Where there are at least two shareholders in a company, the shareholders must hold general meetings to vote on particular issues. The Shareholders’ Agreement contains the Shareholders’ Voting Rights.
How Many Votes Does Each Shareholder Have?
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), he or she will have 75 out of a total of 100 votes.
How Many Shareholders Need to Vote In Favour of A Matter For it to Pass?
Shareholders’ Agreements often differentiate between:
- matters passed by an ordinary resolution of the shareholders,
- matters requiring a special resolution of the shareholders, and
- matters requiring a unanimous resolution of the shareholders.
Generally, an ordinary resolution of the shareholders requires shareholders with over 50% of the shares in the company to vote in favour of the matter. This means that if a single shareholder has 75% of the shares in the company, the shareholder can pass the resolution by him or herself.
A special resolution of the shareholders usually requires shareholders with at least 75% of the shares in the company to vote in favour of a matter. This percentage is a commercial matter and it is not uncommon for it to be changed, depending on the shareholders’ shareholdings. This means that if a shareholder has 75% of the shares in the company, the shareholder can pass the resolution by him or herself. It would not need another shareholder to vote in favour of the matter as well.
A unanimous resolution requires all shareholders to vote in favour of a matter.
How are Matters Usually Decided?
Generally, most matters are decided by an ordinary resolution of the shareholders. This allows the business to function effectively without having to get all shareholders to agree on each and every matter. However, there may be a list of critical business matters that require a special resolution or unanimous resolution of the shareholders. Usually these are limited to key issues that each shareholder wants to make sure he or she has a say in, such as the issuance of new shares. Issuing shares could potentially dilute a shareholder’s shareholding in the company.
What is a Casting Vote?
The shareholders will appoint a chairman to chair each general meeting. The shareholders may appoint the chairman for one general meeting alone or a set period.
The shareholders’ agreement should specify whether the chairman has a casting vote. If the chairman does have a casting vote and there is a deadlock (i.e. shareholders with 50% of shares are in favour of a matter and shareholders with 50% of shares are against it), the chairman can use his or her casting vote to pass the matter, if he or she chooses.
If the chairman does not have a casting vote, then he or she is not able to change a deadlock. There should be detailed provisions set out in the shareholders’ agreement explaining what will happen in the event of a deadlock.
Voting provisions can be quite complex. As a shareholder, you need to think about these carefully before you enter into a shareholders’ agreement. You need to make sure that no one party has complete control of the decisions to be made by the shareholders, particularly when it comes to critical business matters that could seriously affect you. Also, you need to think about the future and how shareholdings might change. For example, is it likely that additional shareholders will invest in the company and how this could affect you? Will this mean that you no longer have control over certain decisions?
Do you require a shareholders’ agreement to be drafted or reviewed? Or would you like any additional information about voting provisions or shareholders’ agreements? Then please get in touch! One of our business structuring experts would be delighted to answer any of your questions.