Explaining the Shareholder Voting Process
Shareholder voting rights allow certain stockholders to vote on issues impacting company performance, including mergers and acquisitions, dividend payouts, new securities, and who is elected to the board of directors. Investors who own shares of common stock of a company usually have shareholder voting rights. Investors with common stock are generally allowed one vote per share they own. Thus, an investor who owns 1,000 shares of stock may have 1,000 votes to cast.
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.
Key Points
• Shareholder voting rights enable stockholders to participate in key decisions affecting company performance, such as electing directors and approving mergers.
• Common stockholders typically receive one vote per share owned, while preferred stockholders usually do not have voting rights but have priority for dividends.
• Voting processes vary; shareholders can vote in person, by mail, via phone, or online, depending on company policies and ownership type.
• Proxy voting allows shareholders to authorize someone else to vote on their behalf, often necessary for those unable to attend meetings.
• The record date determines eligibility to vote at the annual meeting, and companies must notify shareholders in advance about meeting details and voting issues.
What Are Stockholder Voting Rights?
Stockholder voting rights are the privileges granted to shareholders of a company to vote on matters that affect the company, such as the election of directors and the approval of major corporate actions, and to have a say in how the company is run.
First, it helps to distinguish between common and preferred stock. As noted above, investors who own shares of common stock are typically granted voting rights, usually at one vote per share.
Meanwhile, investors with preferred stock generally can’t 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 bankruptcy, preferred shareholders are usually paid before common stockholders.
There’s another wrinkle when 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, shareholder voting follows company rules but must also adhere to the Securities and Exchange Commission (SEC) guidelines.
And while investors who own common stock generally have shareholder voting rights, only “investors of record” are 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 by when they bought the shares. Investors must buy their shares before the record date to be added to the company record before a meeting — and thereby allowed to vote.
What Do Shareholders Vote On?
Shareholders vote on matters such as the election of the board of directors, the approval of significant corporate actions, like mergers and acquisitions, and the adoption of changes to the company’s bylaws.
The voting rights of equity shareholders don’t extend to issues concerning day-to-day operations or management issues, like hiring and firing, budget allocation, product development, etc. The management team of a company makes these decisions throughout the year.
Nonetheless, the issues shareholders vote on can significantly impact a company’s bottom line, strategy, and overall profitability.
Given the one vote per share rule, the more shares an investor owns, the more influence they can exert if they actively exercise their voting rights — which is why many large investors pay close attention to critical issues where their vote might make a difference. Many shareholder activists use the voting process to exert influence over their investments.
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
As you’re considering which stocks to invest in, you may want to look into how shareholder voting works with each company. For instance, some companies 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, 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 allow those investors to get 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, the company sends physical mailers 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 the 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.
Speeches
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.
Extraordinary Matters
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 in 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.
However, for voting to commence, the meeting must have a quorum. Reaching a quorum refers to the minimum number of shareholders that must be present or represented at a shareholder meeting for the meeting to be valid and for votes to be counted. Usually, this is a simple majority of share votes.
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:
In Person
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.
By Mail
You can exercise your stock voting rights by mail if you are a registered owner. You will receive instructions on filling out a proxy card so that a delegate can vote on your behalf. You will receive a voting instruction form if you are a beneficial owner.
By Phone
The materials you receive in the mail might include a phone number and directions 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” — a designation allowing an agent to make decisions on behalf of someone else. It’s similar 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 annually 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 the voting rights of equity shareholders work hinges on knowing when you can vote. If a company is preparing to hold a vote, it sets what is known as a “record date.” As noted above, if you own shares of that company on the record date, 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 deciding whether to invest in a stock, you may want to look for any news regarding previous shareholder meetings. You can find out more about what shareholders have voted on in the past and how shareholder voting works with that company to make the best choices about how you might decide to cast your votes.
The Takeaway
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.
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FAQ
Which type of stock comes with voting rights?
Most publicly traded companies issue two types of stock: common stock and preferred stock. Common stock typically comes with voting rights, while preferred stock does not.
What is the difference between registered and beneficial owners when voting on corporate matters?
A registered owner is a person or entity whose name is recorded on the company’s books as the owner of a particular share of stock. This person or entity has the right to vote on corporate matters and to receive dividends and other distributions from the company. On the other hand, a beneficial owner is a person or entity that ultimately owns or controls the stock, even though their name may not be recorded on the company’s books. Beneficial owners may have acquired their ownership interest in the stock through a brokerage account or a trust, for example.
How do shareholders vote for the board of directors?
Shareholders typically vote for the board of directors at the annual meeting of shareholders. In most cases, shareholders can vote in person at the meeting or by proxy, which allows them to appoint someone else to vote on their behalf. Some companies may also allow shareholders to vote by mail or online.
What is the impact of voting rights?
Voting rights are an important aspect of ownership in a publicly traded company. As a shareholder, your voting rights give you the ability to influence the company’s direction and hold its management accountable.
What is e-voting in shares?
E-voting, or electronic voting, is a process that allows shareholders to cast their votes electronically rather than in person or by mail. E-voting is usually done through an online platform provided by the company or a third-party service provider.
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