Can you own 10% of a company?

Table of Contents

Quick Answer

Yes, it is possible to own 10% of a company. This would make you a minority shareholder with a significant stake in the business. Owning 10% gives you certain rights and benefits like voting power, dividends, and a say in major decisions. However, being a minority shareholder also means you don’t have full control over the company.

What Does Owning 10% of a Company Mean?

Owning 10% of a company means you hold 10% of the total shares of the company’s stock. For example, if a company has 1,000 shares outstanding, owning 10% would mean you have 100 shares. This gives you a significant minority stake in the business.

Some key things to know about owning 10% of a company:

You have voting rights. As a shareholder, you can vote on major corporate decisions like electing the board of directors. Your 10% stake gives you 10% of the total voting power.
You have ownership rights. You partly own the company and therefore have certain ownership rights like the right to assets if the company liquidates.
You may get dividend payments. Many companies pay shareholders a portion of profits in the form of dividends. A 10% stake would entitle you to 10% of the dividends.

You have a voice, but not total control. With 10% ownership, you can influence decisions, but you don’t have full control like a majority shareholder.
Your stake has value and can be sold. The 10% represents an asset you can sell or transfer if you choose.

In summary, 10% is a substantial minority share that gives you significant rights as an owner, but not complete decision-making power.

How Can You Acquire a 10% Stake in a Company?

There are several ways to acquire a 10% ownership share in an existing company:

Purchase shares on the open market – For public companies listed on a stock exchange, you can buy shares on the open market until you reach 10% ownership.
Negotiate a private purchase – Approach the company or existing shareholders about purchasing a direct private stake. This may apply for private companies.

Receive shares as an executive – Founders and executives are often awarded stock options and shares as part of compensation.
Inherit shares – Inheriting shares from a spouse, parent or other relative can lead to a sizable ownership stake.
Receive shares as an investor – Early investors in startups often get large shares in exchange for their capital.

Purchasing existing shares is generally the most straightforward way to acquire a 10% stake. However, you may also obtain shares through other means like compensation, inheritance, or making an early investment.

The cost to purchase a 10% stake depends on the company’s total valuation. The higher the valuation, the more capital required to acquire a 10% share. For example, 10% of a $100 million company is $10 million.

What Can You Do With a 10% Stake?

Here are some of the options if you own a 10% share in a company:

Hold the shares as an investment – You can hold onto the shares and share in the growth and profits of the company. The shares can provide dividend income.
Sell the shares – You can liquidate some or all of your stake, especially if you need cash or want to exit the investment.
Use shares as collateral – Banks may accept shares as collateral for loans. This allows you to access capital without selling the shares.

Increase your stake – Use dividends, other funds or margin loans to buy more shares and grow your ownership over time.
Influence business decisions – Elect board members, vote on management compensation, approve mergers and acquisitions, etc.
Gain access to financial information – As a substantial shareholder, you can request more detailed financial reports from the company.

However, you also have some obligations as a 10% owner:

– Your shares may be subject to lock-up periods preventing sale.

– You may have to report your stake and transactions to regulatory agencies.

– If you are also a company executive, you have additional fiduciary duties.

Overall, a 10% stake is large enough for you to reap financial rewards and exert some influence, but small enough that you do not bear full responsibility for the company.

Can You Get Funding Based on a 10% Stake?

It is generally difficult to get funding purely based on owning 10% of a private company’s shares. Here’s why:

Minority stakes lack control – Banks want collateral they can seize if needed. A minority stake doesn’t give you control over assets.
Private shares lack liquidity – Unlike public company shares, private shares are illiquid and hard to sell.
Valuations can be subjective – Lenders distrust subjective private company valuations. They prefer hard assets.

That said, there are some cases where you may be able to get funding:

Using a brokerage margin loan – Brokerages may lend against minority stakes in established private companies at conservative valuations.
Factoring in other assets – Banks may consider a 10% stake alongside other substantial assets you own.

For short-term needs – A lender may offer a small loan for 1-2 years based partly on the shares.

But in general, it is tough to get major financing solely based on a minority holding in a private firm. Lenders feel more secure lending against controlling stakes.

Can You Join the Board With a 10% Stake?

Owning 10% of a company does not automatically give you the right to join the board of directors. However, it strengthens your case substantially.

Key factors determining board eligibility:

Company bylaws – The bylaws establish rules for electing directors. Some guarantee spots for certain shareholders.
Shareholder agreements – Separate agreements may dictate board appointment rules.

Shareholder dynamics – If founders have over 50%, they may block other appointments. But they also may need to compromise.
Election process – Shareholders elect directors based on share ownership, so 10% is a big influence.

So while 10% ownership does not definitively qualify you for a director seat, it gives you a loud voice in the election process. Founders with over 50% may still choose to appoint you to leverage your experience and maintain harmony. Laws often require some independent directors too.

If not immediately appointed, consistently demonstrating your value as an engaged shareholder improves your odds over time. Patience and relationship building are key.

Is a 10% Stake Considered a Substantial Shareholder?

Yes, owning 10% of a public company generally qualifies you as a substantial shareholder per securities regulations. The exact definition varies. For example:

SEC Rule 12b-2 defines a 10% owner as an “affiliate” and thus subject to restrictions on stock sales.

The Williams Act requires any person owning over 5% of a public company to file a Schedule 13D with the SEC.
Stock exchange rules require prior notice for certain events affecting 20%+ shareholders.

So while the threshold ranges from 5% to 20% across rules, 10% is universally recognized as a large enough block to be considered a substantial shareholder.

At this level of ownership, you can significantly influence corporate decisions. But you also take on reporting obligations. Transactions, relationships and holdings may need to be disclosed, depending on the situation. Failure to comply can lead to penalties.

Some key implications of being a substantial shareholder:

Limitations on how you buy/sell stock, like waiting periods or volume limits.

Required SEC filings whenever your holdings change by more than 5%.
Potential liability if deemed a “controlling” shareholder in litigation.

In summary, 10% shareholders gain power but also oversight as substantial owners. Their actions directly impact regular shareholders. Thus regulations exist to promote transparency.

What Rights Does a 10% Owner Have?

Owning 10% of a company’s stock grants you certain rights and abilities:

Voting rights – Vote on director elections, mergers, bylaws, and other major decisions based on your 10% of shares.
Dividends – Receive declared dividends proportional to your ownership stake.

Company information – Access quarterly and annual financial statements as a major shareholder.
Fiduciary duties – Management and the board have some fiduciary duties to act in the interests of 10%+ shareholders.
First refusal – Depending on your agreement, the right to purchase newly issued shares before others.

Liquidation proceeds – Receive 10% of any remaining assets if the company liquidates.

However, owning just 10% does not provide total control. You cannot make unilateral decisions, and lack rights held by majority shareholders or executives. But your influence is substantially greater than minor shareholders. Overall, 10% confers significant minority shareholder rights.

What Responsibilities Come With a 10% Stake?

While owning 10% of a company has advantages, you also take on important legal and financial responsibilities:

Fiduciary duty – Directors and officers have a duty to serve your interests as a major shareholder.
Voting responsibility – You must vote your shares in the best interests of the company.
Regulatory compliance – Follow SEC/exchange rules on reporting holdings, transactions, and disclosures.

No insider trading – Cannot buy/sell shares based on non-public information.
Potential liability – May be named in shareholder lawsuits against the company based on your stake.

Additionally, banks will likely expect you to:

Personally guarantee major company loans and lines of credit.
Provide collateral/assets to secure loans.
Contribute cash to maintain operations if the company struggles.

Unlike small shareholders who enjoy limited liability, major shareholders like 10% owners may have to financially and legally support the company. Increased rights come with increased risks and duties.

Can You Get a Board Seat With 10% Ownership?

Owning 10% of a company does not guarantee a board seat, but it gives you a strong case to campaign for one. Some key factors:

Company bylaws may dictate thresholds for board eligibility, like 10%.

Founders with over 50% can dominate, but may yield seats to gain expertise.
Directors are elected by shareholders, so 10% is a powerful voting block.
Demonstrating your value as an investor and advisor boosts your odds over time.

Some laws require boards to have certain independent directors.

While 10% ownership does not definitively qualify you for a director seat, it gives you major influence in the election process. Founders with majority control may still choose to appoint you to improve governance and leverage your contributions.

Building relationships as an engaged shareholder also helps make the case over time. Overall, 10% provides a strong foundation from which to negotiate a board position.

Do All 10% Owners Get Equal Voting Rights?

Not necessarily. When evaluating 10% shareholders’ voting rights, two key factors come into play:

Share class – Some companies issue different classes of shares with different voting rules. Class A shares may provide stronger voting rights than Class B, for example.
Voting agreements – Separate shareholder agreements can override normal one-share, one-vote rules. They may disproportionately empower certain shareholders.

For example, consider a company with:

Class A shares = One vote each
Class B shares = Ten votes each

Bob owns 10% of Class A shares
Mary owns 10% of Class B shares

Here, Mary’s 10% stake provides much greater voting power than Bob’s due to the share class structure. Shareholder agreements could similarly entitle one 10% owner to more votes than another.

Absent separate share classes or agreements, 10% owners typically have equal voting rights. But company-specific differences can distort voting influence and power dynamics between same-sized shareholders.

Can a 10% Owner Be a Company Officer?

A shareholder who owns 10% of a company can also serve as a company officer such as CEO or board chairperson. Here are some key considerations:

There are no laws prohibiting 10%+ shareholders from becoming officers.

The shareholder can be hired/appointed to the officer position as normal.
They have the same executive responsibilities as normal officers.
They must comply with regulations related to both roles.

There may be tax implications from receiving both officer pay and shareholder returns.

However, some best practices apply when a major shareholder becomes an officer:

The board should approve the appointment to ensure it is in the company’s best interests.

Their officer compensation should be reasonable based on peer benchmarks.
Consider hiring independent directors to provide oversight over the shareholder-officer.

While legal, shareholder-officers present a conflict of interest risk if improperly managed. But plenty of companies successfully blend the two roles. With the right governance policies, shareholder-officers can lead effectively.

Conclusion

Owning a 10% equity stake provides significant influence over a company’s operations and governance. While less than absolute majority control, 10% confers substantial voting ability, access to information, dividend rights, and overall shareholder powers. However, it also comes with major financial and legal responsibilities. 10% shareholders provide critical leadership, oversight and direction alongside founders and executives. With proper transparency and checks against conflicts of interest, they can help guide the company to prosperity.