Definition
A golden share refers to a type of share in a company that holds special voting rights, typically more than 51% of the voting rights, giving its owner a decisive influence over major corporate decisions. This mechanism is often used by governments to retain strategic control over companies, particularly following privatization, to prevent the company from falling into foreign or otherwise undesired ownership.
Examples
- British Aerospace: In the privatization of British Aerospace, the UK government retained a golden share to ensure that the company would stay under domestic ownership.
- Telecom Italia: The Italian government held a golden share in Telecom Italia to maintain control over telecommunications infrastructure crucial for national security.
Frequently Asked Questions (FAQs)
What is the primary purpose of a golden share?
The primary purpose of a golden share is to allow a government or another stakeholder to retain control over a company, particularly in strategic sectors or after privatization, to safeguard national interests.
Can a golden share be transferred?
Typically, a golden share is non-transferable and is specifically designed to remain with the entity that initially held it — often a government or an important institutional investor.
How does a golden share differ from regular shares?
A golden share carries significantly more voting rights than regular shares, often enough to influence crucial company decisions (e.g., mergers, acquisitions). Regular shareholders usually have proportionate voting rights with no special privileges.
Are golden shares common outside of government use?
While primarily used by governments, the concept of a golden share can be utilized by private entities to retain control over critical decisions within a corporation.
Is the concept of a golden share legal in all countries?
No, the legality and use of golden shares vary by country and depend on national corporate governance laws and regulations.
- Privatization: The process of transferring ownership of a business, enterprise, or public service from the government to the private sector.
- Voting Rights: The rights of shareholders to vote on certain corporate matters, often reflecting the size of their ownership stake.
- Shareholder: An individual or entity that owns shares in a company and thus holds a financial interest in its growth.
- Majority Control: Ownership or control of more than 50% of a company’s voting shares, which generally makes it possible to pass decisions without the need for approval from minority shareholders.
Online References
Suggested Books for Further Studies
- “Corporate Governance: Principles, Policies, and Practices” by Bob Tricker
- “Privatizing Governmental Functions” by Deborah Ballati
- “The Economics of Privatization” by John R. Nellis and Mary M. Shirley
Accounting Basics: “Golden Share” Fundamentals Quiz
### What is a Golden Share primarily used for?
- [x] To allow a government or stakeholder to retain decisive control over a company.
- [ ] To increase the number of shares available to the public.
- [ ] To distribute profits equally among all shareholders.
- [ ] To evaluate the financial health of a company periodically.
> **Explanation:** A Golden Share is primarily used to allow a government or significant stakeholder to retain decisive control over a company, ensuring it remains under domestic or acceptable ownership.
### Which sector often sees the use of Golden Shares?
- [ ] Retail
- [ ] Hospitality
- [x] Strategic sectors such as defense and telecommunications
- [ ] Education
> **Explanation:** Golden Shares are often used in strategic sectors like defense and telecommunications, where national security and public interest may be affected.
### Can a Golden Share be transferred under typical circumstances?
- [ ] Yes, it can be freely bought and sold on the stock market.
- [ ] Yes, but only to other interested shareholders.
- [x] No, it is non-transferable and remains with the initial holder, often the government.
- [ ] Yes, but only within the same industry.
> **Explanation:** A Golden Share is typically non-transferable and remains with the initial holder, particularly a government, to ensure control is maintained.
### What makes a Golden Share different from regular shares?
- [ ] It generates more profit.
- [x] It carries special voting rights, often more than 51% of the total.
- [ ] It is traded on different stock markets.
- [ ] It requires fewer compliance checks.
> **Explanation:** A Golden Share carries special voting rights, often enough to exert decisive influence over company decisions, unlike regular shares.
### What is an example of a company that used a Golden Share?
- [ ] Amazon
- [x] British Aerospace
- [ ] Walmart
- [ ] Google
> **Explanation:** The UK government retained a Golden Share in British Aerospace during its privatization to ensure it remained under domestic control.
### Why might a government retain a Golden Share during privatization?
- [ ] To increase market share.
- [ ] To boost the stock price.
- [x] To ensure the company does not fall into foreign or undesirable hands.
- [ ] To reduce operational costs.
> **Explanation:** A government might retain a Golden Share during privatization to ensure the company stays under acceptable control and does not fall into foreign hands.
### Are Golden Shares used primarily for profit generation?
- [ ] Yes, they are a primary source of income.
- [x] No, they are used for retaining control over strategic decisions.
- [ ] Yes, to balance market fluctuations.
- [ ] Yes, for short-term financial gains.
> **Explanation:** Golden Shares are used not for profit generation but for retaining strategic control over company decisions.
### What is a key feature of most Golden Shares?
- [ ] They can be exchanged for regular shares anytime.
- [ ] They offer higher dividends.
- [x] They have special voting rights.
- [ ] They have a higher face value.
> **Explanation:** The key feature of Golden Shares is that they have special voting rights, giving the holder decisive control over major company decisions.
### Can private entities use Golden Shares for control?
- [x] Yes, private entities can use them to retain control.
- [ ] No, they are only for government use.
- [ ] Yes, but only in publicly traded companies.
- [ ] No, they are illegal in private companies.
> **Explanation:** While primarily used by governments, private entities can also employ the concept of Golden Shares to retain control over crucial corporate decisions.
### What do Golden Shares safeguard during privatization?
- [ ] Employee benefits
- [ ] Market competition
- [ ] Short-term financial performance
- [x] National interests and strategic control
- [ ] Environmental policies
> **Explanation:** Golden Shares serve to safeguard national interests and strategic control during the privatization process, ensuring companies remain domestically or acceptably controlled.
Thank you for exploring the intricacies of Golden Shares and tackling our comprehensive quiz questions!
