The majority shareholder is the owner of a portion of an organization’s shares, the total amount of which is greater than 50% of the voting shares.
This means that, since it has the capacity to impose itself at corporate meetings and decide the direction of the company alone, the majority shareholder is also, in most cases, the controlling shareholder.
It is an exclusive condition of holders of common shares, since, as a rule, preferred shares do not grant the benefit of voting.
Because it concentrates so much power within the organization, electing board members and exercising a strong influence on strategic directions, the law provides for the application of specific restrictions to the action of the majority shareholder.
This protects both minority shareholders, employees and the community.
What are the main characteristics of a majority shareholder?
The majority shareholder is a significant subject in the corporate structure.
Being able to compose public or private companies, it is essential for those that adopt the defined control model , where there is the identification of a single individual or group at the center of power.
It should not be confused with the controlling shareholder! Although it usually plays this role, the majority shareholder may lose it to minority shareholders.
While one is linked to influence, the other is linked to volume.
To illustrate, think of the dispute for control of companies as a medieval struggle. While, on the one hand, there is a great soldier in armor and shield, on the other there is only a lean little man, with the clothes of his body and his sword.
If the well-equipped soldier knows how to fight well, he will win with an advantage. If the smaller soldier, in turn, is better at handling his weapon, he will still have to overcome the strong protection of the opponent and the gap between their sizes.
That is, in the corporation, the majority shareholder has a prior advantage due to the volume of votes at his disposal.
The minority shareholder, if obstinate to impose its dominance, will face as an obstacle, in addition to its small number of shares, the privileged position of the majority shareholder.
For this reason, having a controlling shareholder who is not also the majority shareholder of the company is not impossible: just very, very rare.
What are the advantages of becoming a majority shareholder?
We cannot fail to mention the benefits that having the custody of most shares of a company can bring.
In addition to acting as a decisive factor in the meetings and participating in the receipt of dividends and interest on equity, the majority shareholder can also:
- Update the organization’s bylaws;
- Elect members and alternate members of the board of directors.
- Interfering with corporate governance.
From the perspective of organizational stability, it is noted that the speed of decision making is usually greater than in companies with dispersed control. This is because the time for discussion is also reduced.
That is, there are notable benefits not only in the individual understanding of the majority shareholder, but also in the company.
How to avoid the abuse of power by the majority shareholders?
Do you remember the example of the medieval struggles mentioned above?
Have you ever thought how easy it would be for the strongest soldier, due to his size and apparatus, to subdue the slightest soldiers with rampant violence?
In the case of the corporate structure, the same possibility must be considered.
After all, how easily can the majority shareholder oppress minority shareholders? Certainly, a lot.
In order to avoid this relationship of inequality, the Brazilian Justice has defined some restrictive mechanisms to its performance.
Based on actions specified in the Brazilian Corporate Law, the aim is to avoid evasion and fraud in the information shared with other members of the organization.
Among the main illegalities accessible to the majority shareholder are:
- The sale of the company’s properties to people connected to the shareholder, at a price below market value;
- The setting of excessive bonuses to the Executive Board;
- The dismissal of employees and directors linked to the shareholder, paying large indemnities and, many times, readmitting them shortly thereafter.
This is because all of these practices depend, above all, on approval by the assembly to materialize.
In order to restrict them, then, the law allows majority shareholders to be held individually responsible for abusive acts.
Sanctions range from reparations to criminal proceedings, depending on their extent.
Majority shareholders can also be denounced by any other members of the company, directly to the Securities Council (CVM).