What is a Controlled Company?

A controlled company is a business in which another entity owns a majority of the voting stock. More specifically, the owner must have at least 50% of the voting power for the election of directors. When a business is classified as a controlled company, it does not have to follow the public company rule requiring it to have a majority of independent directors, or to have independent nomination and compensation committees. In this situation, the company must disclose that it is relying on the controlled company governance exemption, state the governance standards with which it is not complying, and itemize the basis for taking the exemption.

Characteristics of a Controlled Company

A controlled company typically has the following characteristics:

Majority ownership. A single individual, group, or another entity owns more than 50% of the voting shares, giving them effective control over corporate decisions.
Board control. The controlling party has significant influence over the composition and actions of the board of directors, often appointing allies or representatives.
Exemption from certain governance rules. In public markets like the NYSE or NASDAQ, controlled companies can opt out of certain corporate governance requirements, such as maintaining independent directors or committees.
Centralized decision-making. Strategic and operational decisions are often centralized under the controlling shareholder(s), potentially limiting broader shareholder influence.
Potential governance risks. The controlling shareholder may prioritize personal or affiliated interests, which can raise concerns about minority shareholder protection and conflicts of interest.