Voting securities: Overview, definition, and example
What are voting securities?
Voting securities are shares or other forms of ownership in a company that grant the holder the right to vote on certain company matters, such as electing board members, approving mergers or acquisitions, or making changes to corporate policies. These securities typically include common stock or voting preferred stock, which give the shareholder a direct say in the decision-making processes of the company. The more voting securities a shareholder holds, the more influence they have in corporate governance.
In simpler terms, voting securities are shares that allow the owner to vote on key company decisions, like who gets to sit on the board or whether to approve a major deal.
Why are voting securities important?
Voting securities are important because they give shareholders the power to influence the direction of the company. This ensures that those who have invested in the company—whether individuals, institutional investors, or other stakeholders—have a say in how the company is run. For businesses, voting securities help maintain transparency and accountability, as major decisions require approval from shareholders. For investors, holding voting securities gives them a way to protect their interests by influencing important corporate decisions.
For SMB owners, offering voting securities can be a way to attract investors while giving them a voice in company decisions, which may be essential in securing funding or forming partnerships.
Understanding voting securities through an example
Imagine your company is offering shares of stock to raise capital. As part of the offering, you provide both common stock and preferred stock, but only the common stock grants voting rights. An investor who purchases 1,000 shares of common stock will be able to vote on major company decisions, such as who will serve on the board of directors. If your company is also planning to merge with another company, the common shareholders will have the ability to approve or reject the merger based on their votes.
In this case, the voting securities (common stock) give the shareholder a say in significant company matters.
Example of a voting securities clause in an agreement
Here’s an example of what a "voting securities" clause might look like in a shareholder agreement:
“Each holder of Common Stock shall be entitled to one vote per share held on all matters submitted to a vote of the shareholders, including the election of directors and approval of significant corporate transactions. Holders of Preferred Stock shall not have voting rights, except as specifically provided in this Agreement.”
Conclusion
Voting securities play a crucial role in corporate governance by allowing shareholders to influence key decisions that affect the company’s future. For SMB owners, offering voting securities can attract investors who want a say in how the business is run, which can help raise capital and build stronger relationships with stakeholders. Understanding and managing voting securities ensures that decision-making remains transparent and accountable, while protecting the interests of all shareholders.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.