A majority shareholder is an individual, entity, or government that owns more than 50% of a company’s outstanding shares. As a result, a majority shareholder typically has significant influence over the company’s strategic direction and operations, particularly if the shares come with voting rights.
Learn more about how a majority shareholder can influence a company as well as how to determine whether a company has a majority shareholder.
Definition and Example of Majority Shareholder
A majority shareholder is an individual, entity, or government that owns more than 50% of shares in a company. They usually have significant influence over the company’s strategic direction and operations.
Stock shares represent fractional ownership in a company. A company may issue different classes of shares, including some that come with voting rights and some that do not.
When an individual owns a majority of shares that have voting rights, that person has significant control over corporate governance. This is why a majority shareholder is sometimes called a “controlling shareholder,” although the two terms are not always synonymous, as we’ll explain below.
Often, majority shareholders are common in smaller companies, where a founder of a company or a descendant of the company founder holds the majority of shares.
Larger companies tend not to have a majority shareholder. For example, Bill Gates owned less than 5% of Microsoft’s stock. However, there are exceptions. For example, Warren Buffet, CEO and chairman of Berkshire Hathaway, held 38.8% of the company’s shares as of May 2021.
Majority Shareholder vs. Controlling Shareholder
In some cases, a company executive may be a controlling shareholder in that they have the most shares with voting power, but they may not technically be the overall majority shareholder.
A controlling shareholder does not have to have the majority of the company’s shares. They have enough shares to have an influential vote on company issues and are the company’s largest shareholders.
For example, Mark Zuckerberg, who founded Facebook and serves as its chairman and CEO, is the controlling shareholder of Facebook, but he does not own more than 50% of the total shares outstanding. Facebook has two types of stock: Class A and Class B shares. The Class B shares, which are primarily held by Zuckerberg, have 10 votes per share, while Class A shares have one vote per share.
Zuckerberg owns the most voting shares in the company, so he is the company’s controlling shareholder—but technically not its majority shareholder. The dual-class common stock structure allows Zuckerberg to have control over issues that require shareholder approval, even though he owns significantly less than a majority of the common stock shares.
Majority shareholders or controlling shareholders are not necessarily involved in the day-to-day operations of the company. These individuals are sometimes called “passive” shareholders. They may have been active in the daily operations of a company at one time, but stepped away to pursue other interests or due to age.
Pros and Cons of Majority Shareholder
A majority shareholder may be either an asset or a detriment to a company, depending on how their decision making affects the company. Potentially positive and negative aspects of a company with a majority shareholder can include:
Final say on strategic planning and corporate objectives
Board of directors and executive leadership with a united vision
Overrule of minority shareholders
Board members or executives may worry about the power of a majority shareholder
A majority shareholder can act in their own interest
- Final say on strategic decisions and long-term goals: A strong corporate leader who is a majority shareholder can have the final say on strategic planning and corporate objectives. If they have a strong vision, this could benefit the company.
- Board of directors and executive leadership with a united vision: A majority shareholder can have significant influence on the appointment of a company’s board members and senior executives.
- Financial motivation: A majority shareholder will enjoy a high percentage of the financial gains if a company is profitable and the share price increases. So they may be driven to make decisions based on the best interest of the company.
- Overrule of minority shareholders: Majority or controlling shareholders can overrule a larger number of minority shareholders regarding board appointments, strategic decisions, or other corporate matters. They may even be able to force valuable members of the executive team or board of directors out due to a personality difference.
- Board members or executives may worry about the power of a majority shareholder: Company executives may be less inclined to disagree with a majority shareholder’s opinion in the interest of protecting their job.
- A majority shareholder can act in their own interest: Majority shareholders often have the ability to act in their own best interests rather than the best interests of the company and its other shareholders.
What It Means for Individual Investors
A talented majority shareholder can lead a company on a lengthy and profitable run; however, some investors find a “controlled company” less attractive because they have less control over corporate matters.
The bottom line is that it’s “buyer beware” when investing in any company with a majority shareholder. Consider all aspects of any investment and how it fits with your overall investing goals, not just whether the company has a majority shareholder or not.
- A majority shareholder is an individual, entity, or government that owns more than 50% of a company’s outstanding shares.
- A majority shareholder who owns voting shares may have final say on the company’s strategic direction and the appointment of board members and executive leaders.
- A majority shareholder is sometimes the same as a controlling shareholder, although a controlling shareholder can exist without owning the majority of shares outstanding.
- Some majority shareholders are actively involved in the company’s daily activities, while others don’t participate in daily operations.