Acquisition of significant share ownership: Overview, definition, and example
What is acquisition of significant share ownership?
Acquisition of significant share ownership refers to the process by which an individual, group, or company acquires a substantial percentage of shares in another company. This ownership stake is typically large enough to provide the acquirer with significant influence or control over the company’s operations, decisions, and strategies. The definition of “significant” can vary depending on the context and regulatory framework, but generally, acquiring 5%, 10%, or more of a company’s shares is considered significant.
This acquisition can happen through public markets, private transactions, or a combination of both, and it often requires disclosure to regulatory authorities and other shareholders, especially when the acquisition surpasses certain thresholds.
Why is the acquisition of significant share ownership important?
The acquisition of significant share ownership is important because it can lead to changes in control, influence, and governance within the target company. A significant shareholder often gains the ability to affect key corporate decisions, such as mergers and acquisitions, strategic direction, and executive appointments. For example, an acquirer may influence shareholder voting or even seek to take over the company by purchasing additional shares.
For businesses, this type of acquisition can signal confidence, potential restructuring, or a shift in strategy. For investors, it represents an opportunity to gain a controlling interest or a say in a company’s future, and it may trigger regulatory requirements for disclosure, reporting, or approval.
Understanding acquisition of significant share ownership through an example
Imagine Company A is a publicly traded company, and Company B decides to acquire a significant share ownership in Company A. Company B purchases 15% of Company A's shares, which allows it to have considerable influence over Company A's decisions. With this significant shareholding, Company B gains the right to vote in shareholder meetings and might use its influence to advocate for certain business strategies or even push for a merger or acquisition of Company A.
In another example, an individual investor, Jane, buys 12% of the shares in a tech startup. Because of this significant stake, she is now in a position to participate in key shareholder decisions, such as voting on major corporate changes, and may even engage in discussions with the company’s management to ensure her interests are represented.
An example of acquisition of significant share ownership clause
Here’s how an acquisition of significant share ownership clause might appear in a shareholder agreement:
“In the event that any shareholder acquires more than 10% of the outstanding shares of the Company, such shareholder shall promptly notify the Company and all other shareholders of the acquisition. The shareholder shall also provide the necessary documentation to comply with relevant securities laws and regulations concerning the acquisition of significant share ownership.”
Conclusion
The acquisition of significant share ownership refers to the act of acquiring a substantial percentage of shares in a company, which gives the acquirer significant influence or control over the company's operations and decisions. This type of acquisition can have important consequences for corporate governance, strategy, and shareholder dynamics. It can be a strategic move for investors or companies looking to gain control, influence, or partnership with another company. Understanding the implications of acquiring significant share ownership is crucial for both the acquirer and the company involved, as it often triggers regulatory requirements and strategic changes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.