Shareholder Voting

I often hear from students that Corporations is a dry subject. I can't deny that but it's also tested with relative frequency on the essay portion of the UBE. One area you might be required to know well is shareholder voting.

Voting generally takes place at shareholder meetings and only shareholders of record on the record date may vote at the meeting. The record date may not be more than 70 days before the meeting and if a record date is not set it is deemed to be the day the notice of the meeting is mailed to the shareholders. Unless provided otherwise (as in, for example, the articles of incorporation), each share held by a shareholder is entitled to one vote.

A shareholder need not vote his/her shares in person. Instead, the shareholder can execute a proxy in writing which will entitled another to vote the shares. Proxies are valid for 11 months unless provided otherwise and are generally revocable at the will of the shareholder. A proxy will be irrevocable only if it so states and if it is coupled with an interest or given as a security to another. There can be no fraud, material misstatements, or omissions in connection with the solicitation of proxies.

For a vote to take place at a shareholder meeting, there must be a quorum. A quorum is usually a majority of outstanding shares entitled to vote unless the bylaws of the corporation or articles of incorporation require a greater number. Notably, once a quorum is present, it is not broken by withdrawal of shares at the meeting.

If a quorum is present, shareholders will be deemed to have approved a matter if the votes cast in favor of the matter exceed the votes cast against it. Once again, the bylaws or articles can adjust this requirement by requiring a greater proportion. Directors, however, may only be elected by a plurality of the votes cast.

As stated above, the general rule is that each share held by a shareholder is entitled to one vote. The articles of incorporation may instead provide for cumulative voting when electing directors. Under cumulative voting, each shareholder is entitled to vote a number of votes equal to the number of the shareholder's voting shares multiplied by the number of directors to be elected. That total can be divided among various directors or may be cast in total for just one director.

For example, assume a shareholder with 10 shares is participating in a vote for 2 open board seats. Under a cumulative voting scheme the shareholder would have 20 votes to cast.

Worth noting is that in certain situations shareholders may take action without a meeting. To act without a meeting though will require unanimous written agreement of all shareholders entitled to vote.