Your Rights as a Shareholder

By: Gregory J. Cook, EA, CPA

You may have purchased shares of stock in a company because you felt it was a good investment. Now that you are a shareholder, you have the right to vote on company policies that may affect your investment. In general, for each share of stock in a company you own, you are given one vote on matters where shareholders vote. Occasionally, companies issue different classes of stocks that have different voting rights.  
 

Stockholders have the right to vote on policy issues that affect the company’s stock. For example, shareholders can vote on whether a company should issue additional shares of stock or convertible bonds, who should be members of the board of directors or whether the company should sell itself to an outside buyer. 
 

Voting on company policies typically occurs at the company’s annual meeting. Before this meeting, shareholders receive a proxy statement. This statement gives details on items that require shareholder approval. It presents the company’s proposed changes in management as well as any proposals made by shareholders. This document also names major shareholders and those nominated for the board of directors. Additional information contained in the proxy statement includes compensation information for the company’s top executives. The company’s stock performance relative to other companies in the industry and to the S&P 500 also must appear in the proxy statement. 
 

Typically, you get one vote for each share of stock you own. Most companies count the votes from shareholders for directors in one of two ways: statutory or cumulative. In statutory voting, your votes are distributed evenly among the directors you vote for. In cumulative voting, you can distribute your total votes among the directors any way you wish. For example, if you have 100 shares in a company and five candidates are running for election to the board of directors, you will usually have a total of 500 votes to distribute. In statutory voting, 100 votes will go to each candidate you vote for. In cumulative voting, you decide what portion of your 500 votes goes to each candidate. All 500 votes could go to one candidate if you choose. Cumulative voting is intended to give shareholders with a small number of shares a larger stake in the way the company is run. 
 

There are several ways you can cast your vote. If you attend the company’s annual meeting, you can vote in person. You can also mail in a proxy ballot, vote online or call in your vote. If you do not attend the annual meeting or return your proxy, your votes will not be counted. 
 

If you have questions about how to vote on issues concerning companies in which you invest, contact a qualified financial professional. A professional financial advisor will be able to explain how to cast your votes as well as give you advice about the issues up for consideration.