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What are Golden Shares?
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Table of Contents
What Are Golden Shares
In business, golden shares refer to securities issued granting its holder veto power over important decisions affecting the company.
In other words, the shareholder who is issued the golden shares will have a controlling interest in the company and can block takeovers, important transactions, or decisions.
We have seen golden shares issued primarily in the United Kingdom where the government received golden shares to ensure certain entities remain under the control of the state.
The reason why it’s called the “golden” shares is based on the fact that the holder of such shares has veto power
The issuance of golden shares was highly popular in the 1980s, particularly with the British government privatizing many companies but wanted to maintain a controlling interest in them.
However, although golden shares can be issued in certain jurisdictions such as the UK or Brazil, there are other jurisdictions that prohibit them.
Keep reading as I will further break down the meaning of golden shares and tell you how they work.
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How Do Golden Shares Work
The main objective in issuing golden shares to a shareholder is to grant that shareholder veto power over important company matters.
In essence, a single golden share grants its holder the majority voting rights.
In jurisdictions where golden shares are permissible, the company will first need to ensure that its charter or articles of association allow for the issuance of such shares.
Furthermore, the company must pass special resolutions where the golden shares are authorized.
Once the golden shares are approved, the company will then issue the same to the shareholder in question.
With the golden shares, the shareholder will be able to control at least 51% of the voting rights in the company.
This means that if there’s a hostile takeover or important corporate action proposal, the golden shareholder will have enough voting power to block the transaction.
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Golden Shares Benefits And Drawbacks
The main benefit of issuing golden shares is for a particular shareholder to maintain a controlling interest in a company.
By having a controlling interest, a shareholder can prevent the company from being subject to hostile takeovers or adopting resolutions that go against the wishes of the golden shareholder.
For instance, the British government used golden shares to ensure that the companies it privatized remained under the control of the British government and did not fall into the hands of unwanted international corporations.
Also, companies that are important to a particular economy, have strategic technologies, or deal with national security can issue golden shares to prevent foreign interference with their business.
On the other hand, golden shares give the holder veto power over important decisions affecting the company.
Although in some cases this can be justified, in the normal course of business, the shareholders of a business may consider that the company should be managed based on the desires and wishes of a single shareholder.
Critics of golden shares argue that companies that issue golden shares may not be operated optimally and the decisions of the golden shareholder may not be in the best interest of the organization.
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Golden Share Example
Let’s look at a few companies that have issued a golden share.
According to The Economist, the Chinese government has a golden share in ByteDance.
The British government had a golden share in the British Airports Authority (BAA) but the European courts deemed the shares to be issued illegally.
The British government has a golden share in NATS Holdings which is the UK’s main air navigation service provider.
The Brazilian government appears to have a golden share in the company Embraer S.A. in aeronautical and military space.
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Golden Share Meaning FAQ
How does the golden share work?
A golden share is a type of stock allowing its holder to control at least 51% of the company’s voting rights.
The main reason why the golden shares are issued is to grant the controlling shareholder the right to block the major movement of ordinary shares, block takeover transactions, and ensure the company remains under the control and influence of the golden shareholder.
What are the advantages of golden shares?
The main advantages of issuing golden shares are:
- The holder of the golden shares can influence strategic decisions impacting the company
- The holder will have veto powers
- Ability to block hostile takeovers
- Render change of control subject to the golden shareholder’s approval
What are the disadvantages of golden shares?
The main disadvantages of issuing golden shares are:
- Unwanted interference by the golden shareholder in the business
- Company’s inability to attract external investors
- Company’s inability to take advantage of the experience and knowledge of other shareholders
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Takeaways
So there you have it folks!
What does a golden share mean?
In a nutshell, a golden share refers to a type of stock issued to a shareholder that is able to outvote all other shares in specific situations.
Golden shares are often issued to the government in the context of the privatization of a public entity allowing the government to maintain control over the company in certain situations.
In essence, the golden share allows the shareholder to cast a decisive vote on specific matters.
For example, the government with a golden share can block all takeover attempts by foreign entities.
Now that you know what golden shares are all about and how they work, good luck with your research!
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