities and Exchange Commission (SEC) filing rules that pertain to insider trading. Smaller investors often look to the behavior of the principal shareholder as an indication of the company's performance. If the principal shareholder makes a large additional investment in the company, for example, this is probably an indication that the company is performing well.

A principal shareholder can also be known as a principal stockholder.

BREAKING DOWN 'Principal Shareholder'

In some cases, the list of a company's principal shareholders includes the CEO, president or founder. This is common due to the fact that often the individual or family which founded the company typically insists on maintaining some control over the company's shares, allowing them, the principal shareholders to dictate to a large degree the direction of the business.

A principal shareholder is considered a "business insider" by the Securities and Exchange Commission (SEC) due to their large stake in the company, which is over 10% of voting shares. Due to this business insider status, the Securities and Exchange Commission requires principal shareholders to file reports with the SEC regarding any buying and selling of their shares within two business days of the activity. This is required under Section 16 of the Exchange Act and is meant to help screen for suspicious insider trading activity.

RELATED TERMS
  1. Principal-Protected Note - PPN

    A principal protected note is a fixed-income security that guarantees ...
  2. Agency Theory

    The agency theory is a supposition that explains the relationship ...
  3. Principal Orders

    A principal order occurs when a securities firm acts as both ...
  4. Shareholder

    A shareholder is any person, company, or institution that owns ...
  5. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding ...
  6. Notional Principal Amount

    The notional principal amount, in an interest rate swap, is the ...
Related Articles
  1. Financial Advisor

    Principal Global Investors: Investment Manager Highlight (PFG)

    Learn about the investment operations of Principal Global Investors, the Principal Financial subsidiary with more than $360 billion in assets under management.
  2. Financial Advisor

    What The Series 24 Exam Won't Teach You

    Can you handle being the judge and jury in your firm? Find out what surprising tasks a job as a principal entails.
  3. Investing

    Brokerage Functions: Underwriting and Agency Roles

    Learning about underwriting and agency roles at a brokerage can give insight into how securities are issued and traded.
  4. Investing

    Shareholders: Vote Your Proxy and Be Heard

    Voting shares, in person or via proxy ballot, is a right every shareholder should exercise. Here's why.
  5. Managing Wealth

    Agency Theory

    An agency relationship exists when one person -- called a principal -- hires another person -- the agent -- to act on his behalf. Agency theory is concerned with resolving problems that develop ...
  6. Small Business

    Whom Should Corporations Please?

    Companies balance the interests of owners, customers and employees. Find out who comes out on top.
  7. Insights

    How The SEC Tracks Insider Trading

    We look at how the SEC tracks and tries to stop insider trading - a seemingly impossible task.
  8. Financial Advisor

    On The Record: Communications With The Public

    NASD Rule 2211 can make or break your career as a registered principal.
  9. Investing

    What Does Negative Shareholder Equity On A Balance Sheet Mean?

    Negative shareholder equity on a company’s balance sheet is a red flag that should prompt potential investors to take a closer look before committing their money.
RELATED FAQS
  1. What can shareholders vote on?

    Understand the usual voting rights of common stock shareholders, along with the importance of shareholders exercising their ... Read Answer >>
  2. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ... Read Answer >>
  3. Why do most of my mortgage payments start out as interest?

    The first thing a first-time home buyer needs to know is that over the life of the mortgage, the portions of interest to ... Read Answer >>
  4. How do you calculate shareholder equity?

    Shareholder equity is calculated by subtracting a company's total liabilities from its total assets. It's the amount remaining ... Read Answer >>
  5. What are the advantages of ordinary shares?

    Dividends and ownership rights are two advantages of investing in ordinary shares. Read Answer >>
Hot Definitions
  1. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  2. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  3. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  4. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  5. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center