Common Stock: What Are Voting Rights?

One of the most attractive features of common stock for a large investor in a corporation is the right to vote. Votings take place at the company’s annual meeting. The investors in the corporation vote on anything that will affect their “owner’s interest,” including important events like the vote for the new Board of Directors, otherwise known as the company’s top executives that manage the business.

What Other Things Can Owners Vote On?

Obviously, the owners of common stock are not limited to just voting on the executives of a corporation. The right to vote also entails voting on whether the corporation will issue convertible bonds or whether it will declare a stock split, since both of these affect the owners’ interest in the company and will dilute their proportional ownership.

How do the Common Stockholders Vote?

As mentioned, the actual vote takes place at the company’s annual meeting. As for how the votes are counted, there are a few different ways of implementation; however, the most popular ways are cumulative voting or statutory voting.

Cumulative voting generally benefits minority shareholders because it allows them to direct all of their attention to one choice, as opposed to how statutory voting operates, which forces the shareholders to spread their attention to all of the choices being voted on.

Why Do Common Stockholders Get to Vote?

Anyone who owns common stock is a part owner of a company, and just as a small business owner is responsible for deciding how things operate in their own business, shareholders must decide how things will operate in their business as well. And choosing effective managers is one of the most important parts of making sure that a business runs smoothly and profitably. And making sure that more shares being issued do not affect their ownership stake in the business is equally important to investors.

Disclaimer: This information does not constitute financial advice. For specific information concerning your financial situation, please consult your local financial advisor.