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What is a Controlling Interest?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 September 2016
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Controlling interest is a situation where one entity holds more than half of the voting shares of stock issued by a corporation. In general, it places the single entity in a position where, even if all other shareholders vote in opposition to a decision supported by the investor with a majority of voting shares, their collective strength will not be sufficient to alter the decision. In most cases, this situation is present when a single investor owns in excess of half of the shares of stock currently in circulation, although in other instances, it may require something more.

Depending on the articles of incorporation and bylaws of a given company, a two-thirds majority vote of shareholders may be required in order to approve a decision. If that is the case, an investor who owned just over half of the outstanding shares would not be able to control the outcome alone. He or she would require the support of at least enough of the other investors to achieve a two thirds vote in favor of the issue.

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In one sense, controlling interest may also be present when a single investor owns at least 34% of the voting stock currently in circulation. This is true when a two-thirds majority vote is required to approve an issue that is put before the shareholders. Without winning the support of the single investor who controls 34% of the shares, there is no way to achieve that majority and the issue will be defeated. From this perspective, an investor can be considered both a minority investor and still have control, in that nothing is likely to pass without his or her support.

Having a controlling interest in a given company is a model that many corporations use to ensure that power remains in the hands of the founders or owners. The number and type of shares issued to other investors is carefully balanced with the number and type of voting shares retained by the owners, so that they always have a significant say in any decision that impacts the profitability of the company. In addition, maintaining this type of interest tends to keep the corporation safeguarded from corporate raiders who may try to take control and dismantle the company for profit.

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