Pg 12

Question 1

What are the things that shareholders vote on?

Answer 1

• electing the Board of Directors
• mergers
  – amendments to the articles of incorporation

Question 2

What are the two different types of shareholder voting?

Answer 2

– cumulative voting

– straight voting

Question 3

What is cumulative shareholder voting?

Answer 3

When shareholders elect directors, each shareholder gets a number of votes to cast that is equal to the number of shares he owns multiplied by the number of director positions that are open. He can cast however he wants [all on one person or otherwise] and the top vote-getter is elected to the board.

Question 4

What is the rationale behind cumulative voting?

Answer 4

This enhances the power of minority shareholders because it is easier for them to elect reps to the board. Plus this protects their interests from opportunistic behaviour of the majority

Question 5

Cumulative voting only applies to shareholders voting for what?

Answer 5

The election of directors, not for any other shareholder voting

Question 6

What is the formula for cumulative voting?

Answer 6

of votes/shares you can cast X # of director positions available = # of total votes you can cast

Question 7

With cumulative voting can a shareholder take his votes and spread them out among different candidates?

Answer 7

Yes, or he can cast all of them for a single candidate

Question 8

Once all of the votes are cast for cumulative voting, how are the winners decided?

Answer 8

The votes are tabulated for each candidate and the ones that got the most votes are elected to the board

Question 9

What is the formula for the shares that are needed to guarantee the election of a single director with cumulative voting?

Answer 9

[The total number of voting shares/ (1 + # of directors)] + 1

If this makes a fraction, round down to the nearest whole number. I.e.: corporation has 1200 voting shares and five board spots = [1200/(1+5)] +1 = 201. We need 201 shares to ensure that one director is elected

Question 10

What does the MBCA say about what is required in order for cumulative voting to apply?

Answer 10

Shareholders can’t vote cumulatively unless notice is given by either:
– a shareholder’s meeting
– a shareholder to the corporation not less than 48 hours before the voting meeting

Question 11

What are staggered terms with regard to the board of directors?

Answer 11

For example if there is a nine member board, and directors serve for three years, but only three directors are elected each year

Question 12

How does cumulative voting work with regard to mandatory and optional?

Answer 12

A few states have mandatory cumulative voting, and if that is the case in the corporation cannot reject it in the articles of incorporation. Most states say it is up to the corporation, and each state has a different default rule with regard to this

Question 13

What are the different options for default rules for cumulative voting for the Board of Directors?

Answer 13

• opt out: some state statutes have cumulative voting as a default, but you can opt out of it through the articles of incorporation
  – opt in: most state statutes say that the default is straight voting, but the corporation can opt in to cumulative vote through the articles of incorporation

Question 14

What are the ways that majority shareholders can circumvent the minority of shareholders?

Answer 14

– reducing the board size
– staggering the terms of directors
– removing minority directors after they are elected
- amending the articles of incorporation to eliminate cumulative voting

Question 15

How does reducing the size of the board allow majority shareholders to circumvent the minority?

Answer 15

It makes cumulative voting less effective. The smaller the number of directors, the more votes that are needed to ensure that one director is elected

Question 16

How does staggering the terms of directors allow majority shareholders to circumvent the minority?

Answer 16

It makes cumulative voting less effective because you’re only electing a small number of total directors each year, so more votes are needed to ensure the election of one director

Question 17

How does removing minority directors after they are elected allow majority shareholders to circumvent the minority?

Answer 17

Most corporate statute allows shareholders to remove a director before his term expires without showing cars.

Question 18

What is straight voting with regard to voting for directors?

Answer 18

Directors run for a specific seat and shareholders vote for the candidate to fill that seat. This means that they vote all of their votes on each seat. The majority always wins and essentially the majority shareholder elects the entire board, even if he only owns 51%. All of your votes get cast for each position [all 100 for spot one, all 100 for a spot two, etc.]

Ie: if you have a five person board and 100 voting shares, and you own 51 shares and your friend owns 49, your friend can vote each of his shares for five candidates and you can vote each of your shares. The candidate with the most votes get elected, so all of yours are elected to the board.

Question 19

What is the difference between cumulative voting and straight voting when it comes to choosing directors?

Answer 19

– cumulative: shareholders have a number of votes that they can sprinkle around for whoever they wish, and the person with the most votes wins
– straight: directors run for specific seats and shareholders vote all of their votes for each seat