Equity Securities - Voting

As a common stockholder, you have the right to vote on the major issues facing the corporation. You are a part owner of the company and, as a result, you have a right to say how the company is run.  The biggest emphasis is placed on the election of the board of directors.

Common stockholders may also vote on:

  • The issuance of bonds or additional common shares
  • Stock splits
  • Mergers and acquisitions
  • Major changes in corporate policy

Methods of Voting

There are two methods by which the voting process may be conducted, and they are known as the statutory and cumulative methods of voting. A stockholder may cast one vote for each share of stock owned and the statutory or cumulative methods will determine how those votes are cast. The test focuses on the election of the board of directors, so we will use that in our example.

TEST FOCUS!

An investor own 200 shares of XYZ. There are 2 board members to be elected and there are 4 people running in the election. Under both the statutory and cumulative methods of voting, you take the number of shares owned and multiply them by the number of people to be elected to determine how many votes the shareholder has.

In this case, 200 shares x 2 = 400 votes. The cumulative or statutory methods dictate how those votes may be cast.

Candidate Statutory Cumulative
1 200 votes 400 votes
2    
3    
4 200 votes  

The statutory method requires that the votes be distributed evenly among the candidates that the investor wishes to vote for.

The cumulative method allows the shareholder to cast all of their votes in favor of one candidate, if they so choose. The cumulative method is said to favor smaller investors for this reason.

 

Liability And Transferability


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