A voting stock is the stock of a company that is publicly traded that gives the holder the option to vote at the yearly company meeting. Usually, a share equals one vote, and this gives the holder control over the company. In exchange, there are fewer or no other rights associated with the voting stock. Most of the stock that's preferred is nonvoting, but stock that's preferred has a guaranteed dividend, whereas this isn't common with most voting stock.

Breaking Down How Voting Shares Work

There are different share classes that don't allow the holder to have voting rights, such as preferred stock. These holders are able to say their opinion on different decisions regarding the company's direction in the future. For example, if a business is thinking about accepting an acquisition offer by a group of investor or another company, those who own voting shares could vote on that offer.

Shareholders that have voting shares often are in contact with the company on a regular basis when it comes to issues that need a vote. Whether or not to vote on certain issues doesn't affect the value or ownership of the shares, but there are some actions that come from the results of the votes that affect the market value.

How Voting Shares Affect the Company's Direction

It is common for activist investors to get support from the owners who have voting shares so they can convince them to vote on the decision or action the investor wants. Hostile bids to get a company may cause potential buyers to campaign to the voting shareholders to get sufficient support to move the company in a new and different direction. This might include changing the board of directors, which will allow for other changes such as removing and replacing the company's executive officers.

If the board of directors agrees on a sale, the process for approving the deal will include shareholders voting on who owns voting shares. Voting shares owners might not accept an offer if they do not think that particular bid is worth what the company's value is. Depending on the types of stock issued, there are differing degrees of voting power among the shareholders. A company can reserve a specific class of shares just for the early employees, founders, and upper management. This will grant them several votes for every share they own.

They might give out extra voting shares that have only one vote for share, or they could give out shares without any voting power. An arrangement like this gives a section of stakeholders more individual voting power for any decisions that influence the organization. The various types of voting shares can also have different market values, especially if new share become available through a stock split.

What Is the Difference Between Voting Stock and Common Stock?

Common stock is what a company offers to the public to buy or sell on an exchange. If someone buys 10 shares of stock at Apple, they are buying their common stock. The following rules apply to common stock:

  • It can come with or without any voting rights.
  • When there are voting rights, every share equals one vote per issue.
  • An annual proxy statement with voting rights lets holders vote without bringing any issues up at meetings.
  • With no voting rights, the stock remains the same but the holder can't vote at the yearly meeting.

Example of How Voting Shares Work

Stocks, also called equities, represent the ownership interests in a corporation. Whether you own one stock or 500 stocks, you're still an owner of that company. Corporations sell ownership or stock in the company in exchange for cash so they can run their company. There are a variety of stocks, and what their classifications are, depend upon what rights the holder has.

Investors base their evaluations off investment objectives and seek stocks that meet their objectives. The most common categories of stock are preferred stock and common stock. Common stock has pre-emptive rights, which gives the shareholder a "right of first refusal" or the first option to buy the new stock that's issued by the company.

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