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.