Voting shares represent an investment option available in publicly listed companies. Ownership of these shares equips investors with the privilege to weigh in on significant corporate decisions such as board member selections and other organizational actions. As an investor, grasping the functioning of voting shares, their unique characteristics, benefits, and purchase methodology, is crucial.
Unpacking the Concept of Voting Shares
In essence, voting shares are a category of stocks that public companies offer to investors, enabling them with voting rights within the organization. Typically, voting shares align with common stock, which corporations issue most frequently. Every common stock is attached with voting rights. However, companies may opt to offer multiple classes of common stock, each having distinct voting rights.
For instance, Google's stock offering comprises four unique types: Class A common stock, Class B common stock, Class C capital stock, and preferred stock. Class A and Class B common stock are voting shares, thereby granting shareholders the power to vote on company affairs. However, Class A stockholders hold one vote per share, while Class B stockholders control ten votes per share.
Understanding the Mechanics of Voting Shares
Acquiring voting shares in a company, generally in the form of common stock, endows you with the power to vote on corporate issues at the company’s annual meeting and other special meetings held throughout the year.
Prior to a voting event, the company circulates a proxy statement amongst all voting share owners, intimating them about the upcoming vote and the agenda items to be voted upon. Common voting subjects encompass the election of board members, endorsement of executive compensation, and ratification of proposals brought forward by other shareholders.
Remember, as a voting share owner, you can express your vote by attending the shareholder meeting. Alternatively, you can vote by proxy without the need to personally attend the meeting.
Different Varieties of Voting Shares
A corporation may issue multiple classes of voting shares. If a class is allotted more voting rights than another, it might trade at a superior price. In many scenarios, the class with greater voting rights is not publicly traded; it is designed to concentrate power within specific individuals in the company.
Google, for instance, restricts Class B stock purchases to company insiders only. Google's founders, Larry Page and Sergey Brin, control a sufficient amount of Class B stock to unilaterally dictate the result of corporate affairs, including board member elections.
Notably, Google prohibits individual investors from acquiring Class B stock. If a Class B stockholder sells or transfers their shares, the shares are automatically reclassified into Class A shares, carrying a single vote per share. Exceptions are made when one of Google’s founders transfers shares to the other or when a Class B shareholder transfers shares for tax or estate planning purposes.
Voting Shares vs. Nonvoting Shares
While voting shares (common stock) represent the most frequently issued type of shares, they aren’t the only ones. Many corporations also issue preferred stock, which lacks voting rights.
Instead, preferred shareholders have a prior claim on dividends over common shareholders. In case of corporate bankruptcy or liquidation, they also hold a superior legal claim on the company's assets, ensuring they recoup their investment before common shareholders and other creditors.
Is investing in voting shares worth it?
When you invest in a company offering various types of stock, you need to decide which one aligns with your investment objectives. Your choice typically lies between common stocks (with voting rights) and preferred stocks (lacking voting rights but with priority in dividends).
The choice ultimately hinges on your investment goals. Both common and preferred stocks provide company ownership. While both types can offer capital gains, common stock has a higher potential for price appreciation, yielding potentially higher long-term returns.
On the contrary, preferred stockholders enjoy precedence in receiving dividends. If your investment strategy is geared towards fixed income and you're comfortable forgoing potential capital gains and voting rights, then preferred stock could be the appropriate choice for you.
The Implication of Voting Shares for Individual Investors
As an individual investor, owning common stock empowers you to influence the company's direction. You gain the right to vote on company affairs at the annual shareholders' meeting or other special meetings during the year.
Remember, in some companies, voting rights may not carry as much weight as they appear. Typically, large institutional investors like mutual funds or dominant individual shareholders command a stronger influence over voting outcomes.
Acquiring Voting Shares
Companies are obliged to issue at least one class of common stock, enabling investors to secure voting rights in company affairs.
Before purchasing voting shares in a company, it's important to discern the different types of shares the company issues. If a company issues multiple types of common stock and preferred stock, ensure you're investing in the right share class.
You can access the EDGAR database provided by the U.S. Securities and Exchange Commission to examine the different types of stock a company offers.
After identifying the desired shares, you can purchase them via an online brokerage account. Simply log in, search for the desired stock, and place an order for the number of shares you want to acquire.
Key Points to Remember
Voting shares, typically common stock, empower investors to vote on corporate affairs, such as board member selection and executive compensations. Although voting shares are commonly associated with common stock, a company may offer different classes of common stock, each with varying voting rights. Not all shares are voting shares. Preferred stock accords first rights to dividends and to assets in a liquidation but does not carry voting rights. Common stock, offering voting rights, is most frequently issued and can be conveniently purchased through any online brokerage platform.