A voting right is the right of shareholders to vote on matters of corporate policy, including decisions on the makeup of the board of directors, issuing securities, initiating corporate actions 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. 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 he or she owns.
Breaking down Voting Right
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.
Because a corporation’s officers and board of directors (BOD) manage its daily operations, shareholders have no right to vote on basic management issues. However, shareholders may vote on major corporate issues, such as changes to the charter or election of directors, at shareholder meetings. Although common shareholders typically have one vote per share, owners of preferred shares have no voting rights at all.
Typically, only a record owner is eligible for voting at a shareholder meeting. Corporate records name all owners of shares on 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.
Shareholders may assign their rights to vote to another party without giving up the shares. The person or entity given the proxy may vote 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.
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.