Voting Arrangements Among Shareholders of Closely-Held Corporation

The power to elect the board of directors is held by the shareholders, and the power to elect all or a majority of the directors is held by those shareholders who own a majority of the outstanding stock of the corporation.  Under certain circumstances, the shareholders may wish to allocate voting rights in some manner other than one based upon the ownership of shares. For example, special arrangements might be used in the following instances: shareholders in a closely held corporation may want to ensure that they will serve on the board of directors; a shareholder may wish to reduce his or her ownership interest in the corporation for estate planning purposes while retaining the voting control, at least while the shareholder remains actively involved in the management of the business; and a minority shareholder may be unwilling to invest needed capital without assurances that he or she will have some ability to participate on the board of directors.

Voting arrangements may take a variety of forms, including voting trusts, voting agreements or pooling agreements, and irrevocable proxies.  For example, a corporation with two or three shareholders may have a shareholders’ agreement that ensures that shareholders’ actions may not be taken without the consent of the consent of both shareholders, when there are two shareholders, or both of the main shareholders, when there are three shareholders.  See Specialty Form at § 11:151.30 of Business Transactions Solution on Westlaw Next.  Another variant is a shareholders’ agreement that provides that actions of the board and shareholders will not be effective unless they are approved by one of the shareholders designated as the managing shareholder. See Specialty Form at § 11:151.70 of Business Transactions Solution on Westlaw Next. 

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