Common stock voting rights for the FINRA SIE exam

Tyler York

What are the voting rights of common stockholders? This is a topic you need to know inside and out on the FINRA SIE exam. We explain all aspects of common stockholders’ voting rights in detail, including voting for the board of directors, voting on resolutions, and how voting powers and structures work.

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Full Common stock voting rights for the FINRA SIE exam video transcript:

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Shareholders, maintain the right to vote on a number of important issues, which include stock splits executive compensation in major changes to the issue as business. But one of the most important aspects of voting rights relates to voting, for the board of directors, your typical board will have somewhere between 8 and 12 members all tasked with one goal but his ensuring the overall success of the business or organization that they're running. They drive the big business decisions and the awesome manage, which includes hiring and firing the executive team, including the CEO. They're basically the bosses of the bosses and some go as far to say that they're the soul of the organization. Stockholders are the owners of the company but actually don't have any direct management capabilities. Their power is representative through their voting for the board of directors and it's very similar to our political system is set up here in the United States.

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We the citizens don't actually come up with the laws there, been passed and enforced. It's our politicians that we vote in, they come up with the walls and then have them in force from there and it's just like cows stockholders vote in the board of directors to drive the big decisions of the organization and represent their interests. Let's take a look at it. Real world proxy to better understand how the voting capabilities of a stockholder works. This is a proxy for dxc technology. I'll give you full transparency and let you know that I am a shareholder in this company. It's a small position. It's around four shares of stock of watch. Lisi. That can see it on the screen here right now, actually. But that's not a recommendation or solicitation. I'll be completely honest with you. I don't really know much about this company. I don't remember buying the shares, but I recently got my email a notice of a proxy and DXE looks like they have their annual meeting right around July. Every, every year, this proxy was given to all

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All beholders, as of May 27th. 2022, as you can see there, which means that you had to be a subtle donor on the transfer, agents, books to be eligible to vote in this specific proxy. As you've learned in the achievable materials, the word proxy mean substitute and these are substituted voting materials for people who cannot show up to be annual in-person meeting. And you know what's interesting night? I had to look up where dxc was having their annual meeting with a physical meeting was occurring, but they're actually doing a virtual meeting this year. There is no physical meeting. And I wonder if that's because of covid or if that's just to change with with how technologically savvy everyone is. And if one can join to their phone these days, I don't know, but we still called a proxy even though there's not a physical annual meeting happening anywhere in this annual meeting dxc will go through.

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Number of different things, which will include their challenges and their successes that they've seen over the last year, probably some financials in their terms of how they've been doing. And I'll just probably be, we'll have some fun and has no shell, what their profitability is, the probably go over some outlook for the future. Maybe provide some guidance in terms of how successful they think they'll be a financially over the next year or so number to fanx overflow cover. But one of the primary items and in fact, the first thing that I see when I log in and look at the meeting agenda are the things that they need shareholders to vote on. And this is not unique to dxc pretty much in any proxy materials that you come across as a shareholder will probably have the majority of the votes centered around board of directors, know, Dixie has him board of directors seats. And looks like they do this vote every single year to be able, to hold on to a seat or to be voted into the seat. All they has to happen, is you have to have more

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Four votes than against folks. And that's it. Just more for it than against. This is what we call a non-contested board of directors or an uncontested board of directors boat. A contested vote would be something like to, here's one seat. There's two people going for it. You know, whoever gets the most votes win that seat, but that's not how it is. Here, we have 10 people up for vote for 10 chairs. All that has to happen is they have to get more for votes than against those chairs. Available says they have for which means I have four votes. That's actually an important test point. You get one vote for every share that you own, which can probably put two and two together, the more shares in the company that you own the bigger, the vote you have and that should make sense, right? The, the more you wanted the company that bigger you're safe should be. So every time I make a vote for something I'm making a four, share vote. Now before we go further into the board of directors stuff, let's just take a quick look at

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There's some other things here, the bottom that shareholders are voting on. If you look at the number to there ratification of the appointment of this company, as an independent registered public accounting firm. Yeah. If you're going to change your accountant or a looks like you're a ratify, the appointment of this new accounting firm, you have to get shareholder approval for something like that. Might seem inconsequential to some of you. But that's something that a lot of companies have their shareholders going on at the very bottom approval by advisory vote of are named executive officer compensation. I don't think this is a really important in case, you're in advisory vote is one where the shareholders vote on something but it's not the final say it's kind of like the company asking for their shoulders to give him some input but they're basically saying here doesn't you know, we're going to do what we want but we want to see what you guys would want us to do. It sounds like the board is going to do whatever they want to do with executive officer compensation or there's a link.

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Also on his page, it brings us here which is I think the actual proxy statement look that notice of 2022, annual meeting of stockholders and proxy statement. We can take a quick look at this just to see, you know what, people typically get with something like like this statement here and get a nice welcoming page. Hey, you can attend a virtual meeting. Here's a link. A little bit about the company at cetera. We don't need to go too much of that. Your boat is important, buildings, always important. If you scroll down a bit about the purpose of the meeting, purpose of meeting, is he would like to attend director nominees list in the proxy. Statement will look at a few of them talked about the counting from Bold and the point of her to talk about the executive officer composition Point. Number three number for is just a name to transact. Any other business that may properly come before the meeting in any postponement sergenmma, Sarah, just another way of saying, other meeting type stuff. We'll talk about cool. So if we go down a little bit further, I'll just show you

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The original page it was just a name, right? Do I want to vote for a me all thing? Or don't want to go for David Herzog in a proxy statement, you also get a pretty good idea of who that person is howl at week is a owl. They are how long they been a director looks like most of these directors have been on for, at least a year, if not longer and and what's their principal occupation. And as you can see, a lot of the board members here, have some pretty some big pretty big credentials. Some of them even serve on the board of other publicly traded companies and trusting. We need to go down a little bit further and get more information on every one of our Board of director nominees, get a little bit of their story. The qualifications Etc. So, as a stockholder, you can get in here and maybe learn a little bit more about the people. You might be voting for, or maybe even against and go from there. Let's go back here real quick and just follow up on our board of directors, voting conversation. As you've learned in your achievable materials there, two different

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Types of voting structures. There's a statutory voting structure in a cumulative. Voting structure, dxc maintains, a statutory voting structure. Statutory means that I get up to four votes times, each director position that's open and I can only allocate those boats to each individual board of directors seat. So, let's say that, I'm looking at the seven board members here and I really only like, Amy Alvin, I don't really care about anyone else. I don't really know about anyone else. What would the statutory voting structure? I can only apply for votes towards Amy and that is it. If I abstained in all the others, I couldn't take the votes from other board members and applied to a me even if I really liked Amy. So again, with statutory, I can only apply a maximum of four votes towards Amy oven with cumulative. I can get really flexible with how I applied my votes. I can essential

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Take all the votes I have in apply to one person going for one board seat, if I really wanted to. So, back to our example, let's say that we have these seven board members going up for seven seats. Again, I really like Amy helping, I don't know anyone else. If I wanted to take my votes from the other potential board members and them climb all day, Amy I certainly could. And again, if there are seven board seats were looking at here, and I have four shares, that means I have 28 potential votes that I could put all in a me if I wanted to. And that's the benefit of cumulative. You can Dogpile, basically your votes are in a one party and go from there. Let's take a quick look at an achievable question. On the same topic to understand how they might ask this question, on the real test, your customer owns 200 shares of Kendall Co stock, which is under a statutory voting system with 80 open board seats. What is the maximum number of votes? Your customer may apply towards one board seat

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The first thing we need to remember is we get one vote for every share of our stock. That is owned, which we have 200 shares. Hear the question is specifically asking about how many votes can be applied to one board seat. Remember with statutory, we can only apply the number of votes. We have based upon the number of shares we have on a board seat by 40 basis. Unlike cumulative, we can borrow votes from other seats and applying to one board. Seats are really, for this question here, you know how many votes can be applied to one board seat under statutory voting system? With 200 shares? The answer is two hundred bucks. That's it. Now, if this was cumulative, then we can apply our votes in a little bit of a different manner. Remember, KB of means that we can take our boats and we can get flexible with them. And essentially of this was a question on that floating structure. We could take our two hundred votes multiplying * 1/8 board seats, which it would get us to 1600 boats and apply them all towards

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One board seat. And that's why you might remember reading about how cumulative, voting structures are actually beneficial to the small shareholder. If a couple of small shareholders, get together and apply all their votes and a one potential board member for one seat. They might actually went. So, let's actually summarize the big picture here in terms of how many votes you get for one board seat. If its statutory the number of votes you get per board seat. Really just equals how many shares that you won't. But if its cumulative, then you have the number of shares. You own times the number of open board seats and you can apply them all into that one board seat. It really flexible with your voting
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