Cumulative Voting Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Cumulative Voting, written in plain English, along with examples of how it is used.
What is Cumulative Voting?
A method of election of board of directors in a corporation whereby the shareholder has the right to cast votes equal to the number of shares he has multiplied by the number of directors to be elected.This method helps the minority stock holders to represnt themselves on board.
History and Meaning of Cumulative Voting
Cumulative voting is a type of voting system used in corporate elections, which allows minority shareholders to have a greater say in the election outcome. This system was first adopted in the United States in the late 1800s and was mainly used to increase minority representation on boards of directors. With cumulative voting, shareholders are granted votes equal to the number of shares they own multiplied by the number of directors to be elected. They can cast all of their votes for a single candidate or distribute them as they choose among the candidates.
In practice, cumulative voting is mainly adopted to ensure that minority shareholders get a voice in the decision-making process. The number of shares owned by minority shareholders may not allow them to elect a single director through traditional voting, but it gives them a better chance with cumulative voting.
Examples of Cumulative Voting
- In a corporation electing two directors, a shareholder owning 100 shares can cast 200 votes for a single candidate instead of casting 100 votes for each of the two open seats.
- A shareholder owning 500 shares has the option to vote all of their shares for one candidate or divide them to different candidates.
- In an election of a board of five directors, a shareholder who has 10,000 shares can cast 50,000 votes in total and allocate all of them to a single candidate, which is a significant amount.
Legal Terms Similar to Cumulative Voting
- Plurality voting: This is a traditional method of voting in corporate elections where each shareholder has a number of votes equal to the number of directors to be elected.
- Proportional representation: A different type of voting system in which each shareholder's vote counts proportionally to the total number of votes cast.
- Shareholder activism: A term used for shareholders that are proactively involved in pushing for changes in the company's governance, management, or strategic direction.
- Proxy voting: The process of allowing a shareholder to assign their voting rights to another person or entity to vote on their behalf.