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Philip Green's proposals to take over Marks & Spencer have thrown up questions about the wisdom of backing a company whose shares are predominantly held by its executive directors

Green originally planned to make M&S shareholders an offer made up of 75 per cent in cash together with a 25 per cent interest in his bidding vehicle Revival, which would be listed on AIM, with the rest held by Green.

The prospect of seeing M&S effectively moving to AIM has made seasoned City investors baulk, particularly as Songbird, the equity part of the bid to take FTSE 100 property concern Canary Wharf private, has also listed on the 'junior' market in the past month.

These two companies together would soak up a fifth of AIM's entire value, currently standing at £22 billion. That's not necessarily a problem – after all, AIM is adaptable and more than able to cater for all kinds of ventures.

However, the jury is definitely still out on whether it is a clever move or not to back companies where executive directors can dictate terms to everyone else through their majority stakes.

In theory, the interests of directors with large holdings should be aligned with minority shareholders. Both want their stakes to rise, even if one has a much larger stake than the other.

That was partly why Green offered a small equity 'stub' in M&S – so outside investors could benefit from the turnaround he hopes to engineer. He has completed two in the past, at Arcadia and BHS.

Shareholders in the last two concerns took cash at a premium to the share price at the time but in retrospect, Green's take-out price looked like a relative bargain, after he managed to work his operational magic.

Indeed, many of AIM's most successful companies have seen the majority of their shares held by one or two individuals. For example, chairman John Apthorp held most of Majestic Wine until recently, seeing its shares increase fivefold since 1996.

Successful restaurateur Philip Kaye has tended to keep significant stakes in businesses set up by his sons, such as ASK Central, recently taken out at 220p, or over six times the 35p float price nine years ago, and two-year-old Prezzo, where he recently took his holding above 50 per cent.

However, in both these instances the family shareholder is acting as a sleeping investor, supporting the management over the long term – indeed, longer no doubt than most venture capital or institutional backers who would be looking to realise their investment over a shorter period.

When the chief executive, responsible for day-to-day management, holds a majority stake then investors might need to tread more carefully. In most cases such an individual will be the founder of the company and its entrepreneurial guiding light. His or her priority for floating might be to find a suitable exit.

Some make this intention obvious. For instance, Graham Sherren, who is in his late 60s, reduced his stake substantially when conducting an accelerated flotation for his professional magazine publishing group Centaur this March.

Others get distracted by this ulterior motive and see their business suffer slightly from neglect. This has happened at vehicle credit hire company Bristol & London, which has now been forced to issue two profit warnings during its first year on AIM.

The warning signs could have been detected at September's flotation, when Richard Abel, who retained a 95 per cent stake in the company, said he intended to pay dividends covered only one and a half times by earnings, rather than re-invest such surpluses.

However, for every Bristol & London there are numerous entrepreneurs who float to expand their business. Examples include Stephen Telling, who still owns over half of bus company Tellings Golden Miller. The group floated last summer and its shares have doubled on the back of decent figures and contract wins.

In rising markets, large executive stakes are less of a concern than when share prices are dropping. In such circumstances the dominant shareholder may be tempted to take advantage of the relative weakness in the price to buy out minority holders and take the company private.

On the Full List this happened last year when Peter Simon, chairman and 63 per cent shareholder of Monsoon, proposed to take the women's retailer private. He relented, after much shareholder furore.