Voting Shares Meaning Examples How Does It Work

What are Voting Shares?

Explanation

Voting shares give the holder of it the power or authority to decide how the company’s management should look, especially regarding the selection of the board of directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. read more. It gives the investor the authority to decide how the corporate policy of a particular company should be framed and has the power to accept or reject certain critical decisions like acquisitionAcquisitionAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion.read more or mergersMergersMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more or buyback. Holders of this share will generally receive constant updates or communication from the company about matters where their vote is required to decide on affairs related to the company’s decision-making.

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How Does it Work?

Stock or shares of a company generally means equity ownership of the company holding one or a million shares matters the same, i.e., and One is considered the owner of the company. Companies also use this distributed ownership model to raise capital for the company and use it for further operations or expansion. Thus, we primarily have two types of shares: voting or common shares and preferred sharesPreferred SharesA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more. Here we are going to talk about how does it work.

Example of Voting Shares

Let’s take an example of the type of shares issuedShares IssuedShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner’s equity on the Company’s balance sheet.read more by the internet giant Google. Google has three types of shares that it issues, and they are as follows: Class A, Class B, and Class C. The three shares are distinctive in their ways.

Class A: These are common shares that Google issues and are held by investors who are given the voting rights and thus the power to vote in the company’s policy-making scenarios and also frame the board of directors.Class B: B SharesB SharesB Shares are a mutual fund share type which work with the “back-end load” structure, i.e., shareholders can pay the commission at the end of the investment period. Moreover, they might contain more or less voting rights as compared to the Class A shares. read more are held only by the company’s founders and have ten times more voting authority than Class A sharesClass A SharesClass A shares represent the common stocks category, which provides the shareholders with superior rights to voting, conversion, ownership, dividend, and liquidation. These shares cannot be publicly traded in the open market and are generally allotted to the company’s top management.read more. These shares are very limited in numbers, and the persons holding them are only a few. These are not traded among the public too.Class C: They are more like preferred shares where it is commonly traded among the public and have no voting rights in the company affairs or policy-making scenarios.

Advantages

The returns generated from this are proven to be rewarding regarding capital gains and dividends received.The holders of such shares can participate in the company’s decision-making and its policies.They can issue a kind of internal corporate governing methodology through the practice of their voting rights.They have a certain degree of freedom to dictate how the company should be run and who should be on the board of directors.The number of shares one owns is equal to the number of votes; thus, their opinion becomes even stronger when they own a massive chunk of the shares.Though dividend is not guaranteed, there may be issues with some dividends if the company feels like it.When they are issued, the power gets distributed evenly. It is not held by a few people or the company owners and their families. It brings about the distribution of ownership and transparency.The decision making becomes much more democratic in case of the issue of voting shares, and a lot of people get involved.The legal liabilities pertaining to the shareholders are limited and restricted.The shares are very liquid and can be easily traced.

Disadvantages

They are the last ones to receive compensation in times of bankruptcy since preferred shareholders need to get paid first.The dividend they receive is not guaranteed as preferred shareholders need to get paid on a guaranteed basis.It is a high-risk associate’s investment because if the company fails to perform or goes bankrupt because the shareholders have to straightaway part off with their investments.Voting shares are limited and not issued in huge numbers like the preferred shares, so the common public accessing such shares is complicated.

Conclusion

Voting shares have both upsides and downsides. On the one hand, where the holder enjoys the power to vote and get involved in the crucial decision-making scenarios of the company, on the other hand, there is also a high risk involved because once the company gets bankrupt, his/her investment can go for a toss. Also, the shares issued in these criteria are limited in numbers, so it is very tough to access such shares unless one has a stronghold with the company’s management. They play a bigger role in terms of the count of shares because the more shares one holds, the more votes one is allotted because one share is typically counted here as one vote.

What are Voting Shares?#

Explanation#

How Does it Work?#

Example of Voting Shares#

Advantages#

Disadvantages#

Conclusion#

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