Legal Definitions - control person

A control person (also known as a controlling person) is an individual or entity that possesses the actual power to direct or significantly influence the management and policies of a company that issues securities (such as stocks or bonds). This influence is so substantial that they can effectively guide the company's major decisions and overall direction.

Because of this significant power, securities laws treat a control person similarly to the company itself when they sell their own shares, subjecting them to specific regulatory requirements designed to protect investors. The determination of who is a control person is based on the specific facts and circumstances of their relationship with the company, not just on owning a certain percentage of the company's stock.

• Example 1: The Visionary Founder
  Imagine Sarah, the brilliant founder of "InnovateTech Inc.," a publicly traded software company. Although InnovateTech has many shareholders, Sarah remains the CEO, chairs the board of directors, and is widely recognized as the driving force behind all major strategic initiatives and product development. Her decisions are rarely questioned by the board or executive team, and she effectively sets the company's direction.

  How this illustrates the term: Sarah is a control person because she has actual control over InnovateTech's management and policies, directing its strategic course and operations, even if she doesn't own a majority of the company's stock.

• Example 2: The Influential Institutional Investor
  Consider "Global Capital Partners," a large investment firm that owns 25% of "GreenEnergy Solutions," a publicly traded renewable energy company. Global Capital Partners has secured three seats on GreenEnergy's seven-member board of directors and, through a special agreement, has veto power over any significant mergers, acquisitions, or changes in executive leadership.

  How this illustrates the term: Global Capital Partners acts as a control person because, through its board representation and contractual veto rights, it exercises significant influence over GreenEnergy's corporate policy and major decisions, effectively directing its future.

• Example 3: The Family Patriarch in a Legacy Business
  In "Heritage Foods Co.," a publicly traded food manufacturer, Mr. Chen, the 85-year-old patriarch of the founding family, no longer holds an executive position. However, he still owns a substantial block of shares, serves as Chairman Emeritus, and his advice is always sought and followed for any major strategic shifts, leadership appointments, or significant capital expenditures. The board and current CEO consistently defer to his judgment.

  How this illustrates the term: Mr. Chen is a control person because, despite his formal role, he wields significant influence over Heritage Foods' corporate policy and strategic direction due to his ownership, historical position, and the deference shown to his opinions.