The Electoral College: Stockholders Edition
If I were to ask you whether any other system in America aside from its political election system uses an electoral college type system, you would probably say no. You might be surprised to find out that this isn’t exactly the case. The vast majority of those who hold stock participate in an electoral college type system every time they vote for the board of directors. The question then becomes – if that is the case, how much power do I really have as a stockholder? Please note that the information below deals with publicly traded companies.
You’ll Have Minimal Say on What Goes On, On a Daily Basis
When you buy a stock, you do so from a corporation that allows members of the public to purchase shares of its stock, which, in turn, makes you a part owner of the company. Chances are, you are only buying a small portion of the overall stock that a company has to offer. This means that you have little to no say about what occurs on a daily basis. However, you do have the power to try to make sure that those who are running the company have your stamp of approval. This is because you do have the right to have a say regarding who your board of directors will be.
Why Should I Care About Who is On My Board of Directors?
The Board of Directors will have a major say in how the corporation you have invested in should operate daily. As a stockholder, you have the right to vote on who you would like to sit on the board of directors. Since the people on the board are the ones who make the major business decisions, you should care about who these people are. The board in their collective wisdom or lack thereof will hire a CEO who will be charged with the task of running the company.
Do All Those Who Have Stock Have this Right?
It depends, look to your stockholder agreement to see what voting powers you have and when they will kick in. Sometimes, if you have at least a 3 % stock ownership for at least three years, you will have the right to have a say on whom you would like to have on your board. Of course, the rule of three is only a rule of thumb as many companies allow you to vote on whom you want on the board after your first year as a stockholder.
What if I Disagree with the Boards’ Decisions?
The answer to the question above depends on several things mainly, whether the decision being made is of critical importance or is run of the mill. Major decisions that you may have a say include:
- Mergers and Acquisitions
- Selling all or some of the company
- Selling or otherwise changing the amount of unissued stock, outstanding,or other stocks availability
- A change in how much salary, bonuses, or other benefits the CEO and other managers should receive, provided it is substantial as opposed to appropriately adjusted
What to Do if You Disagree
- Sell your interests – If you own enough stock, try to get onto the board
- Sue: In addition to voting for the board you may also be able to derivatively sue the managers or board of directors. To do this, you must show they are failing to act in the best interests of the company.
Contact a Silicon Valley Corporate Attorney Today
If you want to learn more about your rights as a stockholder review your shareholder agreement. Then schedule an appointment with an experienced Silicon Valley attorney by emailing or calling Startup Company Counsel at (408) 441-7555. We can help walk you through the complicated territory of understanding your rights as a stockholder.