The voting system is a significant feature of any voting conducted by the board of directors or shareholders. It is chosen at the direct opening of various companies. Voting is standard in different societies by the usual method, assuming that one vote is equal to 1 share. But often the charter provides for cumulative voting.
The concept
The cumulative voting system implies the possibility for a minority of shareholders to have a representative on the board of directors, which is why they significantly influence decisions made regarding capital or other important issues.
This method is used during the election of representatives to the board of directors in various joint stock companies, which may be open or closed. The procedure is that the shareholder has votes equal to the number of shares multiplied by the number of seats on the board of directors.
Each shareholder can distribute them among a different number of candidates.
How does the system work?
Cumulative voting allows you to fairly distribute votes, so even shareholders with a small number of shares influence decisions. With the help of this mechanism, the collegial body of the company that is optimal in composition is formed.
The principle of operation of such a system is prescribed in the Federal Law No. 208, and the law does not indicate the need for its application in LLC. It is allowed to provide this opportunity in the charter of the company.
The main advantage of this method of voting is that there is no concentration of only individual shareholders in the board of directors, which leads to the fact that unanimous and not always correct decisions are made regarding the development of the company. This action becomes the reason on the basis of which investors refuse to invest in the expansion of the organization.
Cumulative voting allows each shareholder to participate equally in decision-making, and this attracts investment.
How are votes distributed?
Cumulative voting on the board of directors allows shareholders to distribute votes in fractional parts, so you should understand the features of this process. It is assumed that all votes in one participant are represented by 100 percent, and they are distributed in percentage terms among different participants. After counting, the percentages are converted into absolute indicators, which will allow to summarize the voting results.
This approach has many advantages:
- the distribution of votes reduces the possibility of errors, since the standard method often uses numbers of four or five values, and the counting commission can quickly and easily convert percentages into absolute indicators;
- in the ballots, on the basis of which cumulative voting is carried out, there is no data on how many shares belong to a particular shareholder, and this allows sending them to voters 20 days before the meeting.
Due to the preliminary sending of ballots, it is possible for a shareholder to draw up a power of attorney for another person if he himself for some reason cannot participate in the meeting.
Example
An example of cumulative voting is considered simple. For example, a shareholder has 121 votes. When voting, he divided them equally between two people who are candidates for the board of directors.
Each candidate received 50%, and when converted to absolute indicators, it turns out that each of them received 60.5 votes.Such a translation leads to the appearance of fractional values. Some experts allow this, while others consider it impossible.
Is it possible to split votes?
Cumulative voting in the election of the board of directors involves the use of interest, so often in the distribution of votes fractional values are obtained. This leads to disputes between specialists. Some allow the distribution of only whole votes, while others allow fractional values. Each point of view has its own characteristics.
Exceptionally whole votes are the key to making the right decision
Some experts are sure that fractional division contradicts Federal Law No. 208, although there is no direct prohibition in this normative act.
The emphasis is on the fact that the law indicates the distribution of precisely “votes” represented by the plural, therefore it is considered that it is impossible to divide one vote. Therefore, many shareholders consider cumulative voting at the general meeting of shareholders illegal.
Also, this view refers to the fact that each share is represented by one paper, therefore it is impossible to divide it into two parts.
Fractional division is a legal process
Another point of view on cumulative voting allows using fractional division. The law does not explicitly prohibit the use of this system.
It is in the Federal Law No. 208 that cumulative voting does not imply equating shares with votes, therefore it is possible to use several votes. They are shared between different participants.
The nuances of using such a system in LLC
Cumulative voting in the LLC is often used. However, usually there are no questions regarding crushing. This is due to the fact that each member owns the number of votes that is equal to his share in the authorized capital.
A share is allocated either as a percentage or as fractional numbers, so it is really convenient to use such a system when making different decisions or for a new founder.
What are the difficulties of the system?
The use of cumulative voting is accompanied by the appearance of certain difficulties. These include the following:
- you have to work with fractional numbers and different percentages;
- due to the distribution of votes between different candidates, the voting procedure is complicated;
- it takes a long time to translate the votes represented by percentages into absolute values, and for this you need to use computer technology, and often this process takes more than 15 days;
- many shareholders refuse to understand the principle of operation of this technology, therefore they simply do not understand how they should vote.
The advantages of this method include minimizing the fact that errors can be made in the calculation.
Thus, cumulative voting appeared relatively recently, but quickly became popular, as it is considered convenient for many shareholders. Due to this system, they can cast their votes not for one candidate, but for several representatives. Its use for LLC is especially actual. There are proponents and opponents of this method, and each of them brings their arguments. The decision on the use of cumulative voting is made by the founders of the company and entered into the Charter.