Super Voting: Everything You Need to Know
Supervoting refers to shareholders who have significant voting power over other shareholders. Such supervoting status might be given to the owners in a corporation who want to have greater voting power over the other shareholders in a company.3 min read
2. Class A vs. Class B Characteristics
Supervoting refers to shareholders who have significant voting power over other shareholders. Such supervoting status might be given to the owners in a corporation who want to have greater voting power over the other shareholders in a company. But the primary purpose of such voting rights is to give company insiders greater control over the voting rights, and therefore, greater oversight into the board of directors and decisions made. Another reason might be to avoid hostile takeovers, which might occur when certain shareholders with enough ownership percentage attempt to take over the company in a hostile manner without any regard for the other shareholders, owners, board of directors, and officers of the corporation.
In order to structure it properly, the owners of the company will need to ensure that their percentage of ownership provides for greater voting rights than other shareholders who might have greater percentage rights. For example, perhaps an owner has 10% ownership in the company, but a shareholder has 25% ownership in the company. Ordinarily, the shareholder will have greater voting rights than the owner. However, the owner can provide that his shares have 4 to 1 voting allocations, which means that for every share the 25% shareholder has, the owner will have 75% (4 to 1) power over each share. As a result, the owner will have supervoting stock and greater voting power.
Multiple Share Classes
While supervoting shares indicate a different class of common stock, this should not be confused with preferred stock. Supervoting stock is not preferred stock.
Particularly, preferred shares are a wholly unique concept involving a different type of security, which allows the preferred shareholders priority over the following type of activities:
- Priority in receiving dividend distributions
- Priority in being repaid their capital contribution in the event that the company is forced to liquidate or goes bankrupt
Common stock, however, is the usual form of equity financing that companies use when issuing shares to the public. The corporation has the choice of offering different classes of common stock and/or preferred stock. Furthermore, preferred stock might only be offered to certain investors, board members, and owners of the corporation. With that said, if a company chooses to offer different classes of common stock, the two most commonly used classes include the following:
- Class A stock
- Class B stock
Generally, a corporation will assign greater voting rights to one of the classes of stock. An example of this would be a company that goes public offering a number of common shares to the public. But a different class of stock would be offered to the officers, board members, and owners. This different class will likely carry several votes for each share owned. This is similar to supervoting stock, as the voting rights per share are greater than one to one. A common proportion given for each share is approximately 10 votes per share, depending on the number of shares offered to the public along with how many owners, officers, and board members are employed by the company.
Class A vs. Class B Characteristics
When it comes to differentiating between Class A and Class B, most class A shares are superior to Class B shares. Thus, Class A shares will be given to those board members, owners, and officers as opposed to the general public. However, there is no set requirement. The corporation might choose to initiate Class B as the superior voting stock. Due to the difference in share classes, it is important for potential shareholders to conduct research into how many classes of shares the corporation is offering, and if it is offering supervoting stock to insiders. Furthermore, the potential shareholder should also find out if the company is offering preferred stock, as this could result in fewer rights for the shareholder.
Aside from the voting rights, multiple shares of stock have the same rights in every other sense. Therefore, even if the shareholder has less voting rights, he can enjoy the equal rights to the company’s profits. But if a shareholder is particularly concerned with having greater voting rights, he might refrain from purchasing that company’s stock altogether.
If you need help learning more about supervoting stocks or the various classes of shares, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.