Posted in Finance, Accounting and Economics Terms, Total Reads: 187
Definition: Principal Shareholder
A principal shareholder, also known as a majority shareholder, is an individual or a group in a company who has a most of the stake of a company’s shares. Since they have more share than anyone, they have a say in decision making and policy making in the company, and hence are an important shareholder in the company.
Smaller investors usually look up at the principal shareholders credibility before investing in a firm. They also closely watch the investing decisions of the principal shareholder to make their own investment decisions. If the principle shareholder invests more in the firm then the smaller investors take it as a hint that the business is doing well and they also start buying stock of the firm to generate more gains in the future.
Usually the principal shareholders are the ones who are the founders of the firm or the family members of the founders. It may be an individual or a group of individuals or an entity. A principal shareholder will have more than 50% of a company's stocks.
A principal shareholder is also the one who has more than 10% of the voting rights in a company and can make an impact in the management decisions. For example Mukesh Ambani owns more than 50% shares outstanding in Reliance Industries Limited and is the principal shareholder of the company. Many small investors look up at his investing decisions in RIL to devise an investing strategy for themselves.