Business, Legal & Accounting Glossary
Controlling interest in a corporation means to have control of a large enough block of voting stock shares in a company such that no one stockholder or coalition of stockholders can successfully oppose a motion. In theory, this normally means that controlling interest would be 50% of the voting shares plus one.
In practice, though, controlling interest can be far less than that, as it is rare that 100% of a company’s voting shareholders actively vote.
In addition, a company that requires a 2/3 super-majority of shares to vote in favour of a motion, can grant, in effect, veto power to a minority shareholder or block of shareholders that own essentially 1/3 of the shares. Thus in some cases, a single entity can essentially maintain control, with only 33.4% of the outstanding shares. Ford Motor Company’s ownership of 33.4% of Mazda is an example of a controlling interest with minority shareholding.
Controlling interest is simply an ownership status where a corporation or an individual owns fifty per cent or more of a company’s voting shares. One of the ways in which controlling interest may be achieved is by paying a control premium, which in effect grants enough ownership to set policies, direct operations, and makes a multitude of other controlling interest decisions for a business. Controlling interest is also often attained by way of initiating mergers, such as acquisitions and buyouts. Undervalued companies are often sought out for the purpose of consuming enough shares to secure controlling interest. Controlling interest may also be gained by a much smaller interest in a company, owned individually or by a group in combination. This type of standing may result in a controlling interest if all other company shares are widely dispersed and not actively voted.
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This glossary post was last updated: 18th April, 2020 | 2 Views.