Stockholder Tenure And Voting Rights

A recent post by Broc Romanek linked to a MarketWatch article critiquing the new Long Term Stock Exchange.  The article mentions that "The LTSE has also proposed 'long-term voting rights,' wherein a shareholder’s voting power is commensurate with how long they have held the particular stock."  Although new to me, the concept of tenured voting rights is not new.  In 1997, the Delaware Supreme Court upheld a tenured voting amendment to a corporation's certificate of incorporation whereby all shares would be granted multiple votes which would be lost at transfer and then regained by the transferee after holding the shares for a certain period of time.  Williams v. Geier, 671 A.2d 1368 (1996).

Under the California General Corporation Law, each outstanding share has one vote with two exceptions.  Cal. Corp. Code § 700(a).  The first exception is for cumulative voting and the second is if the articles provide otherwise.  Another provision of the GCL, prohibits distinctions between the holders of shares, again with two exceptions.  Cal. Corp. Code § 203.  Thus, this requirement can be overridden by either the articles of incorporation or a "shareholders agreement".  These provisions suggest that a tenured voting provision could be written into the articles.  However, another provision of the GCL requires that all shares of any one class have the same voting rights unless the class is divided into series.  Cal. Corp. Code § 400(b).  It is therefore questionable whether a tenured voting scheme would comport with this requirement.

Note to readers:  As defined in the GCL, the term "shareholders agreement" does not include any agreement among shareholders.  Rather, it is limited to written agreements among all of the shareholders of a close corporation (defined in Section 158) or, if the close corporation has only one shareholder between the shareholder and the corporation.  Cal. Corp. Code § 186.