this post was submitted on 18 Nov 2023
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I was curious myself, so I asked ChatGPT (3.5 Turbo) LMAO. I genuinely have no idea myself so I was just curious.
Me:
If a company owns a certain percentage in shares in a publicly traded company, is there a percentage where that owning company/individual has more ownership than the company itself? For example, if Company A has 100 shares and Company B owns 51 of those shares and Company A has 49 of those shares, doesn't that mean Company B owns Company A?
ChatGPT:
In a typical scenario, the ownership of a company is determined by the percentage of outstanding shares owned by an individual or another company. However, owning a majority of shares does not necessarily mean that one company "owns" another in the sense of controlling its operations or decision-making.
In your example, if Company B owns 51 out of 100 shares of Company A, it means that Company B has a majority stake in Company A. Having a majority stake often gives a shareholder significant influence because they have the power to make certain decisions, such as electing the board of directors. Shareholders with a majority stake can potentially control corporate decisions put to a vote.
However, there are certain decisions that may require a higher percentage of approval, such as amending the company's bylaws. Additionally, even if Company B has a majority of shares, it does not necessarily mean it has full control over Company A if other shareholders band together to oppose its proposals.
The idea of "ownership" in this context is more about control and influence rather than a direct operational ownership. It's also important to note that ownership and control structures can vary based on the type of shares (voting vs. non-voting) and the specific corporate governance rules in place.
Me:
So in a hypothetical example of Company B owning 49 shares and Company A owning 51 shares of Company A, Company B is not necessarily beholden to the decisions that Company A wants to make? For example, if Company A's board of directors decides to lay off it's CEO, Company B doesn't necessarily have to be notified that it happened, they can just do it, correct?
ChatGPT:
Yes, that's correct. In the scenario where Company A owns 51 shares and Company B owns 49 shares of Company A, Company A would have the majority stake and, therefore, more influence in making decisions. The board of directors and major corporate decisions, such as hiring or firing the CEO, would typically be within the purview of Company A.
Company B, holding a minority stake, would have less influence on decision-making. Depending on the corporate governance structure and voting rights associated with the shares, Company B might not have the ability to block certain decisions or dictate major corporate actions. In many cases, minority shareholders have limited control over the day-to-day operations and strategic decisions of a company....(continued rambling)
Your starting point is wrong. Microsoft owns 49% of OpenAI, but the rest is owned by the OpenAI nonprofit, which is a different entity. So it's more A owns 49% in B. And C owns 51% in B.
This is the real structure
Thanks for the explanation. Was not aware it worked that way.
How exactly does company A own shares in itself?
That’s actually extremely common. It’s called share buybacks.
There's a bit of confusion between owning a company and owning the shares. A company can buy shares of itself, but that does not grant it control of itself. Let's say Cute Puppies inc. has 200 shares (so 200 shares = 100% ownership). You and I have 50 shares each, and the rest is distributed among many other holders (we'll call them "the public"). So, we each own 25% of the company and the public collectively owns 50%. Now Cute Puppies inc. bought all shares held by the public, so it has 100 shares and we each have 50 shares. But a company can't control itself by definition (it still has the shares and can sell them, but it can't use those shares to vote, appoint directors etc.), so now we each own 50% of the company.
Very easily and it's quite common