What are voting rights? A company needs investors (who often become shareholders) to provide the financing needed to support its business. While shareholders do get financial benefits from their investment in a company, they also get certain voting rights that allow them to vote on the company’s decisions.
For companies that are issuing stock for the first time, or as investors that are buying their very first stock, it is important to understand the voting rights that come with owning stock. Most businesses end up issuing stock, only to find out later on the various ways the stockholders can affect decision-making through voting rights.
While voting rights may vary by local and federal laws, they may also be affected by the company’s charter or bylaws. So as you can imagine, it can be a challenge for companies issuing stock for the first time as well as investors to understand what these voting rights are.
So if you were confused about the voting rights of shareholders, then keep reading. Because this article will explain what voting rights are and everything else you need to know about corporate voting rights.
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What exactly are voting rights for shareholders?
Voting rights usually mean that common shareholders have the right to vote in a company’s shareholder’s meeting, and while preferred shareholders normally don’t have voting rights, some companies may grant voting rights to them as well. Voting is a very important power since the ability to vote on business decisions is often the main thing that sets common shareholders apart from preferred shareholders.
Unlike democratic voting, where each citizen has one vote, a shareholder typically has the same number of votes as the number of shares they own. So, a shareholder who owns more than half of a company’s shares can be said to have a controlling interest in the company.
A company’s employees and the board of directors run a company and handle its operations on a day-to-day basis. Shareholders don’t have a say in how the company’s basic daily operations are run. Instead, shareholders can only use their voting rights to vote for important business decisions.
The U.S. Securities and Exchange Commission says that at annual shareholder meetings, the board of directors should present major resolutions, such as changes to the charter or the election of directors, for shareholder approval. In a privately held company, the voting rights are affected by state laws governing corporations as well as the company’s own bylaws.
These government and company laws can limit the voting rights of shareholders or change what rights shareholders have. In a company that is publicly traded, however, voting rights must be set according to both company rules and rules set by the Securities and Exchange Commission (SEC).
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How does voting in a shareholder’s meeting work?
Shareholders decide what to do by voting for or against proposed resolutions during the annual shareholder’s meeting, either in person at a general meeting or in writing (called a “written resolution”).
A resolution is just a subject matter that requires shareholder approval (through voting) before it can be implemented. If enough votes are cast in favor of the resolution being put up for voting, the resolution is said to have “passed,” and the decision is legally binding.
However, if a resolution fails to get the desired amount of votes from shareholders, then the resolution is considered failed and is usually rejected. Shareholders can make decisions through ordinary resolution or special resolutions, depending upon the nature of the matter that needs to be decided,
Ordinary resolutions that include matters like declaring dividends, need more than 50% of the votes to pass. Whereas special resolutions, on the other hand, need 75% of the votes to pass.
The Federal Reserve says that about 30% of the stock of major US-based companies is owned by individual investors. If enough of these shareholders vote in shareholder meetings, they can have a big impact on a company’s decisions.
Shareholders have become more active in recent years thanks to the ease of voting. Some investors in a company might use the voting process to ask for changes in management or to push for social issues. This is just one example of how individual investors can try to change the policies and performance of a company’s management through voting rights.
Besides, there are different ways you can participate in shareholder meetings apart from physically being present at the meeting. The next section will shed more light on various methods of voting at the annual shareholder’s meeting.
What are the different methods of voting at a shareholder’s meeting?
Because the voting process might be different for each company and each type of owner, it is essential to know that some companies give shareholders one vote for each share they own, while others only give each shareholder one vote in total.
If you get one vote per share, this means that the more shares you own, the more say you have in how the company is run at the corporate level.
Beneficial owners hold shares through a bank or broker instead of the company. Registered owners, on the other hand, hold shares directly with the company. No matter what type of shares owner you are, you can use the following methods to vote during a shareholder’s meeting.
By attending the meeting in person
Annual meetings are usually held by companies on an annual basis, and shareholders can attend these meetings in person. With that being said, it is not uncommon for companies to hold a meeting for a special reason at any time of the year.
Shareholders get information about upcoming meetings through mail or through email. Most companies have their annual meetings between the months of March and June, so if you hold stock, you should be on the lookout for an invite during these months.
Some regulations make it mandatory for the board of directors to call a special meeting if a group of shareholders representing more than 10 percent of a company’s capital, or a percentage set in the company’s bylaws that can’t be more than 25 percent, demand for a special meeting to be held.
Voting via mail
If you are a registered owner, you can use the mail to vote on your stock if you have voting rights.
Voting via phone call
You might get a phone number and instructions in the mail that you can use to vote over the phone. This method of voting is more convenient than the previously stated methods of voting at the annual shareholder’s meeting.
Some companies are now giving their shareholders an option to vote online through a special portal. This method of voting is gaining popularity fairly quickly due to its convenience and simplicity. Not to mention online voting makes the whole process quite transparent.
What is proxy voting at a shareholder’s meeting?
Shareholders can give their voting rights to someone else without giving up their shares if they can’t or won’t go to the annual meeting or an emergency meeting of the company. The person or group who is given the proxy vote can vote on behalf of more than one shareholder without talking to those shareholders.
As a shareholder, you will get a proxy ballot in the mail. It will tell you how to vote on the issues using a proxy.
The proxy statement may also include information about the company’s management, the qualifications of any potential board members, the meeting’s agenda, and the company’s biggest shareholders. Every year, these statements are sent to the SEC before the general meeting.
If you buy stocks through a mutual fund, the managers of the fund can also vote for you as proxies. Most of the time, someone on the management team of the company is the proxy voter. Even if you choose to vote by proxy, you can still vote directly on issues like the election of directors and the salary of the chief executive officer.
Before the deadline, which is usually 24 hours, proxy votes can also be sent by mail, over the phone, or online. You can either vote for, against, or abstain from voting on the subject matter when using proxy votes.
How are shareholder meetings supposed to be held?
While each company can plan these steps in its own way, it is important to know what the steps are if you want to hold a shareholder’s meeting. So without further ado, here are the steps to holding a shareholder’s meeting.
Planning the meeting
As was already mentioned earlier, all shareholders in a company will be told about the meeting, and they should be able to vote on certain resolutions, even if they might not be able to come in person.
Every year, all shareholders, no matter how many shares they own, have the right to vote for the board of directors. In fact, shareholders who meet certain requirements, which can be found on the Securities and Exchange Commission (SEC) website, can make their own nominations during the annual meetings.
Before the meeting, the shareholders must be provided with some pieces of information, including resolutions that will be raised during the meeting, financial reports of the company, additional documentation, and minutes from the previous annual shareholder’s meeting.
Organize the meeting
Next, you will have to hold the actual meeting of shareholders. There is no specific way that you need to conduct these meetings, but some large companies have their own rules about how they hold it. Some businesses, for example, might talk about items on the agenda in a certain order and vote on each one separately. But some businesses might decide to talk about each issue and vote on all of them at the end.
The board, not the shareholders, is the only one who can decide how the meeting will go. For example, they will have to decide if there will be a device to record audio or video if there will be limits on how long each person can talk, and so on.
Larger companies have more formal procedures in place, but small companies are less formal in their meetings. They often talk about issues and vote in a less formal setting.
The actual vote can be written or spoken. As long as an officer of the company can count these votes.
Preparing the Minutes
The secretary will have to write up the meeting minutes after the meeting is over. Even though it’s not required, this job is usually done by someone in an administrative position. All shareholders and the general public can get a copy of the meeting minutes. There are no rules about how detailed the meeting minutes have to be or how they should be written.
But the minutes must be clear enough for people to understand what was talked about, how votes were taken, and what the results of each issue were.
Lastly, the meeting minutes should include the physical notice that was sent to all shareholders and should be signed, dated, and notarized.
If you are not sure if your company can organize a physical shareholder’s meeting, you can always hold the meeting virtually. There are tools available that allow both the shareholders and the board of directors to connect virtually and discuss matters, not to mention vote on resolutions without gathering at the same place.
No matter if the shareholder’s meeting is being held physically or virtually, it is the job of the company to provide its shareholders with the opportunity to vote for the key matters of the company.
While shareholders’ voting rights may have seemed like a complex matter, we hope this article has helped you to better understand what voting rights are and how they work. Be sure to familiarize yourself with them and get good legal counsel, as voting rights control the future of your company.
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