Just as you can vote in local and national elections, you might have the right to vote on company issues if you own shares of that company.
Every year, companies hold shareholder meetings to discuss and vote on important topics that may affect the direction of the company, such as the board of directors, executive salaries, mergers and acquisitions, and more.
In many cases, If you own one whole company share, you can vote. Generally speaking, each share you own translates to a vote. And the more shares you own in a company, the more of a say you have. But it’s important to remember that companies often issue millions, or even billions of shares, and your vote is proportional to the amount of shares you own.
Fractional shares and voting rights
If you own fractional shares in a company, you will not have voting rights. If your investment gives voting rights, you get them once you own a full share. Investors who have voting rights will receive something called a proxy document ahead of the annual meeting. The proxy document has all of the resolutions to be voted on during the meeting and allows shareholders to vote without actually having to attend the meeting. You can typically vote by phone, mail, or online.
What do shareholders vote on?
The proxy document might include a number of different items such as:
- The board of directors. Shareholders have the right to vote on placing a candidate on the board of directors. The board is responsible for oversight of the company, and its general direction.
- Executive salaries. Shareholders might also have the ability to vote on how much executives at the company are paid, and other matters pertaining to their compensation.
- Corporate actions. A company might decide to merge with or acquire another one. The company might hold a vote on those corporate actions to get approval from shareholders.
- Proposals. A proposal from a shareholder might also be put to a vote. Investors who own at least $2,000 in a company’s stock and who’ve been invested in that company for at least three years can submit a proposal for a particular issue to be included in a vote with the Securities and Exchange Commission (SEC).
When you cast your vote, you can often respond in different ways. Shareholders typically vote for or against an issue, but they might also choose to abstain or withhold their votes. Withholding or abstaining might affect the election, depending on various factors. For example, some votes may require a candidate to have a plurality of votes to win, while others may require a majority. (A plurality is when one candidate wins more votes than another, but not a majority. A majority is when one candidate wins more than half of all votes cast.) By withholding or abstaining from a vote, voters can potentially affect the election without necessarily voting yes or no.
Classes of shares and voting rights
Companies often issue classes of shares that have different voting rights. For example, it’s common for companies to issue two classes, such as Class A and Class B shares. One of the classes would typically be for company insiders—such as company managers or executives or other employees at the company—and may carry extra voting rights compared to the other share class, which would be sold to investors outside the company.
Companies may also issue stock that entitles investors to ownership, but no voting rights. By issuing shares with different voting rights, founders can more easily keep control of their companies.
It’s up to each company to determine how to structure their classes of shares. Google’s parent company, Alphabet, for example, has three classes of shares. It issues Class B shares to founders and company executives. These shares have more voting rights than its Class A shares, which are issued to non-executives and outside investors. It also issues Class C shares, which have no voting rights.
Good to know: Owning full shares in ETFs and mutual funds may also entitle you to voting rights at annual meetings, on matters that pertain to those funds.
Just as you exercise your civic duty by voting in elections, you should also consider exercising your right to vote in shareholder meetings. The way you vote can have a big impact on the company and your investment.