A golden share is a type of stock share that provides the holder with a range of voting rights or privileges above and beyond those enjoyed by holders of other types of shares. Utilized mainly in the United Kingdom, the golden share is often associated with companies undergoing privatization, when the government wishes to maintain some degree of control over the newly privatized entities. The special privileges associated with the shares are normally executed under specific conditions that are outlined in the charter of the company.
While the range of privileges may vary, a golden share normally comes with veto powers that make it possible to outvote owners and investors holding other types of shares. For example, if investors holding golden shares wished to do so, they could be able to successfully block a decision to sell the business, or even prevent the occurrence of some sort of takeover. Holding golden share stock could also make it possible to prevent a voting block of investors from electing individuals to a board or directors under certain circumstances, or even limiting the number of shares that a given investor could purchase and hold.
The concept of the golden share is not unusual in several different types of company situations. With a family corporation, shares of this type may be awarded to a trusted individual outside the family, creating a mechanism for resolving conflicts among family members on how to operate the business. The approach may also be used by companies that spin off departments into independent businesses which are not structured as subsidiaries, since the golden share holdings minimize the opportunity for a competitor to buy the new business and possibly use the association to undermine the production capacity of the original owner.
Shareholders who are recipients of golden share stocks may or may not earn some type of higher return on the shares held. More often, it is the benefits and privileges that set this type of offering apart from other shares issued by a given company. While useful in terms of protecting the interests of the company in most situations, it is important to note that unless provisions are made within the company charter to closely limit when and how those special privileges are invoked, the shares can be used in a manner that is ultimately not in the best interests of the company or the majority of its shareholders, such as aiding in a takeover of the board or a takeover bid launched by a competitor or corporate raider.
