What is a controlling interest
We think you know that when you buy shares, to some extent you become one of the owners of the business, but what does a controlling interest mean? Let’s figure it out!
The majority of the voting stocks that a firm gives to a shareholder (or a group of them) have a big influence on all corporate actions. And that is what it’s all about.
So if you own at least 50% of something, you can manage it. It works the same here. But even if your ownership stakes in a company are less, you still have the possibility to receive the majority interest, because not every stock gives a shareholder the right to vote at shareholder meetings.
A controlling interest is like a golden ticket for a shareholder, as it has a significant impact on the actions of the firm or in other words business control. Thus, you’re able to get a controlling stake if the stock of participation in the business is proportional to the total number of voting stocks.
There are several advantages to owning a controlling interest.
Imagine that you own a majority stake of a chocolate factory. The board of directors has decided to release raisin chocolate bars, but you don’t like raisins and are against this decision, so you’re able to veto this decision or even reverse it.
Also, at one point, you were automatically appointed chairman of the board of directors. If you become the controlling shareholder, your vote will have more power than the majority of votes. You’ll also be able to make your own decisions, for example, hire oompa loompas (or C-level executives – the most important senior executives of the corporation), who know how to make the best chocolate in the world.
If your chocolate factory acquires another factory or merges with it, then you’ll have the opportunity to increase your ownership stake in the firm because of the majority interest.
There is also indirect shareholding, when one controlling entity, such as your chocolate factory, directly owns stocks of another chocolate factory, which owns stocks of a third, but a different one.
Examples of business controlling
How many shares do you need to control a company?
Of course, you know who Mark Zukerberg is. So his stake hold of Facebook is just 18% of the company’s Class B shares, but he holds class B shares. You’re probably thinking how?
Class B shares have 10 votes per share, while Class A shares only have one vote per share, and Class C shares have no voting rights at all. The king of Facebook controls almost 60% of the shares by himself. And this is what we call effective shareholding!
In this way, even if you only own 20% of the shares in a chocolate factory, you still play an important role in making decisions about the firm’s operations. For example, how to find a receiver for a company owner: using a random lottery or a classic interview.
Google’s parent company is Alphabet Inc. (GOOGL), which structured its stocks much as Facebook did. Larry Page, Sergey Brin, and Eric Schmidt have a majority interest, holding more than 60% of the company’s voting stocks.
There is a well-known case when the CEO was supposed to leave his post at a company, but then he bought a controlling stake and, thus, gained control over the company. It was Michael Dell and Dell Technologies.
- You own a majority of the voting stocks of one company = you have a controlling interest.
- You’re cool and powerful if you have it.
- With a golden ticket, you manage to veto or reverse the decision of the board of directors.
- Should your company expand, you’ll have the opportunity to increase your ownership interest, thanks to your controlling stake.
If you have interest at stake, you can buy stocks on Android and IOS in our app.