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Are you setting up a company where there will be two or more shareholders? Or are you a shareholder wanting to know more and understand your voting rights? Let’s talk about it.

Where a company has two or more shareholders, the shareholders must hold general meetings to vote on particular issues that affect the company. These particular issues and the shareholder voting rights are all contained in the company’s shareholders’ agreement. Therefore, this article discusses commonly asked questions about shareholders’ voting rights and how shareholders can exercise those rights. 

How Many Votes Does Each Shareholder Have?

The voting rights of a shareholder depend on the class of shares they hold. Typically, shareholders will hold ‘ordinary shares’. Ordinary shares have all of the standard rights which attach to shares. Specifically, these include:

  • voting rights;
  • rights to receive dividends; and
  • rights to participate in the distribution of surplus assets if the company is dissolved.

Alternatively, it is also possible for a company to create and issue non-voting shares.

It is standard practice for each shareholder to have one vote per share. This means that if a shareholder has 75 shares out of a total of 100 shares issued in the company, they will have 75 out of a total of 100 votes. When starting up a company, you and your fellow shareholders can discuss the number of shares each shareholder will hold and the rights that attach to the shares. 

Your company constitution will set out the rights of different classes of shares, including the voting rights attached to each type of share.

How Many Shareholders Need to Vote in Favour of a Matter for it to Pass?

Most decisions of a company are made by the company’s directors. However, your governing documents may also outline specific matters which require a shareholder vote. In addition, some matters must have shareholder approval in addition to approval from company directors.

The voting thresholds for the matters that require shareholder approval depend on what the law requires and your company’s own governing documents.

A shareholders’ agreement is one governing document that stipulates matters requiring a shareholder vote and voting thresholds.

For example, the shareholders’ agreement will differentiate between matters:

  • passed by an ordinary resolution of the shareholders;
  • requiring a special resolution of the shareholders; and
  • requiring a unanimous resolution of the shareholders.

To pass an ordinary resolution, shareholders with over 50% of the shares in the company will generally need to vote in favour of the matter. This means that if a single shareholder holds 60% of the company’s shares, the shareholder can pass the resolution by themselves without consulting the other shareholders. 

The requirements for passing a special resolution are different. Specifically, shareholders with at least 75% of the company’s shares must vote in favour of a special resolution to pass. This means that if a shareholder has 75% of the shares in the company, that shareholder can pass the resolution by themselves. Again, they would not need another shareholder to vote in favour of the matter for it to pass. 

Finally, a unanimous resolution requires all shareholders, regardless of the number of shares they hold, to vote in favour of it to pass. 

Therefore, it is essential that each shareholder knows and understands the value of their shares and voting rights from the outset to avoid potential conflicts down the line. 

How are Matters Usually Decided?

A special resolution of the shareholders decides most company matters. For example, common shareholder matters which require special resolution approval include:

  • amending a company constitution;
  • amending a company constitution; and
  • varying the rights of shares. 

What is a Casting Vote?

The shareholders will need to appoint a chairman to chair each general meeting. Generally, the role of the chairman is to set the meeting agenda and ensure that the meetings run smoothly and effectively. The shareholders may elect to appoint the chairman for one meeting alone or for a set period of time.

The shareholders’ agreement must specify whether the chairman has a casting vote or not. A chairman with a casting vote can be essential if there a deadlock between shareholders arises. For example, if shareholders with 50% of shares are in favour of a matter and shareholders with 50% of shares are against it, a chairman with a casting vote can pass the matter and resolve the deadlock.

However, if the chairman does not have a casting vote, they cannot resolve such a deadlock. Therefore, you should ensure your shareholders’ agreement sets out what will happen in the event of a deadlock.

Why are Shareholders’ Voting Rights Important to Understand?

Your decision-making structure affects who has control over the company. Although the board of directors makes most decisions, it is important to understand and establish shareholder voting structures that are appropriate and practical for your company. 

This is because there are often more shareholders than directors, which can cause administrative burdens with shareholding voting. Moreover, shareholders do not have to vote in the company’s best interests and can vote according to their own interests. As such, you may want to limit shareholder approval matters where possible. You may also need to think about how shareholdings may change in the future if your company plans to expand and bring on more shareholders. For example, you should consider whether additional shareholders may invest in the company, and how this could affect your voting rights. 

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Key Takeaways

One of the critical aspects of company governance is deciding how decisions are made. Your decision-making structure affects who has control over the company. A shareholders’ agreement is one governing document that stipulates matters requiring a shareholder vote and voting thresholds. The voting rights of a shareholder depend on the class of shares they hold. Therefore, your company’s decision-making structure affects who has control over the company.

Do you require a shareholders’ agreement to be drafted or reviewed? Or would you like any additional information about voting provisions or shareholders’ agreements? Get in touch with LegalVision’s business structuring lawyers by calling 1300 544 755 or filling out the form on the page.

Frequently Asked Questions

What kind of rights attach to shares?

The voting rights of a shareholder depend on the class of shares they hold. Your shareholders will typically hold ‘ordinary shares’. Ordinary shares have all of the standard rights which attach to shares. Specifically, these include voting rights, rights to receive dividends and rights to participate in the distribution of surplus assets if the company is dissolved.

What is a casting vote?

A casting vote is something that your company’s chairman can possess if your shareholders’ agreement allows for it. With a casting vote, the chairman can resolve deadlocks – where there is an equality of votes for and against passing a matter.

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