What happens if a large shareholder of a company goes bankrupt?

I am just talking about a major shareholder going bancrupt. In my point of view this should not really affect the share price (at least not from rational standpoint of view).

A large shareholder going bankrupt – in and of itself – probably shouldn't affect the price of the shares, however, if that bankruptcy forces the sale of a large tranche of shares, then in most cases that is likely to lead to the price falling, in the same way as selling any large tranche of shares would.

A 49.9% shareholder has a lot of power. Basically he or she would win any shareholder vote even if 99.7% of the other shareholders voted against them.

If this shareholder goes bankrupt, they could try to extract money from the company in some way, which could affect the shareprice badly.

Or they could start selling their shares. Someone selling say 10% of the shares, when only 50.1% were freely traded, that might be enough to drive the shareprice down. With 40% of the shares, that shareholder would then have much less power, which might be good or bad for the shareprice.

PS. This is not law.stackexchange. Here “bankrupt” means “can’t pay his bills”. If someone has 5 million in the bank, owns 49.9% of a 100 million company, and gets a 10 million tax bill, they are bankrupt for the purpose of this question.

PS. If someone doing something illegal affects your personal finances, then it is entirely appropriate to put it in an answer here. Plenty of “is this a scam” questions are answered here. If we could have given good advice to Enron shareholders years ago, that would have been very useful advice.

In theory, the value of an asset depends on a few factors.

First and foremost, what expected future profit can be extracted from it.

But just behind that, how hard it is to determine what that expected future profit will be.

Assets that are hard to determine what they are worth are rationally worth less; it takes work to determine if they are worth buying. That work has a cost, and economically that cost must be paid.

When business A is entangled with another business B that is experiencing a financial collapse like bankruptcy, determining if there will be an effect is work. That work has a cost, either in actually doing it or the uncertainty or both, and that cost should depress the price of business A.

There are many ways how such a relationship could mess up business A or indicate a problem. B could be helping A in a myriad of ways, and that help might be interrupted. A could actually be in a worse position than it appears, and that discovery triggered the problem in B, but is not public knowledge yet. A joint venture could be in trouble, either triggering the bankruptcy, or as a result of the bankruptcy.

A 49.9% ownership share tells us that the two businesses are probably entangled, and being entangled with someone undergoing bankruptcy increases uncertainty.

It is also possible that the ownership stake was holding business A down, and the sale will free it to be more efficient. Maybe it was engaged in sub-optimal partnerships with B that B's 49.9% ownership was somehow encouraging, and the bankruptcy frees A from those obligations.

But the point is that the increased uncertainty can and should have an impact on the share price.