Principal Shareholder

The big cheese. The big kahuna. The head honcho.

There are 40 million common shares outstanding. And the biggest holder (by number of shares, not by measure of any, um, physical feature) owns 12 million of them. That’s not a majority. It’s just a big number.

So can that 12 million holder control the company? Does she? Well, likely yes, even though it’s not a majority. Why? Well, in most companies only a fraction of all the total shares even bother to vote. Kind of like our political system, sadly. So if only a third vote...well, a third of 40 million is 12-ish million, and you’re done already. Say it’s a third of the remaining 28 million shares, or about 9 million actually vote. Well, again the 12 million holder controls. And remember that it’s likely that a lot of those other shareholders will side with whoever the principal shareholder is, presuming that they’re relatively smart, had a lot to do with the company’s success, and will care a lot about the economics of the company going forward.

So owning even a fifth or less of a company can mean control—that’s the principal shareholder, the one who controls. And remember that it’s the common shareholders who elect the board, who hires the CEO, who basically hires everyone else. So it all rolls down the line with the head end at the Principal.