If you choose to invest in shares in specific companies – rather than in ETFs or other types of funds, for example – you probably do so mainly because you think the company will succeed and make you a profit. What you might not realise is that buying shares also gives you a say in the success of a company, through the right to vote in decisions that could affect its future, and therefore the growth of your investment. Read on to find out more about your shareholder voting rights and how to exercise them.
What are shareholder voting rights?
Stock voting rights are the rights that shareholders in a company may have to vote on certain decisions relating to the company. The specific matters that you’ll have a right to vote on depend on the rules of the company (as outlined in its “articles of association”) and the shareholders’ agreement. But, in general, you are likely to have the right to vote on matters that could have a substantial impact on the future (and success) of the company, such as changes to the company name, approving mergers or acquisitions, or changes to company goals.
Do all stock owners have shareholder rights?
All stock owners (or shareholders) of “common” or “ordinary” shares have stock voting rights. Ordinary shares are the most common kind of share available to buy when investing in shares on the stock market.
Holders of other classes of share may or may not have voting rights. For example, you may come across a class of share called “preferred shares”. These come with no voting rights, but give shareholders priority when it comes to company income. For example, preferred shareholders will be paid dividends before common shareholders.
If you’re not sure what type of shares you own, or whether you have voting rights, check the paperwork that you received when you bought the shares.
By the way, if you’re not even really sure what investing in shares means, let alone stock voting rights, jump straight over to our beginners guide: “What are shares?“).
How much stock do you need to have voting rights?
Every owner of ordinary shares in a company has voting rights. That applies no matter how few shares you own. However, the number of shares you own is likely to influence how much voting power you have. Typically, 1 share equates to 1 vote. In this case, the more shares you own, the bigger the impact you are able to have on voting decisions. This rule may not always apply though. Some companies give each shareholder a single vote, regardless of how much stock they own.
Why do shareholders have voting rights?
Some company decisions have a significant impact on the success (and profitability) of a company. And, fairly evidently, there’s a direct correlation between a company’s success and the price of its shares – as well as the size of any dividends that shareholders may receive. Voting rights allow shareholders to influence this success and thus how well their investments in the company perform.
What influence do I have with my shareholder voting rights?
Shareholder votes are not required for decisions relating to the routine running of the company. Rather, they’re required for exceptional decisions that could have a significant impact on the company’s bottom line. Depending on the company, the matters you may have the opportunity to vote on include:
- A change to the company name
- Appointment or removal of a director
- Amendments to the articles of association
- Sale of the company
- Merger with another company
- Sale of an unusually large portion of corporation assets or purchase of large assets
- Decisions where the company directors have a conflict of interest
- Voluntary dissolution of the company
- Authorising the director(s) to issue more shares or to split existing shares
- Approving share buybacks by the company
The level of influence you have will depend on what proportion of a company you own. If you have a 40% stake in a company, you’ll clearly be able to have a bigger impact than if you own 1% or less.
How can I prepare for important votes for a company I own stock in?
Whether you’ve carefully selected the companies you own shares in for their alignment with your values, because you think they’re the next big thing and will make you squillions, or simply because they’ve got a proven track record, you’ve got a vested interest in their success. As such, you owe it to the companies (and yourself, if you want to make a profit) to take voting seriously.
This means doing your research into the changes being proposed and carefully analysing the reasons for and potential consequences of those decisions. Consider what’s in the best interests of yourself and other shareholders, which may be counter to the motivations of those who have proposed the changes.
For example, if the company wants to issue more shares, what might the impact be on the value of your own? Or perhaps senior management, concerned for their jobs, have proposed actions to thwart a potential takeover. Such a takeover might actually be good for the company as a whole, and its shareholders.
Long story short, if you plan to vote, do so after considering all the pros and cons of each potential outcome. Even if you only have a small stake, and therefore a small individual say, in the decision, if it’s a close-run thing your vote could be enough to sway the result.
What companies offer shareholder voting rights?
The vast majority of companies that are “limited by shares” will offer share voting rights. That’s because, by default, the “model articles of association” that most companies use only covers the issuing of ordinary shares. And these come with voting rights attached. If a company wants to issue other share classes, which might not have voting rights attached, they need to either alter the articles of association or create their own version. But, even in this case, the other share classes would almost certainly exist alongside ordinary shares.
Of course, not every company has a large number of shareholders. Those that are just starting out, for example, may only have the founders as shareholders. It’s even possible for a company to have just 1 shareholder (usually the director).
There are also some companies that it’s not possible to own shares in, including charities and most other non-profit companies. Rather than being “limited by shares”, these companies are “limited by guarantee”. They don’t have shares or shareholders and are instead backed by guarantors. Obviously, because it’s not possible to own stock in these companies, there can’t be shareholder voting rights.
What other rights do I have as a stock owner?
In addition to the right to vote on key company decisions, stock owners may also have a number of other rights. These can include:
- The right to part-ownership of the company. Ordinary shareholders have a claim on a portion of the assets owned by the company. If the value of the assets grows, so does the value of share of ownership. Depending on the nature of the agreement, shareholders may also have the right to receive dividends.
- The right to transfer ownership of stock – usually by selling shares on a stock exchange. Shares can be sold using a traditional stock broker or an online share trading platform.
- The opportunity to inspect corporate books and records, such as minutes of board meetings.
People who invest in shares tend to be those who want to play a more active role in their investments. Voting on important company decisions is a key way to do that, as the resolutions presented for voting at shareholder meetings have the potential to have a big impact on a company’s future, and its bottom line. This in turn affects the returns you’re likely to receive. So if you own stock in a company, keep an eye out for these opportunities, and be proactive about voting in decisions that could affect the success of the company.
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