Legal Definitions - voting security

A voting security refers to an ownership interest in a company, most commonly in the form of shares of stock, that grants the holder the right to cast votes on certain corporate decisions. These decisions typically include the election of the board of directors, approval of major transactions like mergers or acquisitions, and amendments to the company's foundational documents. The number of votes an owner can cast usually corresponds to the number of voting securities they hold, giving them a say in the company's governance and strategic direction.

• Example 1: Individual Shareholder Participation

  Sarah owns 500 shares of common stock in "GreenTech Solutions Inc." Each year, GreenTech Solutions holds an annual meeting where shareholders vote on various proposals, including the election of new board members. Sarah receives a proxy ballot allowing her to cast her votes.

  Illustration: Sarah's 500 shares are voting securities because they entitle her to cast 500 votes on critical company matters. This right allows her to participate in the democratic process of corporate governance, influencing who sits on the board and what major decisions the company undertakes.

• Example 2: Institutional Investor Influence

  "Horizon Capital," a large investment fund, holds 20% of the outstanding common shares of "Global Pharmaceuticals Corp." Global Pharmaceuticals is considering a significant merger with a competitor, a decision that requires approval from its shareholders.

  Illustration: The 20% of common shares held by Horizon Capital are voting securities. This substantial block of votes gives Horizon Capital considerable power to influence whether the merger will be approved. Their votes are crucial for reaching the necessary majority, allowing them to either support or oppose the deal based on their investment strategy and assessment of the merger's impact.

• Example 3: Startup Founder Retaining Control

  Maria, the founder of "Future Innovations," structured her company with two classes of stock: Class A (which carries voting rights) and Class B (which does not). When seeking investment, she sells Class B shares to venture capitalists but retains all of her Class A shares.

  Illustration: Maria's Class A shares are the voting securities that ensure she maintains control over the company's major decisions, such as appointing key executives or approving a sale of the company. Even though the venture capitalists might own a larger percentage of the company's overall equity through their non-voting Class B shares, Maria's voting securities allow her to steer the company's strategic direction.