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refers to a particular method of voting shares of stock that can be provided for in a company's governing documents. It allows a shareholder to cast all of his votes for company directors (determined by multiplying the number of his shares by the number of director positions being filled) for just one director. Cumulative voting can be used to insure a minority shareholder that he will have a seat on a company's board of directors. In a normal voting arrangement, a shareholder with 30 percent of the voting stock can never be assured of any representation on a company's board of directors. This is because each director position is voted on separately. As each position is voted on, the 70 percent shareholder can outvote the 30 percent shareholder and, thereby, elect all of the directors. With cumulative voting, the result is different. Instead of electing each director separately, all the director positions are voted on at once with the top vote-getters taking seats on the board. If three positions are being filled, each shareholder gets three votes for each of his shares. He can vote them in any fashion he wants. With three positions open, a shareholder with 30 shares gets 90 votes (three times 30 votes), while a shareholder with 70 shares gets 210 votes (three times 70 votes). If the 30 percent shareholder votes all of his 90 votes for one candidate, that candidate is guaranteed to be one of the top three vote-getters because the remaining 210 votes can only give two other candidates more than 90 votes. Since the three candidates receiving the most votes are elected to the board, the 30 percent shareholder is assured of being represented on the board. See: Common Stock, Control, Management Agreements, Minority Shareholder, Shareholders' Agreements, Voting Agreements, Voting Trusts. |
