What is a Golden Share?

A golden share refers to a sort of stock that allows its owner to veto changes to the charter of the company. It has special voting rights, allowing its owner to prevent another stakeholder from purchasing more than a certain number of ordinary shares.

Ordinary shares can also be used to prevent a takeover or acquisition by a competitor.

Briefly Understanding Golden Shares

Public enterprises and governments can both issue golden shares. At least 51% of the voting rights are controlled by one of these shares. Golden shares can only be issued by a company after specific resolutions, and changes to its memorandum and articles of organization have been passed. The interaction between a corporation and outside businesses is governed or dictated by this document.

When the British government began privatizing corporations in the 1980s and wanted to keep control, golden shares became popular. Other European governments, as well as the Soviet Union, followed suit too.

In the UK, the golden shares have been widely employed. Other countries, such as Brazil, utilize the golden shares to maintain control over government-run businesses. The European Union, in contrast, has largely prohibited firms and governments from using golden shares. While the EU allows governments to preserve essential services, golden shares are not permitted, as they are unreasonable and disproportionate to the interests of the Economy as well as the company.

Golden Shares’ Examples

Embraer S.A. (ERJ), a Brazilian corporation, is an example of a golden share firm. The corporation manufactures military, commercial, and agricultural aircraft and provides aeronautical services. From the beginning, Embraer was a private and state-run firm, but in 2000, it began to make public offers or issue equity shares. Because it owns a golden part in the corporation, the Brazilian government, however, has veto power.

The government decided to sell the firm's commercial plane segment to Boeing Corporation in 2019. However, according to MSN, the talks failed in April 2020, and Boeing pulled out of the 4.2 billion USD deal.

The British Airports Authority (BAA), which owns Heathrow and Gatwick airports, is another golden share example. When the corporation was privatized in 1987, the British government kept a golden share. A European Union court determined in 2003 that the government's stake in the airport authority was illegal.

Golden Shares’ Pros and Cons

The British government believed that implementing a golden share approach with its newly privatized enterprises made sense. Companies would be protected by golden shares from hostile takeovers, particularly from multinational buyers. This method applies to public companies as well, helping them to maintain control over their interests in the face of competitors.

Golden shares were especially crucial for corporations that played a significant role in a country's economy and influenced public policy and national security. Golden shares, on the other hand, have their drawbacks. Golden shares, according to critics, give the owner far too much power, especially if that power extends beyond the wishes of other owners.