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Golden Share

Definition

A Golden Share is a type of share that gives its holder veto power or decisive control over major corporate policies in a company. It’s a uniquely structured voting share, often held by a government organization, allowing it to outvote all other shareholders on certain issues. Despite not owning a large block of the overall equity, a Golden Shareholder can significantly influence a company’s decisions.

Phonetic

The phonetics of the keyword “Golden Share” would be: /ˈɡoʊldən ʃɛər/

Key Takeaways

  1. A Golden Share is a unique type of share that grants its holder special voting rights, enabling them to block changes or transactions that may be harmful to their interests, or to veto specific corporate decisions.
  2. This type of share is often held by a government organization to retain some level of control in a company that has been privatized.
  3. While the holder of the Golden Share doesn’t have a significant ownership stake in the company, the power that comes with this share can outweigh the influence of individual majority shareholders.

Importance

The Golden Share is a significant concept in the business/finance field as it gives its holder special voting rights, granting it the power to block or approve certain corporate actions. This unique share is usually held by a government organization, allowing it to outvote all other shareholders in certain specified circumstances, typically in matters of takeovers. The use of this golden share ensures that the company is protected against hostile takeovers, preserving the strategic interests of the company. Thus, the golden share is crucial in maintaining control and providing safeguards for the organization’s significant decisions.

Explanation

The primary purpose of a golden share, a unique type of share that grants its holder particular vetoing or voting powers, revolves around retaining control or influence over key business decisions. Embedding a golden share in a company’s structure enables the holder, often a government or initial owner, to block or influence specific actions, regardless of the majority consensus by common shareholders. This proves particularly useful in instances needing control over strategic actions such as mergers and acquisitions, bankruptcy filings or liquidation processes, alterations in the company’s statutes, and other significant governance changes.Furthermore, golden shares are often utilized to protect a company’s interests, especially in sectors deemed as nationally significant or strategic. For instance, they could serve to prevent foreign takeovers that may compromise national security or critical infrastructure. The government or parent company can use their golden share to veto any transactions or decisions that could negatively affect the wellbeing of the entity or disrupt the functioning and stability of strategic sectors. In essence, a golden share offers a safeguard and means of retaining a level of control over a company’s operations and strategic direction.

Examples

1. British Aerospace (BAe): The UK government retained a golden share in British Aerospace when it was privatized in 1981. This enabled the government to veto or approve any potential takeovers, ensuring that the company’s operations remained within the national interest.2. Volkswagen AG: The State of Lower Saxony owns a golden share in Volkswagen AG, allowing it to block any decision to move production out of state. This was contested by the European Court of Justice in 2007, but the state still retains 20% of the votes.3. ENEL (Italy’s National Electricity Provider): When ENEL was privatized, the Italian government maintained a golden share to enable it to veto decisions it considered against Italy’s strategic interests. For instance, this allowed Italy to prevent a foreign takeover of the company.

Frequently Asked Questions(FAQ)

What is a Golden Share?

A golden share is a type of share that gives its shareholder veto power or decisive control over matters of company policy or changes. It is a nominal share with special voting rights that gives the holder control over the company even if they do not own a majority of standard shares.

Who typically holds the Golden Share?

Traditionally, golden shares have been held by governments, allowing them to retain control over privatized companies. However, they can also be held by investors, founders, or parent companies.

What type of decisions can be made with a Golden Share?

Golden Share offers the power to veto or approve major corporate decisions such as mergers, acquisitions, asset sales, or dissolution of the company.

Are Golden Shares common across all companies?

No, golden shares are not common. They are primarily issued during the process of privatization or to prevent a hostile takeover.

Can the power of holding a Golden Share be transferred?

That depends on the terms set during the issuing of the Golden Share. However, usually, the power of the golden share cannot be transferred or sold.

Are Golden Shares legal everywhere?

No, the legality of golden shares varies from country to country. For example, the European Court of Justice has ruled that golden shares are against the principles of the free movement of capital.

How does a Golden Share affect the balance of power in a company?

The holder of a Golden Share can have significant control over major changes in company policy, which can sometimes lead to a power imbalance where minority shareholders have a disproportionate amount of control.

Can there be more than one Golden Share in a company?

Typically, there usually only is one golden share within a company, but this can vary depending on the company’s policy and share structure.

Related Finance Terms

  • Privatization: This is the process through which private sector companies acquire state-owned enterprises, often involving the issuance of a Golden Share to the government.
  • Voting Rights: Golden Share often grants the holder disproportionate voting rights, enabling them to override the majority decision of shareholders in certain strategic decisions.
  • Share Capital: This refers to the funds that a company raises in exchange for issuing shares. Golden Share represents a specific, potentially powerful portion of a company’s share capital.
  • Takeover: Golden Share can give its holder veto power in situations like a hostile takeover, allowing them to protect the company’s interests.
  • Financial Regulation: This term encompasses the laws and rules governing how a company must operate in the financial sector. Understanding how Golden Shares fit into this framework is crucial for companies and governments alike.

Sources for More Information

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