What Are Shareholder Cumulative Voting Rights?
Shareholders in a corporation are guaranteed certain rights. One of the most important is the right to vote for members of the Board of Directors and, in some cases, on other matters such as mergers or dissolution.
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Voting
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Voting is accomplished either through statutory voting or cumulative voting. The method is designated in the articles of incorporation, and is sometimes dictated by state law.
Cumulative Voting
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With cumulative voting, a shareholder may divvy his votes among one or more directors at his discretion.
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Statutory Voting
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Statutory voting allows only the number of votes (shares) for each position. It spreads the shareholder's votes evenly among all candidates. This is also known as straight voting.
Purpose
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Cumulative voting is designed to preserve representation for minority shareholders, those with a smaller number of shares. By allowing minority shareholders to concentrate their votes on a single candidate, cumulative voting ensures minority shareholders the ability to elect at least one Director of their choosing.
Example
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If Mr. Smith has 20 shares and there are 3 Director positions available, Mr. Smith has 60 votes (number of shares multiplied by the number of positions). With cumulative voting, Mr. Smith could use all 60 votes for candidate A or spread them among other candidates as he wishes. With a statutory vote, Mr. Smith would be allowed a maximum of 20 votes (one per share) for each candidate.
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