Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Law, Transactions, & Risk Management
  • Business Entities, Corporate Governance & Ownership

Investor Voting Rights - Term Sheet Provision

What are Voting Rights?

Written by Jason Gordon

Updated at April 15th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What are Investor Voting Rights?Sample Voting Rights Provision

What are Investor Voting Rights?

Voting rights generally refers to the right granted to preferred shareholders to participate in voting along-side common shareholders. This is an important power, as the ability to vote on corporate affairs is often a primary characteristic separating preferred and common shareholders. 

Back to: Business Transactions

The articles may allow for special voting rights for preferred and common shareholders. This can alter the state law default rule that each class of shareholder approve any major action, such as amendment to the articles of incorporation. 

Generally, a startup certificate of incorporation should provide that the number of authorized common shares may be changed pursuant to a vote of a majority of common and preferred shares. Such a provision can allow for overriding of preferred shareholder descent to corporate actions (such as authorization or issuance of new shares). 

Further, it may protect investors from a majority of common shareholders taking action without the consent of preferred shareholders (such as authorizing additional shares).

  • Note: California corporate law does not allow the articles of incorporation to change the default rule that a majority of common shareholders vote separately to approve the authorization of additional shares of common stock. This provision protects common shareholders against oppression from investors holding a large number of preferred shares. Delaware, however, allows for the voting of all shareholders as a single class to approve certain major corporate decisions, such as authorization of new shares.

Another common voting rights provision allows investors the exclusive right to elect a certain number of directors. This allows for investor control that often exceeds the percentage ownership in the company. Anti-dilution rights will affect voting rights of preferred shareholders, as it alters the conversion ratio for the preferred shares into common stock.

Back to: LAW, RISK, and TRANSACTIONS

Sample Voting Rights Provision

The Series A Preferred shall vote together with the Common Stock on an as-converted basis, and not as a separate class, except(i) [so long as [insert fixed number, or %, or "any"] shares of Series A Preferred are outstanding,] the Series A Preferred as a class shall be entitled to elect [_______] [(_)] members of the Board (the "Series A Directors"), and(ii) as required by law.

Back to: Entrepreneurship

voting rights term sheet investor rights

Was this article helpful?

Yes
No

Related Articles

  • Straight and Cumulative Voting - Explained
  • Close Corporation Plan - Explained
  • NonProfit Organization - Explained
  • Voting Poison Pill Plan - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand