Definition
Voting shares are shares in a company that give the stockholder the right to vote on key corporate matters, such as board elections or major business decisions. They are usually common shares, and each share typically carries one vote. The more voting shares an investor owns, the more control they have over the company’s management decisions.
Key Takeaways
- Voting Shares refer to a type of stock that gives its holders the right to vote on various company matters, such as the election of directors and changes in corporate policy.
- Owning Voting Shares gives shareholders a degree of control over the direction and management of the company. The more of these shares a person owns, the more influence they have.
- Some corporations may issue non-voting shares, which grants the investors dividends, but no right to vote on company policies, thus, preserving voting control to certain shareholders or founders.
Importance
Voting shares are crucial in finance because they represent an ownership interest that provides shareholders the power to vote on key company decisions such as selection of the board of directors, approval of mergers and acquisitions, and changes in corporate policy.
This type of equity share not only provides investors with a claim on the company’s earnings and assets, but also with a significant element of control, potentially influencing the company’s management and overall direction.
Therefore, voting shares play a critical role in corporate governance and represent a means by which shareholders can participate in and affect the future success of the company.
Explanation
The purpose of voting shares is to provide shareholders with a degree of control and influence over company initiatives and decisions by granting them voting rights at shareholder meetings. They are widely seen as a means of democratizing business fields by facilitating shareholder participation in crucial management decisions.
Companies use voting shares in order to incorporate a wider array of perspectives in their decisions and to prevent the concentration of power. These voting rights can include hiring or firing of management, mergers and acquisitions, policy changes, and other significant decisions that may affect the direction and success of the company.
Voting shares are often used as an incentive for investors, enabling them to impact the course of the company, thereby fostering an environment of joint effort towards the common goal of enhancing the company’s value. The shareholders can therefore utilize their voting shares to steer the company in a direction that they believe would optimize their investments.
This encourages stronger communication and transparency between the company’s management and its investors, promoting trust and fostering thriving business relationships. However, it’s important to note that the voting power of each shareholder is directly proportional to the amount of voting shares they hold.
Examples of Voting Shares
Berkshire Hathaway Inc.: This firm, managed by Warren Buffett, has two types of shares – Class A and Class B. Class A shares have more voting rights compared to Class B. This happens because Class A shareholders have more influence over the company’s decisions, and in return, they get one vote per share, meaning their opinion matters more during voting sessions. Meanwhile, Class B shareholders receive only 1/10,000 of a vote, demonstrating the concept of variable voting rights in the firm.
Google Alphabet Inc.: In 2004, the company introduced a dual-class share structure, having Class A and Class B shares. Class A shares (GOOGL) are regularly traded in the market and offer one vote per share to the shareholders. In contrast, Class B shares, typically held by founders and insiders, offer 10 votes per share, providing them with more control over company decisions. In 2014, Google also issued Class C shares (GOOG) which have no voting rights.
Ford Motor Company: Ford has two classes of stock. The Class B shares, mostly owned by the Ford family, have 40% of the voting power, despite representing only around 2% of the total equity. This means that the Ford family can control the company by voting on important matters, even though they own a relatively small portion of the total shares. This provides an example of how voting shares can be used to maintain control within a company.
FAQs on Voting Shares
1. What are Voting Shares?
Voting shares refer to shares in a company that give the stockholder the right to vote on the company’s decisions. This often includes major decisions such as the selection of the board of directors or other significant business policies and practices. Voting shares thus allow shareholders to have a say in the company’s operations and future direction.
2. How do Voting Shares work?
Each voting share entitles the shareholder to one vote. A shareholder with voting shares will receive correspondence from the company regarding meeting times and the issues up for vote. For each decision, shareholders can cast their votes in proportion to the number of voting shares they hold. Shareholders can also opt to vote by proxy if they cannot attend the meeting.
3. What is the difference between Voting Shares and Non-Voting Shares?
The key difference between voting shares and non-voting shares is the right to vote on company decisions. Owners of voting shares have a voice in decision-making, whereas non-voting shareholders do not. However, non-voting shares are often offered with some additional benefits to compensate for the lack of voting rights, such as preferred status in dividend payments.
4. What are the advantages of having Voting Shares?
Holding voting shares gives a shareholder influence over the company’s direction. This is particularly beneficial if the shareholder has a significant interest in the company. Additionally, voting shares can also act as a defense against hostile takeovers, as existing voting shareholders have the right to vote on any potential acquisitions.
5. What are the risks associated with Voting Shares?
The key risk associated with voting shares is the potential for poor decision-making. If shareholders with voting power make decisions that disadvantage the company, all shareholders – not just those with voting rights – can suffer the negative outcomes, such as fall in stock prices. Therefore, the ownership of voting shares comes with a responsibility to make informed decisions.
Related Entrepreneurship Terms
- Shareholder Rights
- Equity Ownership
- Proxy Voting
- Ordinary Shares
- Majority Voting
Sources for More Information
- Investopedia: An extensive online resource dedicated to educating individuals about investing, finance, markets, and all other money-related topics.
- The Balance: A personal finance website that provides clear, practical, and straightforward advice to help you make your best financial decisions.
- Morningstar: A trusted source for insightful analysis about stocks, mutual funds, and exchange-traded funds.
- Bloomberg: A leading global platform for business and finance news, data, analysis, and more.
