What are Equity Securities with Controlling Interest?

//What are Equity Securities with Controlling Interest?
What are Equity Securities with Controlling Interest? 2017-10-04T07:33:13+00:00

Definition: Equity securities with controlling interest refers to a long-term investment in stock where the stockholder of the corporation owns at least 51% of the corporation. When a single shareholder own more than 50% of a corporation, he has the controlling interest of the company. In other words, he can control what the company does regardless of what the shareholders want to do.

What Does Equity Securities with Controlling Interest Mean?

The shareholder with controlling influence is often called the majority shareholder because he owns the majority of the outstanding corporate shares. The minority shareholders will never be able to out vote the majority shareholder. In essence, the majority shareholder runs the business and the minority shareholders are just along for the ride.

They can voice their opinion at stockholder meeting, but the majority shareholder doesn’t have to follow their advice. This is why it is so desirable to maintain at least a 51% majority interest in any company you start or own.

Example

Keep in mind, that a shareholder with controlling influence can have any stock ownership percentage above 50 percent; although, an ownership percentage above 51% doesn’t receive any more control or power of the company. Additional ownership beyond 51% is really only useful for dividend distributions. In other words, the only advantage of gaining more shares above 51% is to collect more dividends.

For instance, a 75% shareholder would collect 24% more dividends than a 51% shareholder. Obviously, this is only an advantage if the company issues dividends. That is why most owners stop their ownership share at 51 percent.