Majority Shareholder Definition
Majority Shareholder, also known as controlling shareholder, is an individual or a corporation that owns majority of the stock of the company. I.e. more than 50% of the stock and therefore enjoys more voting power than other shareholders. These shareholders are in a position to influence the decisions of the company and can select or replace board of directors.
How Does Majority Shareholders Influence Decision Making?
Since they hold more than 50% of the shares in the company, they are in the position to make decisions in the company. For taking large-scale decisions in any company other than day to day affairs, the entity requires to seek the approval of the shareholders. Thus, to make any decision, the approval of controlling shareholders necessary. And they can analyze whether such a decision is beneficial for the company or not. They can help the organization by not approving any such matter, which is not in the interest of the company.
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For eg:
Source: Majority Shareholder (wallstreetmojo.com)
Example
Mr. A holds 25% shares in a company, and his shareholding is highest in comparison to other shareholders of the company.
In this example, although Mr. A holds the highest number of shares, he can’t be called as a controlling shareholder. It is so since, to become one, his shareholding shall be over 50%.
Majority Shareholder vs. Minority Shareholder
| Criteria | Majority Shareholder | Minority Shareholder |
|---|---|---|
| Shareholding | More than 50% | Less than or equal to 50% |
| Role in Decision Making | Major role | Minor role |
| Influencing power | More | Less |
| Protection from Unfair Prejudice | Not required since they are in the majority; | Required as there is the possibility of their oppression; |
| Legal action | Majority shareholders do not require to file a legal case as they do not face oppression in the organization. | They can file a legal case against controlling shareholders if they feel they are facing oppression. |
Duties
- The majority shareholder shall disclose to the minority shareholders when they intend to sell the company’s assets to another entity.
- Such shareholders shall not use the secret information available to them to their advantage only.
- They shall ensure not to misuse their position for promoting their interests at the cost of the company’s general interest.
- Majority shareholders shall not prevent the minority shareholders of an equal opportunity in the company.
- They are required to act in good faith and honesty.
Conclusion
Majority shareholders enjoy decision making power in the company as major decisions require their approval. They should ensure that they fulfill their fiduciary duties towards the minority shareholdersMinority ShareholdersMinority interest is the investors' stakeholding that is less than 50% of the existing shares or the voting rights in the company. The minority shareholders do not have control over the company through their voting rights, thereby having a meagre role in the corporate decision-making.read more and not misuse the rights and privileges available to them. If they feel that such shareholders are suppressing their rights of equal opportunity in the organization, they may file a legal suit against them.
Recommended Articles
This article has been a guide to Majority Shareholder and its definition. Here we discuss how controlling shareholders affect the decision making of the company along with their features and duties. We also discuss the difference between majority vs. minority shareholders. You can learn more from the following articles –
