What is a Controlling Interest?

A controlling interest occurs when one or more shareholders acquire a majority of an organization’s voting stock. With a controlling interest in hand, investors can direct how they want a business to be operated, which can include forcing the firm to issue dividends to the investors.

Examples of a Controlling Interest

For example, 50% of all shares plus one share gives an investor a controlling interest. It is also possible to achieve a controlling interest when there is a separate class of voting stock, and the investor owns a majority of those shares. Yet another scenario is when ownership in a business is widely dispersed among many investors; in this case, an investor effectively has a controlling interest with fewer than 50% of the shares outstanding. For example, an active shareholder in a publicly held company could achieve significant influence over the firm with a stake of as little as 10% of the shares outstanding.

Advantages of a Controlling Interest

Having a controlling interest gives an investor significant influence over the actions of a company, including its strategic and operational decisions. This is because the investor can overturn or veto the decisions of other board members. If necessary, an investor with a controlling interest can have a company’s CEO replaced with someone willing to do as the investor requires.

A further advantage of having a controlling interest is that these shares are more valuable than the shares held by minority investors. For example, the controlling investors could demand a premium for their shares when a potential acquirer shows an interest in purchasing the company. Otherwise, the acquirer has no way to gain control of the business.