- Cumulative voting is a mechanism for granting minority shareholders rights of participation to corporate decisions. However, this protection is quite limited and may, at least to some extent, be evaded.
What is Cumulative Voting?
Cumulative voting is meant to provide a minority shareholder with the ability to elect at least one director. Typically, each shareholder gets one vote for each position on the board of directors. If the corporation has three directors, then a shareholder with one share would get three votes — one for each place on the board of directors. Cumulative voting allows the minority shareholder to cast all three votes for one place on the board of directors (and not vote on the other directors), thus increasing the ability of a minority to elect a director. Cumulative voting must be specified in the certificate of formation and/or shareholder agreement. Again, however, even with cumulative voting, a minority shareholder’s presence on the board of directors provides minimal protection against oppression.
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By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, NJ Shareholder Attorney