Cumulative Voting

Question 1

What does Model Bus. Corp. Act § 7.28 provides?

Answer 1

Model Bus. Corp. Act § 7.28 provides that, unless the articles of incorporation provide otherwise, directors are elected by a plurality of the votes cast by shareholder

• Requires cumulative voting to be specified in articles of incorporation if used for elections

Question 2

What does straight voting means?

Answer 2

Straight voting – 1 vote per share for each director position

Question 3

What does cumulative voting means?

Answer 3

Cumulative voting – permits a shareholder to combine all their votes and cast them for one or more candidates
- Some states require cumulative voting

Question 4

What is the formula to determine how many votes of those present is sufficient to elect a specified number of directors using cumulative voting?

Answer 4

The following formula can be used to determine how many votes of those present is sufficient to elect a specified number of directors using cumulative voting:
X=(a∗b)/(c+1)+1

Question 5

Explain the following formula by describing the characters in the formula.
Formula: X=(a∗b)/(c+1)+1

Answer 5

• A = number of directors the shareholder seeks to elect
• B = the number of shares present and voting
• C = the number of directors being elected
• X = the number of shares needed to elect a specified number of directors

Question 6

What is the formula that allows you to determine how many directors you can elect with a given number of shares?

Answer 6

The following formula allows you to determine how many directors you can elect with a given number of shares:
X= ((n−1) * (d+1)) /s

Question 7

Explain the following formula by describing the characters in the formula.
Formula: X= ((n−1) * (d+1)) /s

Answer 7

• N = number of shares to be voted by the shareholder
• D = number of directors to be elected
• S = the total number of shares to be vote by all shareholders
• X = the number of directors that can be elected by n shares

Question 8

What is the formula that the professor uses to determine the minimum number of shares to elect one director?

Answer 8

Professor’s formula: Minimum number of shares to elect 1 director = (total # of shares) / (D+1) +1

Question 9

What does 0721 say about the voting rights of shares and bond holders?

Answer 9

0721 → only shares vote; bond holders can vote in Delaware, not in Florida

Question 10

What does 0728 about cumulative voting?

Answer 10

0728 → Must be in the articles of incorporation if cumulative voting is allowed

• Or by Amending the Articles (fundamental change)

Question 11

What do we understand under short slates?

Answer 11

Short Slates – where the stockholder decides to not help anyone else get elected and decides to hold on to his shares to himself.

Question 12

What do we understand under staggered board?

Answer 12

Staggered board – can undermine the effectiveness of cumulative voting (0806)

• A mechanism of protecting company against takeover
• Directors may be divided into groups/classes, whose terms are up at different intervals (one Director is up for election every 2 years, one is up every three years, etc.)
• Voting a member of a staggered board into office requires more shares voting

Question 13

How do you get a staggered board by amending the articles of incorporation?

Answer 13

Must be initiated by Director + approved by absolute majority of Shareholders

Process:

• First call a meeting of the Board
• The directors approve the change
• Need a majority vote by directors, and then need to make a recommendation to the shareholders
• Then call a meeting of the shareholders
• Need an absolute majority vote of all those entitled to vote

Question 14

How do you get a staggered board by amending the bylaws?

Answer 14

Must be approved by a simple majority of quorum of Shareholders

Shareholders can take the initiative to amend the bylaws

Shareholders have an inherent right to amend the bylaws,

Question 15

How do you get a staggered board by the initial bylaws?

Answer 15

The ones adopted at the organizational meeting

Question 16

How do you get a staggered board?

Answer 16

(1) Articles of Incorporation or by amending the Articles
(2) Initial Bylaws
(3) Amending the bylaws

Question 17

Do directors have the right to amend the bylaws in Florida?

Answer 17

Directors can amend the bylaws on their own, unless the Articles say they can’t.

Can remove with or without cause.

If you want the protection of the board, you will say you want cumulative voting, staggered board, and removal only for cause (0808) in the articles of incorporation

Question 18

Do directors have the right to amend the bylaws in Delaware?

Answer 18

Directors cannot amend the bylaws, unless the Articles give them the power to.

If you have a staggered board, you can only remove a director for cause.