# Understanding Golden Shares: Key Benefits and Real-World Examples

## What Is a Golden Share?

A golden share is a type of share that gives its shareholder veto power over changes to the company's charter. It holds special voting rights, giving its holder the ability to block another shareholder from taking more than a ratio of ordinary shares.

Ordinary shares are equal to other ordinary shares in profits and voting rights. These shares also have the ability to block a takeover or acquisition by another company. Golden shares are commonly issued by governments and private companies and have strategic importance for national security and economic policy. They've been banned in some areas of the European Union, but they're still in use in the U.K. and Brazil.

### Key Takeaways

*   A golden share grants its holder veto power over changes to a company's charter, safeguarding control against other shareholders.
*   Golden shares are commonly used in privatized companies to protect against hostile takeovers and maintain government influence.
*   These shares can be issued by public companies or governments, controlling at least 51% of voting rights in the entity.
*   While golden shares have been popular in the UK and Brazil, the European Union has largely banned them for being disproportionate.
*   Golden shares are crucial for sectors affecting national security and significant public interests, though they can centralize excessive control.

## How Golden Shares Work and Their Importance

Public companies or governments can issue golden shares, each controlling at least 51% of voting rights. In the case of a company, it can only issue golden shares after passing special resolutions and changing its memorandum and [articles of association](https://www.investopedia.com/terms/a/articles-of-association.asp). This document governs or dictates a company's relationship with outside businesses.

Golden shares gained popularity in the 1980s when the British government privatized companies but wanted to keep control. Governments in other parts of Europe and the Soviet Union also followed suit.

While the United Kingdom predominantly uses golden shares, Brazil and other countries also use them to control state-run entities. The [European Union](https://www.investopedia.com/terms/e/europeanunion.asp), on the other hand, has mostly banned the use of golden shares by companies and governments. While the EU permits governments to protect vital services, it does not allow golden shares, calling them unjustified and disproportionate to the interests of the company and economy.

## Advantages and Disadvantages of Golden Shares

The British government saw good reasons to use golden shares with newly privatized companies. Golden shares would protect companies from hostile takeovers, especially from international bidders. This strategy helps public companies retain control of their interests against competitors.

Golden shares were also important for companies that played a key role in a nation's economy and had an effect on public policy as well as national security.

However, golden shares have pitfalls. Critics say they give holders too much control, often surpassing the wishes of other shareholders.

## Real-World Instances of Golden Shares in Action

Embraer S.A. ([ERJ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ERJ)), a Brazilian company, is an example of using a golden share. The company offers aeronautical services and manufactures commercial, military, and agricultural aircraft. Embraer started as a private and state-run company and began issuing [public stock offerings](https://www.investopedia.com/terms/p/publicoffering.asp) in 2000. However, the Brazilian government has veto power since it holds a golden share in the company.

In 2019, the government agreed to the sale of the company's commercial aircraft division to Boeing Corporation ([BA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ba)). However, in April 2020, the talks failed, and Boeing pulled out of the $4.2 billion deal according to MSN. Brazilian President Jair Bolsonaro mentioned the golden share when he commented on the failed merger: "There is a golden share...perhaps a new negotiation will begin with another company."

Another example is the British Airports Authority (BAA), the former owner of Heathrow and Gatwick airports. The British government retained a golden share in the company, which was privatized in 1987. In 2003, a European Union court ruled the government's share in the airport authority broke laws.

## The Bottom Line

A golden share provides special voting rights and veto power over company charter changes. These shares are used heavily in countries like Brazil and were prevalent in the U.K. during the 1980s. They come with both pros and cons ranging from protection from hostile takeovers to the potential for excessive control by a single holder. Key examples include Embraer's golden share by the Brazilian government and the British Airports Authority's previously held golden share. They've been largely banned in the European Union.

> **Article Sources**
>
> 1.  Yahoo! Finance. "[Embraer Shares Drop 15% After Boeing Deal Fails](https://news.yahoo.com/embraer-shares-drop-15-pct-boeing-deal-fails-144450068.html)."
>     
> 2.  EUR-Lex. "[Opinion of Advocate General Ruiz-Jarabo Colomer, Feb. 6, 2003](https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:62000CC0463&qid=1629390704265&from=EN)."