Shareholder voting rights allow certain stockholders to vote on issues that can impact company performance, including mergers and acquisitions, dividend payouts, new securities, and who is elected to the board of directors.
Shareholder voting rights are typically given to investors who own shares of common stock, not preferred stock. Investors with common stock are generally allowed one vote per share that they own. (Thus an investor who owns 1,000 shares of stock may have 1,000 votes to cast.) Some companies may grant just one vote total per shareholder.
If the idea of potentially participating in a company’s decision-making process is appealing to you, keep reading to learn more about the voting rights of equity shareholders and how they work.
What Are Stockholder Voting Rights?
First it helps to distinguish between the two main types of shareholders: those who own common stock and those who own preferred shares. As noted above, investors who own shares of common stock are typically granted voting rights, usually at one vote per share, which gives these investors some say over corporate decisions that could impact company performance.
Meanwhile those who have preferred stock don’t have the ability to vote on matters relating to the company’s governance and policies, but these investors are given preferred treatment in terms of dividend payouts. In the case of a bankruptcy, preferred shareholders are usually paid before common stockholders.
There’s another wrinkle when it comes to understanding the voting rights of equity shareholders. In a privately held company, the corporation itself (along with state corporation laws) oversees and can restrict shareholder voting rights. In a publicly traded company, though, shareholder voting follows company rules but must also adhere to guidelines set by the Securities and Exchange Commission (SEC). These also must align with any rules specified by the exchange on which the company’s stock is listed for trading.
And while generally investors with common stock have shareholder voting rights, only those who are “investors of record” are actually allowed to vote at the annual company meeting. “Of record” status refers to the process whereby investors are added to company records, which isn’t determined simply by which type of shares they own, but when they bought the shares. Investors must buy their shares before the ex-dividend date in order to be added to the company record — and thereby allowed to vote.
So, what do shareholders vote on?
The voting rights of equity shareholders don’t extend to issues concerning day-to-day operations or management issues, but they do include the right to vote on various corporate actions (see below). Given the one vote per share rule that’s generally followed, the more shares you own the more influence you can exert if you’re actively exercising your voting rights — which is why it’s important to pay close attention to critical issues where your vote might make a difference.
What Do Shareholders Vote On?
The management team of a company makes many decisions throughout the year, including hiring and firing, the allocation of budget, product development, and more. Certain issues are then approved during the annual shareholder meeting, and can have a significant impact on a company’s bottom line, strategy, and overall profitability.
Shareholders are generally alerted to the annual meeting via mail, including a package that summarizes the main issues to be addressed at the company meeting. These can include topics like:
• Electing directors to the board
• Approving a merger or acquisition
• Approving a stock compensation plan
• Executive salaries and benefits
• Major shifts in company goals
• Fundamental corporate structure changes
• Approving stock splits
• Dividend payments
Decisions that might benefit a company’s management may not be in the best interest of investors, so shareholder voting offers a channel whereby investors can weigh in.
For example, a company may choose to use a defense tactic called a “poison pill” to prevent a takeover by another company. They might do this because company management may be against the acquisition, even if it could result in a significant increase in stock value for investors.
As you’re considering which stocks to invest in, you may want to look into the specifics of how shareholder voting works with each company.
There are some companies that don’t allow shareholders to call special meetings, and a supermajority vote is required to change some of the company’s bylaws.
What Happens at a Shareholder Meeting?
If you choose to attend the annual general meeting of a company in which you own stock this is typically the only time that the company directors and shareholders will interact.
In certain states, both public and private companies hold annual meetings, but the rules about holding these meetings are stricter for public companies.
The agenda will probably be similar to the following:
Notice of Meeting
The voting rights of equity shareholders entitle those investors to advance notice of what will be covered at the annual meeting. Each company has specific rules about how far in advance they must notify shareholders of the meeting, but in most cases physical mailers are sent with pertinent information.
The company must also file a statement with the SEC outlining the date, time, and location of the next meeting. This statement will also include the topics to be discussed and voted on at the meeting.
Minutes of Previous Meeting
Notes from what happened at the previous general meeting are presented and approved.
Presentation of Financial Statements
The company will present current financial statements to the shareholders.
Ratification of Director Actions
Decisions made by the board of directors over the previous year are presented and approved or denied by the shareholders. This can include the payment of dividends according to a set dividend payment schedule.
Certain companies will present an overall vision of the company’s goals for the upcoming year or other information relevant to shareholders.
Open Floor for Shareholder Questions
Typically there will be a time when shareholders are allowed to ask questions.
Election of the Board of Directors and Other Votes
Shareholders vote on who will be members of the company’s board of directors for the upcoming year. Voting on other issues will also take place.
If a special meeting is called during the year, which is different from the annual general meeting, other topics will be discussed and voted on. These could include the removal of an executive, an urgent legal matter, or another issue that requires immediate attention.
How Does the Voting Process Work?
There are a few different ways you can exercise your shareholder voting rights. These differ depending on the company and what type of owner you are. As mentioned, certain companies may give shareholders one vote per share of stock they own, while others give each shareholder one vote total.
If you get one vote per share, this means you have a larger say in decision-making at the corporate level if you are more heavily invested in the company.
Registered owners hold shares directly with the company, while beneficial owners hold shares indirectly through a bank or broker. Most U.S. investors are beneficial owners. As either type of owner you should receive instructions on how to vote in each of the following ways:
Companies typically hold annual meetings that shareholders are allowed to attend. They can also hold special meetings throughout the year.
Shareholders receive materials in the mail or via e-mail containing details of upcoming meetings. Most companies hold their annual meetings between March and June, within six months after the close of the previous fiscal year.
According to some statutes, if a group of shareholders representing more than 10% of a company’s capital requests a meeting — or a percentage specified in the company’s bylaws not to exceed 25% — members of the board are required to call a special meeting.
If you are a registered owner, you can exercise your stock voting rights by mail. You will receive instructions on how to fill out a proxy card so that a delegate can vote on your behalf. If you are a beneficial owner, you will receive a voting instruction form.
The materials you receive in the mail might include a phone number and directions that you can use to vote over the phone.
Over the Internet
Some companies are now providing instructions for shareholders to vote online. This can be a more convenient way to complete shareholder voting.
What Are Proxy Requirements?
Many shareholders live too far away and are too busy to attend company meetings and vote in person. For this reason, shareholders may vote by proxy, meaning they authorize someone to vote on their behalf.
You may be familiar with the estate planning term “health care proxy” or “financial proxy” — which is a designation allowing an agent to legally make decisions on behalf of someone else. It’s similar here in that a formal power of attorney or other permission must be granted to allow a proxy vote.
As a shareholder, you will receive a proxy ballot in the mail, containing information about the issues on which you can vote.
The proxy statement also may include information about the company’s management and the qualifications of any potential board members, the agenda for the meeting, and the company’s largest shareholders. These statements are filed with the SEC on an annual basis before the general meeting.
If you own stocks through a mutual fund, the investment managers can also cast proxy votes on your behalf.
The proxy voter is often someone on the company’s management team. Even if you choose to vote by proxy, there are some issues you can still directly vote for or against, such as the election of directors and the chief executive officer’s salary.
How Do You Know When to Vote?
Part of understanding how voting rights of equity shareholders works hinges on knowing when you can vote. If a company is preparing to hold a vote, they set what is known as a “record date.” As noted above, if you own shares of that company on the record date, then you have a right to vote. The company will send all eligible voters one of the following three notices:
• A physical notice stating that proxy materials are available for viewing online,
• A package containing a voting instruction form or proxy card, as well as an annual report, or
• A package containing an information statement and annual report, but no proxy card.
When you’re deciding whether to invest in a stock, one thing you may want to look for is any news regarding previous shareholder meetings. You can find out more about what shareholders have voted on in the past, and the specifics about how shareholder voting works with that company, in order to make the best choices about how you might decide to cast your votes.
The voting rights of equity shareholders can be summed up pretty simply: Investors of record who own shares of common stock are generally entitled to one vote per share, which they can cast at the annual shareholder meeting to shape company policy — and potentially profitability.
Those with preferred stock do not typically have the right to vote on company matters, but they get dividend payouts, which common stockholders generally don’t.
In the majority of cases, shareholder voting isn’t like the one-person-one-vote policy that guides our political system in the U.S. The more company shares you own, the more you might be able to influence company policy and strategy by casting those votes at the annual company meeting. Although day-to-day issues are generally handled by management, shareholders can influence significant corporate decisions, from changes to corporate structure to executive compensation.
Now that you know more about this compelling aspect of being a stockholder, you might be inclined to open a SoFi Invest® account and buy shares in a company you care about, or would like to be more involved with.
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