151k views
4 votes
What constitutes "significant influence" when an investor's financial interest is below the 50% level?

User InternalFX
by
8.0k points

1 Answer

5 votes

Final answer:

The minimum number of investors needed to change the company's top management would be three, consisting of investors 1, 2, and 3, to obtain majority control. Investors 1 and 2, holding 38,000 shares together, cannot ensure absolute control over the company's decisions without other investors' support.

Step-by-step explanation:

In the scenario with The Darkroom Windowshade Company, which has 100,000 shares of stock outstanding, we need to determine the minimum number of investors required to change the company's top management and whether investors 1 and 2 can always get their way if they agree to vote together. For a change in management, over 50% of the voting power is needed. By adding the number of shares held by the top shareholders, we can determine the minimum coalition needed to achieve this majority. Investor 1 with 20,000 shares and Investor 2 with 18,000 shares together hold 38,000 shares, which is below the majority of 50,001 shares needed to have control. However, if they combine their shares with Investor 3, who holds 15,000 shares, they exceed the 50% threshold with 53,000 shares.

On the question of whether investors 1 and 2 can always be certain of getting their way in the company, while they hold a substantial number of shares, they do not have an absolute majority. If the other shareholders unite against them, they would be outvoted. Thus, investors 1 and 2 on their own do not constitute sufficient significant influence to be assured of controlling the firm's decisions. Other shareholders could band together to form a majority. The collaborative dynamic among all shareholders ultimately determines the influence an individual or group holds within a company's decision-making processes.

User Jerry Sha
by
7.9k points