Matt Dickstein

Business Attorney

Making legal matters easy and economical for your business.

39488 Stevenson Place, Suite 100, Fremont, CA 94539
510-796-9144. mattdickstein@hotmail.com mattdickstein.com

Matt Dickstein

Business Attorney

Making legal matters easy and economical for your business.

39488 Stevenson Place, Suite 100, Fremont, CA 94539 510-796-9144. mattdickstein@hotmail.com mattdickstein.com

Business Law

Attorney for Businesses, Corporations, LLCs and Real Estate Ventures

Cumulative Voting Explained

By Matt Dickstein

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Under CA Corporations Code §708, CA requires cumulative voting for the election of directors. To invoke cumulative voting, one or more shareholders must give notice prior to the meeting of the intention to vote cumulatively.  Any candidate for whom shares are to be voted cumulatively must have been placed in nomination prior to the voting.

Cumulative voting means that each shareholder may give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder’s shares are entitled.  The equation is: [number of open director seats X number of shares = number of votes that may be cast by the shareholder].

The shareholder may also distribute the shareholder’s votes on the same principle among as many candidates as he sees fit.  In any election of directors, the candidates receiving the highest number of affirmative votes are elected.

Example: 3 directors are up for election, for 2 board seats. Assume the following cap table:

Shareholder A: 100 shares
Shareholder B: 100 shares
Shareholder C: 75 shares
Shareholder D: 50 shares
325 shares outstanding.

The shareholders each have the following votes to split up among the candidates:

Shareholder A: 200 shares
Shareholder B: 200 shares
Shareholder C: 150 shares
Shareholder D: 100 shares
650 shares outstanding.

Removal of Directors. Under CA Corporations Code §303, a majority of the outstanding voting shares may remove any or all directors; except that unless the entire board is removed, a director cannot be removed if the votes cast against that director’s removal or not consenting in writing would be sufficient to elect him by application of cumulative voting.

Example: 2 directors are to be removed. Remember the equation: [number of open director seats X number of shares = number of votes that may be cast by the shareholder]. Shareholders A, C and D are in favor of the removal of both directors, and they will split their 450 votes – 225 for the removal of Director 1, and 225 for the removal of Director 2. Shareholder B is against the removal of Director 1. Shareholder B can cast his 200 votes against the removal of Director 1, but his votes still would be insufficient. Some split of the vote from Shareholders A, C and D would be required for Shareholder B to obtain the addition votes needed to block the removal of Director 1. For example, if Shareholder D joins B, then they would have a combined 300 votes to block the removal of Director 1. This would leave Shareholders A and C with only 350 votes to split between Directors 1 and 2. Shareholders B and D would be successful in blocking the removal of Director 1. If only one director is to be removed, then the calculus becomes easier. In this case, each shareholder can only vote his number of shares, and simple percentage ownership rules. For example, Shareholders A and C can cast 350 votes in favor of the removal of the one director. Shareholders B and D can only cast 300 votes, and would lose.

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