Under a voter agreement, two or more shareholders in a company agree to pool their voting power for a common objective.
- Creating a coalition of shareholders that promise to vote in the same manner
- Polling shareholders about how they will vote on important issues in advance of an annual meeting.
Because they are entitled to vote on major business decisions, shareholders can play an important part in how a company is managed. While day-to-day management of a corporation is carried out by officers appointed by the corporate board of directors, shareholders can exert indirect control over a company by appointing and removing board members or by passing resolutions at annual meetings. Additionally, certain company decisions that affect shareholders’ rights, such as the amendment of certain bylaws and the execution of some major transactions, require shareholder participation.
Depending on how a company is capitalized and organized, there could be thousands of shareholders. Because voting rights are typically proportional to the number of shares held by an individual investor, often there is no individual or small group of investors who can swing a shareholder vote. In order to consolidate power among the shareholders most interested in managing the company, investors can enter into voting agreements.
Under a voting agreement, shareholders commit to how they will vote in advance of the actual decision. Voter agreements can be helpful to investors who wish to have more control over corporate management, and they can be useful in predicting how a particular decision will be made in advance of a shareholder meeting. By using this interactive voting agreement, investors can pool their power into a coalition of like-minded individuals. Alternatively, business managers can use this voting agreement to get an idea of what shareholders are likely to decide at upcoming meetings.