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What Does It Mean To Have Significant Control?

Posted 14 days ago

What Does It Mean To Have Significant Control?
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When we think of control, we think mostly about who owns a business. But the concept runs far deeper than ownership.

Control actually refers to having a sufficient amount of voting shares of a company to make corporate decisions. This position exists as a result of majority shareholder support or something known as a dual-class shareholder structure but can change through a takeover proxy contest. We will explore this in further detail, shortly.

What does control actually mean?

The control of a business will lie with majority shareholders who then elect a Board of Directors to represent their views and wishes. A Board of Directors is essentially a governing body of a business that will meet to set policies for management and oversight.

Board members are given control, but only with majority support of the shareholders or owners of the company. In some cases, a dual-class structure gives control to a small group of founders/insiders, whose economic interest in the company can be far smaller than the holdings of all other shareholders.

What are the different types of shareholder structure?

A majority shareholder is a person or entity that has the most shares in a given business. It gives the person or entity significant sway over the direction of the company if their shares are voting shares, since they can hold a vote and then vote in favour of their desired direction. They may have only 20% in a company and a group of other shareholders may band together and out-vote them. It really does depend on what the shareholder’s agreement states. In theory, someone with 1 percent could have a very special share that gives them the power to control the company if 99%, for example, have agreed.

A Dual-class share structure (DCS), also known as shares with weighted voting rights, provide some owners with superior voting rights giving them voting control over a company that is disproportionate to their equity shareholding.

Author: Sacha Bright & Oliver Murphy

Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.

Tagged: Shareholder Business Entrepreneurs



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