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

There are multiple advantages associated with having a controlling interest in a business, which are as follows:

Decision-making power. The controlling shareholder has significant influence over major decisions, including the appointment of executives, setting the company's strategic direction, mergers and acquisitions, and approval of significant investments.
Control over dividends. The controlling shareholder can influence the company's dividend policies, including deciding if and when profits are distributed to shareholders.
Protection of interests. The controlling shareholder can influence decisions that could undermine the shareholder's stake or the value of the company. They are less vulnerable to hostile takeovers or policies that dilute their influence.
Economic benefits. The controlling shareholder may receive direct economic benefits, such as higher salaries, consulting fees, or other financial arrangements that may not be available to minority shareholders.
Increased share value. The shares held by a controlling shareholder 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.