What it is:
A golden share gives the holder the right to veto changes to a company's charter. Golden shares exist primarily in U.K.-based companies.
How it works/Example:
For example, let's say that Company XYZ wants to sell itself to Company ABC. The British government holds a golden share in Company XYZ and thus has the right to veto the transaction even if the other shareholders of Company XYZ and Company ABC approve.
Typically, governments obtain golden shares when they privatize national companies. The companies issue shares to the public, but the government retains veto power over certain company actions via the golden share. With golden shares, the holders can block mergers, prevent certain people from acquiring more than a certain proportion of shares in the company and stop companies from making any changes to their charters. This system was popular in the 1980s; the European Union has since banned the practice.
Private companies sometimes create or retain golden shares when they spin off subsidiaries (the golden shares help them retain control over the subsidiary's actions and prevent competitors from taking the subsidiary over). Family-owned companies also might use golden shares to allow an impartial third party to have a voice during conflicts. Some companies also issue golden shares to nonprofit organizations or similar partners in order to ensure there is a check against the interests of the shareholders in matters of values or social commitments.
Why it matters:
A golden share is a way to control a company. For good reason, many consider golden shares unfair because they allow the holder to overrule the wishes of all the other shareholders, even if those other shareholders constitute a majority of the ownership.