Majority Shareholder

Updated on January 15, 2024
Article byWallstreetmojo Team
Edited byPallabi Banerjee
Reviewed byDheeraj Vaidya, CFA, FRM

Majority Shareholder Meaning

Majority Shareholder, also known as a controlling shareholder, is an individual or a corporation that owns the majority of the stock of the company. I.e., more than 50% of the stock enjoys more voting power than other shareholders. These shareholders are in a position to influence the company’s decisions and can select or replace the board of directors.

Majority-Shareholder (Main)

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The majority shareholders enjoy decision-making power in the company as major decisions require their approval. They should ensure 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 their rights and privileges. If they feel that such shareholders are suppressing their rights to equal opportunity in the organization, they may file a legal suit against them.

Majority Shareholder Explained

The term majority shareholder refers to an individual or a company that has the power to control to have the ownership of more than 50% of the outstanding shares of another company. This helps the former have a considerable influence on the operational procedures and decision making of the latter. The power increases if the stocks come with voting rights.

The purpose of granting voting rights is to give power to the shareholders to vote during important decisions like appointment of board of director or any other corporate procedures. This right can change the direction of operation and bring about significant changes.

Very often it is seen that the founders of the company are the majority shareholders. The business may be existing in the market for a very long time period and the majority shareholder rights have been carried forward from generation to generation. They become the key stakeholder who influence the strategic operational procedures.

Typically, this concept is a crucial feature of a private company. However, it is not expected to find that some such shareholders play an active part in the decision-making process while others do not do so. They leave the daily operations to the executives of the company. In small businesses, it is normal to find such shareholders as part of the management, too, because their number of outstanding shares is limited. Big firms may have other companies or institutions as part of their shareholders of large amounts, giving them majority shareholder rights.

Powers

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 must seek the shareholders’ approval because of their majority shareholder powers. Thus, to make any decision, the approval of controlling shareholders is 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 that is not in the company’s interest.

Rights

Given below are some important rights of such shareholders in the business. Let us understand the same in details.

  • Voting right – These points out to their power to cast the votes for election of directors, providing approval for for many important transactions, which will shape the future of the company. Their influence has a lot of significance in guiding the business towards a sustainable future.
  • Dividend related decision – These shareholders can also make decisions related to timing and amount of dividend distribution from the profits earned by the company, This impacts the faith and expectation of the shareholders who are entitled to get the dividends and in turn create a positive image about the company.
  • Mergers and sales – In case the company has plans to merge with another suitable entity or is considering the option of selling some of its assets to raise funds or reduce costs, these shareholders have the power to approve it or vote against it. The knowledge and experience of such shareholders help regarding these decisions because such situations affect the interest of the company directly.
  • Director appointment – Their main power lies with the appointment of board representatives who can ensure that the interest of the company is protected, and they are in alignment with the company policies and procedures. There should be clarity of operation which is taken care of by the board representatives appointed by these shareholders.

Thus, these shareholders play a critical role in shaping the company’s operational strategy and framing policies and procedures that will guide it towards a better future, ensuring sustainability and consistent profitability which is very important to survive in the competitive market.

Example

Let us study the concept of majority shareholder powers with the help of a suitable example as given below:

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 shares, he can’t be called a controlling shareholder. It is so since, to become one, his shareholding shall be over 50%.

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Duties

Here are some important duties that they should perform as holders of major part of the outstanding shares.

  • 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 to promote their interests at the cost of the company’s general interest.
  • The 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.

Benefits

This kind of shareholder enjoys several benefits within the company. Let us study them in the majority shareholder concept.

  • Getting information – They often have the priviledge to access different types of information that may not be available to the outsiders, like management information or financial reports. Using this information, they can make decision for their own benefit which will meet their own interest.
  • Flexibility – They can decide to leave the company and exit from their shareholding responsibility by selling off their share of stocks and making considerable profits in the process. Thus, the exit strategy offered to them is highly beneficial.
  • Control management – Since they have the power to influence the appointment of executives at a very senior level, which may include even the CEO, through their voting power, it makes their ideas and suggestions very important for the company. Their experience and skills add a lot of value to the process of aligning the company interests with that of their knowledge.
  • Higher profit potential – Any business needs knowledgeable and responsible minds that will strategize and generate ideas as well as help in the implementation of the same so as to steer the business towards greater heights. The influence of these shareholders creates a scope for the generation of returns and the proper use of resources to achieve the business objective.

So, in the corporate environment, the majority shareholder concept plays a very crucial role because they possess lots of powers and rights that help them to influence the company’s decisions and shape its future. They act as a pivot to excellent and quality corporate governance and ethical operation, which impact the lives of all stakeholders, including management.

Majority Shareholder Vs Minority Shareholder

CriteriaMajority ShareholderMinority Shareholder
ShareholdingMore than 50%Less than or equal to 50%
Role in Decision MakingMajor roleMinor role
Influencing powerMoreLess
Protection from Unfair PrejudiceNot required since they are in the majority;Required as there is the possibility of their oppression;
Legal actionThe 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 face oppression.

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