What Are Stockholder Voting Rights, and Who Gets a Vote?

What Are Stockholder Voting Rights?

A voting right is the right of a shareholder of a corporation to vote on matters of corporate policy, including decisions on the makeup of the board of directors, issuing new securities, initiating corporate actions like mergers or acquisitions, approving dividends, and making substantial changes in the corporation's operations. It is common for shareholders to voice their vote by proxy by mailing in their response or by relinquishing their vote to a third party proxy voter.

Unlike the single vote right that individuals commonly possess in democratic governments, the number of votes a shareholder has corresponds to the number of shares they own. Thus, somebody owning more than 50% of a company's shares can effect a majority of the vote and is said to have a controlling interest in the firm.

Key Takeaways

  • Stockholder voting right allow shareholders of record in a company to vote on certain corporate actions, elect members to the board of directors, and approve issuing new securities or payment of dividends.
  • Shareholders cast votes at a company's annual meeting. If they cannot attend, they may utilize a proxy vote to convey their wishes.
  • Typically common shares carry one vote per share, while preferred shares have no voting rights.

Understanding Stockholder Voting Rights

Provisions in a private corporation’s charter and its bylaws govern shareholders’ rights, including the right to vote on corporate matters. Along with state corporation laws, these provisions may limit the voting rights of shareholders. When a company goes public, shareholder rights are determined by the corporation, but must follow rules and guidelines established by the Securities and Exchange Commission (SEC) as well as any rules set out by the exchange(s) that list the shares of the company.

Shareholder have the right to vote on corporate actions, policies, board members, and other issues, often at the company's annual shareholder meeting.

Because a corporation’s officers and board of directors (BOD) manage its daily operations, shareholders have no right to vote on basic day-to-day operational or management issues. However, shareholders may vote on major corporate issues, such as changes to the charter or to vote in or out members of the board of directors. Although common shareholders typically have one vote per share, owners of preferred shares often do not have any voting rights at all.

Typically, only a shareholder of record is eligible for voting at a shareholder meeting. Corporate records will name all owners of outstanding shares along with a record date preceding the meeting. Shareholders not listed in the record on the record date may not vote.

Voting and Quorums

Corporate bylaws typically require a quorum for voting at a shareholder meeting. A quorum is typically reached when the shareholders present or represented at the meeting own over half of the corporation’s shares. Some state laws allow approving a resolution without a quorum if all shareholders provide a written endorsement of a measure. Approving a resolution typically requires a simple majority of share votes. A greater percentage of votes may be needed for certain exceptional resolutions, such as seeking a merger or dissolving the corporation.

Proxy Voting

Shareholders may assign their rights to vote to another party without giving up the shares if they are unable or unwilling to attend the company's annual meeting or any emergency meeting. The person or entity given the proxy vote will cast votes on behalf of several shareholder without consulting the shareholder. In certain extreme cases, a company or person may pay for proxies as a means of collecting a sufficient number and changing the existing management team.

Shareholders will all receive a package of proxy materials ahead of the meeting that will contain disclosure documents of the annual report, proxy statement ,and most importantly, a Proxy Card or Voter Instruction Form for the upcoming annual shareholder meeting. The person designated as a proxy will collect these cards and will cast a proxy vote in line with the shareholder's directions as written on their proxy card. Proxy votes may be cast by mail, phone, or online before the cutoff time, which is typically 24 hours before the shareholder meeting. Responses may include "For," "Against," "Abstain" or "Not Voted."

Impact of Voting Rights

In large, publicly held companies, shareholders exert their greatest control through electing the company’s directors. However, in small, privately held companies, officers and directors often own large blocks of shares. Therefore, minority shareholders typically cannot affect which directors are elected. It is also possible for one person to own a controlling share of the company’s stock. Shareholders may vote in elections or on resolutions, but their votes may have little impact on major company issues.