Can this ever work? The PR group can control the 2% without nominally owning it.

Having said that this is the type of thing that is likely to get dragged in front of a judge, so the more foolproof way would be to retain 51% control or dual-class shares. Once you give up majority control to third parties, you can't really prevent everyone else ganging up on you and outvoting you.

And then you can have a fun lawsuit. Did the group persuade the 2% to vote their way or did they pay to control that 2%'s votes.

Yes. In tight-control transactions, there are a number of mechanisms.

Off the top of my head: specifying Board seats in the charter and requiring a supermajority or unanimity to change that. Voting rights agreements that delegate 51% of votes to one party. Turning all shares but two into non-voting shares, the two having 51% and 49% of the votes. Making transferred shares convert to non-voting. Transfer approvals.

Is that still tolerated by investors? Is it still legal?

"Having your cake and eating it" is a really bad attitude

One important role of government is to set and maintain standards for listing on markets, so that customers are protected. An example of such a rule would be that all publicly traded companies have equal voting rights across all share classes: one share, one vote.

Elaborate on this, because I think I'm misreading it.

It seems to me like shareholders, generally already have a vote. Converting those shares, from voting to non-voting, would be quite illegal (at the very least breach of contract) without shareholder sign-off. Which they probably wouldn't do... y'know... because they're the shareholders.

What's being discussed is issuing different shares (with approval of the voting shareholders). And if you don't like that, you can... just not invest in that company. There are several other companies you can invest in if that's what you want.

And if the companies that offer only non-voting shares dominate (probably being driven by the founders)... most investors would probably want that. Most investors are looking for a return first and foremost.

> An example of such a rule would be that all publicly traded companies have equal voting rights across all share classes: one share, one vote.

I agree that it's an example of such a rule. Do you have an argument for why it's a good rule?

this is a pretty expansive definition of freedom, the freedom to buy unfettered options in a company.

>Your options are buy the class of stocks that the company wishes to sell, or not participate at all.

Respectfully, I think you're confused about what a "free market" is. What you're describing, where market participants can compel the sale of a firm's assets, is antithetical to a free market.

Free market: “voluntary exchange and the laws of supply and demand provide the sole basis for the economic system.”

It’s voluntary exchange, yes, but it is not a driven by supply and demand. In the same way that the 1970’s oil market driven by the OPEC cartel was not a free market either. If you don’t like the control that Zuck has, can you express that dislike by buying shares of Meta that don’t include unequal voting rights? You can’t, because this is an issuer controlled market.

That is exactly what you argued for. Your rule would force public companies to offer up for sale shares with equal voting rights, whereas today many do not want to do so.

I'm not saying it's bad. Perhaps it's a good rule. It's just that you said you want a free market, and then proposed rules that in fact detract from a free market.

1. It's not like anything is being hidden - people who buy shares without (or with less) voting share rights know what they're getting, and can adjust the amount they're willing to pay for those shares accordingly.

2. Dual share is a double edged sword: if you believe and want a visionary founder to stay in control, you're good. At the same time, you should be clear that if the visionary founder goes off his rocker, there is not much people will be able to do to oust him.

Zuckerberg pretty much shows these pros and cons perfectly. People were wringing their hands at the end of last year when Meta stock was in the toilet that there was nothing anyone could do to replace Zuckerberg. Now, though, Meta is up over 150% over the past year, and the fact that Zuckerberg could play a longer game and wasn't just ousted due to the share dip was probably ultimately good for investors.

Ray Dalio says the following in his book Principles:

“When faced with the choice between two things you need that are seemingly at odds, go slowly to figure out how you can have as much of both as possible. There is almost always a good path that you just haven't figured out yet, so look for it until you find it rather than settle for the choice that is then apparent to you.”

He credits this approach to helping his firm spearhead risk parity as well as other successes. Sometimes, trying to have your cake and eat it too leads to being able to do just that.

At an old job, I worked with an eng manager who believed software quality and time to market were mutually exclusive. You decide which one is important to you and you go for that one.

In his thinking, he then constantly failed to identify options that were both fast to build and good, usually due to significant simplification. He could never find these things because in his mind you couldn't have both.

Later on, I worked for Ray for a few years and would always think of this dude whenever I encountered this principle.

I know a guy who had 51% in the family company. His retired dad had, in exchange for money, deprived the 51% shares of their voting power.

His dad then sold the shares on the local stock exchange.

A couple months later, his CEO/son was fighting a hostile takeover of the family-run, but publicly traded company.

So his son bought the 51% from the local stock exchange, thinking he had a majority.

The guy who owned the actual voting shares showed up at the annual shareholder meeting with attorneys and accountants , a small number of shares, and walked out with the keys to the company.

Musk, for example, seems to me from what he says to enjoy exploiting the blind spots of other businesses; but he was counter-exploited into buying Twitter for way too much.

You are either leaving out some important details or this is just not accurate. When people say you need to have "51% of shares" to control a company it means that you need to control 51% of voting rights of shares (sometimes different share classes have different voting rights).

It would simply have been impossible for "his retired dad to have deprived the 51% shares of their voting power" if his dad didn't have voting control. So something just doesn't add up in this story.

Maybe. But something (literally) doesn't add up in the original story.

If the CEO had 51% and sold the 49%, there is no place for the PE firm to capture the 2%.

Unless there is convertible debt or some such thing. Or the story is overly-simplified in some other way.

In this case wouldn't the individual with > 50% shares need to be diluted to < 50% for another party to acquire > 50% stake?

And surely at the point of dilution the individual would realise they have < 50% shares and this was a risk?

I guess what I'm confuse at is if you own 51% of the shares, unless you sell some of that or dilute your holding there will only ever be 49% stake that can be purchased by another party.

Am I missing something?

Your understanding is correct there.

> Am I missing something?

I think you are missing that there may be one or more third parties who also own a stake. A quick example (figures plucked from the air, not a real world case) might make it clear:

  Starting point: 
  Founder 75%, Other(s) 25%
  --
  New investor buys 49% from founder:
  Founder 26%, Other(s) 25%, New Investor 49%
  Founder no longer has overall control, but nor does the new investor
  Founder+Others can block the new investor if they all agree
  --
  New investor buys 2% from elsewhere:
  Founder 26%, Other(s) 23%, New Investor 51%
  New investor now has overall control and can do pretty much what they like