CONTROLLING INTEREST, a financial term having two significations : a person or group of persons who own 5 I % or more of the voting stock of a corporation and who could thereby control stockholders' meetings; and, (2) a person or group of persons who either by ownership or proxy have the voting rights to a sufficient amount of the capital stock of a corporation to control a stockholders' meeting.
The voting rights to 51% of the voting stock will always give this power of control, but it can often be exercised with a much smaller percentage for one or more of the following reasons : A considerable minority of the voting stockholders may be closely organized and in agreement to vote together on certain ques tions, or at an election. The remainder may be unorganized and their votes divided in several ways. Let us suppose that about 3o% of the votes are banded together and that the other 7o% have no organization. If the 7o% is divided several ways, some of it even voting inadvertently with the organized minority, the minority will very probably carry its points. (2) A minority of all the stock may constitute a majority of the stock actually vot ing, as it is very unusual to have more than 75% of the stock represented at a meeting. In such a case a minority consisting of 38% of all the voting stock would control the meeting, even if all the remaining stock present were united against it. (3) Some times stock votes by classes and a minority class may be given the privilege of choosing a majority of the board of directors. Con sider a case of a company whose common stock represents 6o% and whose preferred stock represents 4o% of the whole. If there are nine directors, it may be so arranged that the preferred stock always chooses five of them and the common stock the remaining four. In such a case, the majority of the preferred stock, which is about 2I % of all the stock, can elect a majority of the directors and thus control. (4) Stock with a strict vetoing power exerts a strong negative control over various affairs. A certain class of stock, for example, 2o% of the total, may be classified as non voting for ordinary purposes, and yet the certificate of incorpo ration may provide that certain things may not be done without the consent of the majority of this class. In such a case, the holders of the majority of this stock, which would be only about I I % of the entire stock, can block action. (5) Where statutes do not prohibit it, certificates of incorporation sometimes provide that more than a bare majority of the total vote shall be required to perform certain acts, such as the election of directors, the necessary portion being sometimes 1, or 4. In such cases a minority once in power can remain so by blocking elections and other actions requiring the large vote. ( J. H. B.)