California has a strong historical attachment to cumulative voting. Corporations Code 708 grants shareholders the right to cumulate their votes in the election of directors.
What does this mean? There are a number of methods for cumulative voting, but the most accepted and used procedure is “proportional voting” where the shareholder is entitled to one vote per share times the number of directors to be elected.
For example, if you owned 100 shares and there were two directors to be elected, you would have a total of 200 votes. This theoretically gives minority shareholders a slight advantage as they can then apply all their votes toward one person.
What if however, you are a CA corporation and do not like cumulative voting? Well, cumulative voting is considered an inalienable right in CA, however; CA Code Section 301.5 allows “listed corporations” to eliminate cumulative voting in favor of majority vote, by amending their By-laws or Articles of Incorporation. Each corporation should determine if they are considered a “listed corporation,” but generally it includes NYSE, AMEX and Nasdaq National Market listed issuers. Otherwise, cumulative voting is mandated for CA privately held corporations.
Author: Jennifer Trowbridge, Stoecklein Law Group, LLP