What are Voting Shares

A voting share is a type of equity that grants the shareholder the right to participate in corporate governance through voting on various matters that affect the company's future. This includes deciding on board elections, approving mergers and acquisitions, and making decisions regarding changes in the company’s capital structure, dividends, and other key policies. Unlike non-voting shares, voting shares allow investors to directly influence the company’s management and strategic direction, making them an essential tool for those who wish to actively engage in the company’s decisions.

Voting shares enable shareholders to vote on major corporate actions, like electing board members, approving significant acquisitions, or deciding on executive compensation. Having voting shares means being part of the process that shapes a company’s future, which is especially valuable for long-term investors who seek to protect their investment and ensure the company’s leadership is accountable. For those who are active investors, this voting right is a fundamental part of exercising ownership and participating in the company's growth trajectory.

Common Shares

All common shares usually carry voting rights. The standard setup is one vote per share, though some companies offer several votes per share.

Dual‑Class Share Structures

Some companies issue multiple classes of shares, for instance:

• Class A – Typically with one vote per share
  

• Class B – May carry 10‑20 votes per share

Dual‑class structures allow founders or major investors to retain control while still raising capital publicly.

Owning voting shares brings several advantages:

Influence over Corporate Decisions

Voting shares allow shareholders to participate in key decisions like electing the board, approving mergers, and deciding dividend payouts, giving them a say in the company’s direction.

Accountability and Governance

By exercising voting rights, shareholders ensure that company leadership is held accountable, fostering better governance practices and alignment with shareholders' interests.

Potential Long‑Term Value

Voting shareholders can contribute to the company's growth by having a voice in its strategies, potentially increasing long-term value through effective corporate governance.

While valuable, voting shares come with certain concerns:

Concentrated Control

In companies with dual-class shares, insiders may have more voting power, which can reduce transparency and accountability, making it harder for ordinary shareholders to influence decisions.

Illiquid Shares

Some voting shares, especially those with multiple votes, are often concentrated in the hands of insiders, limiting their market liquidity and making them harder to buy or sell.

Misalignment

In cases where management holds a significant portion of voting shares, decisions may be made that benefit insiders more than minority shareholders, leading to potential conflicts of interest.

Shareholders typically vote through:

• Proxy
  Companies send proxy statements before Annual General Meetings (AGMs), allowing votes to be cast without attending in person.
  

• Attending Meetings
  Shareholders can attend AGMs and vote live.

In India, the majority of companies follow the "one-share, one-vote" principle, ensuring that each share held by an investor carries equal voting rights. This model promotes fairness in corporate decision-making. However, dual-class share structures, where certain shares carry more votes than others, are permitted but remain rare. These structures are subject to closer regulatory scrutiny to prevent the concentration of decision-making power in the hands of a few insiders, protecting the interests of minority shareholders.

For long-term investors who wish to have a say in the companies they invest in, voting shares are important. They provide the ability to influence critical decisions, such as mergers, acquisitions, and leadership changes. However, for passive investors or those investing in index funds, voting rights may not hold significant value, as these investors typically don’t seek to influence company operations directly. Nonetheless, voting shares offer a formal channel for voicing concerns or approving major changes within the company.

Voting shares play a crucial role in corporate governance by giving investors a voice in the company’s strategic direction. This is especially valuable for long-term investors who want to influence key decisions that could impact the company's future. On the flip side, dual-class share structures, although uncommon in India, can limit the rights of ordinary shareholders, concentrating power in the hands of a few, which can raise concerns about fairness and accountability.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.