What Are Investor Voting Shares?
A publicly traded company lists its shares on stock exchanges or in an over-the-counter market, to freely trade its organised ownership via shares. These shares allow investors to express their opinions on company matters, including the election of board members and other corporate issues. Each share holds the value of one vote and these investors get an ownership interest in the business.
Why Are Voting Shares Important?
Companies ensure more than one type of share while designing their share class to concentrate voting rights within a small percentage of shareholders. It prevents a hostile takeover by shareholders who are not company founders or form part of company leadership. It also ensures no other company buys their shares at a premium.
Voting rights are issued only to those shareholders who are invested in the long-term growth of a business.
By limiting voting rights, companies can concentrate decision-making power only among shareholders who protect the business interests, looking beyond short-term profits.
How Do Voting Shares Work?
Upon buying shares, stockholders possess equity ownership in a listed company. There are two types of shares –
- Voting Shares (Common Shares)
- Preferred Shares
Voting shares provide preemptive rights, meaning shareholders can retain rights by buying more shares in future issuances. They can buy more shares before they are offered to the public or new investors.
Preferred shares have the first right to receive funds from the sale of assets when a company goes bankrupt. On the other hand, voting shares may not provide dividends and come with no such rights in case of bankruptcy. If provided, voting shares get lower dividends than preferred shares.
What Are The Voting Share Structures?
Voting shares can be subdivided into share classes with distinct voting rights (or none at all) before they are issued. Shares from different share classes often have the same interest in the company’s underlying profits. Yet, at times, different share classes can present varying economic stakes.
Disproportionate voting power insulates the founders from short-term commercial pressures, making it harder for outsiders to influence and easier for the business to invest in long-term innovation.
These share classes and their distinction in voting or economic power are disclosed in the IPO prospectus and other securities filings, ensuring investors account for such disparities before investing in a business.
Examples Of Voting Shares
- Say you own 1,000 preference shares and 500 equity shares of a company. The company presents a list of resolutions for approval in the Annual General Meeting (AGM). Since you own 500 equity shares, you have 500 votes according to the one-share-one-vote principle. However, your 1,000 preference shares do not grant you the right to vote.
- Google lists multiple classes of shares (with voting shares) under their trading ticker symbol GOOGL. These are Class A shares. On the other hand, company employees hold non-traded shares with associated supervoting privileges (Class B shares). Class C Google shares do not give voting rights.
How Can Shareholders Exercise Their Voting Rights?
Shareholders can exercise their voting rights in three ways –
- At the Annual General Meeting (AGM)
- Other special meetings convened for voting purposes
- Proxy
Proxy forms are sent out to shareholders, along with other invitations, to attend the shareholders’ meeting. These forms describe and list all the issues on which shareholders have the right to vote. A shareholder may also choose not to vote in person, filling out the form and mailing their responses on the issues instead.
What Are The Risks Associated With Voting Shares?
Since preferred shareholders must receive the compensation first, owners of voting shares are the last to receive payment in the event of bankruptcy. It makes these shares a high-risk investment for shareholders.
Since preferred shareholders must receive dividends regularly, voting shares do not offer guaranteed dividends.
Large-scale issuance of voting shares dilutes the ownership of existing shareholders, reducing their control and may lead to a decrease in the price of the shares.
