Golden share

In business and finance, a golden share is a type of share of stock that lets its owner outvote all other shareholders in certain circumstances. Golden shares often belong to the government when a government-owned company is undergoing the process of privatization and transformation into a stock-company.

Purpose

This share gives the government organization, or other shareholder, the right of decisive vote in a shareholder meeting. Usually this will be implemented through clauses in a company's articles of association, and will be designed to prevent stakebuilding above a certain percentage ownership level, or to give a government, or other shareholder, veto powers over any major corporate action, such as the sale of a major asset or subsidiary or of the company as a whole.

In the context of government-owned golden shares, this share is often retained only for some defined period of time to allow a newly privatised company to become accustomed to operating in a public environment, unless ownership of the organisation concerned is deemed to be of ongoing importance to national interests, for example for reasons of national security.

History

The term arose in the 1980s when the British government retained golden shares in companies it privatised, an approach later taken in many other European countries, as well as the former Soviet Union.^{[citation needed]} It was introduced in Russia by a Decree of the President of the Russian Federation (Boris Yeltsin) on November 16, 1992.^[1]

NATS Holdings, the UK's main air navigation service provider, is an example of a company with a golden share.^[2]

The government of Brazil holds a golden share in aircraft manufacturer Embraer to retain veto power over "strategic decisions involving military programs and any change in its controlling interest."^[3][4][5]

People's Republic of China

In 2013, the People's Republic of China introduced golden shares termed "special management shares".^[6] Since then, golden shares have been utilized by Chinese Communist Party (CCP) general secretary Xi Jinping's administration to expand control over private companies, particularly technology companies.^[6][7][8] During the 2020–2021 Xi Jinping administration reform spree, the government used strategic share acquisitions to increase its golden share holdings.^[9]: 275 In 2021, The Economist and Reuters described the Chinese government's stake in ByteDance as a golden share investment.^[10][11]

Legal challenges

See also: Commission v Germany (C-112/05) and Commission v Portugal

The British government's golden share in BAA, the UK airports authority, was ruled illegal by European courts in 2003, when it was deemed contradictory to the principle of free circulation of capital within the European Union.^[12] The European Court of Justice also held that Portugal's holding of golden shares in Energias de Portugal is contrary to European Union law since it presented an unjustified restriction on free movement of capital.^[13]

Other golden shares ruled illegal include the Spanish government's golden shares in Telefónica, Repsol YPF, Endesa, Argentaria and Tabacalera.

The golden share structure of Volkswagen AG and the travails of the German Land (federal state) of Niedersachsen (Lower Saxony) are discussed by Johannes Adolff^[14] as well by as Peer Zumbansen and Daniel Saam.^[15]