Difference between Cumulative and Non-Cumulative Voting Rights |
Common Stock | Financial Management
Cumulative voting is a minority voting system used by organizations that allow shareholders to vote proportionately to the number of shares they hold. This process usually benefits minority shareholders by giving them the option to focus all of their attention on a single candidate or decision point.
Cumulative voting allows shareholders to apply all votes to oneperson or to divide them up between candidates standing in the election of BOD which gives individual stockholders greater influence in shaping the board.In cumulative voting system there is accumulation of vote.
Noncumulative voting is a majority voting system in which a shareholder can only vote up to the number of shares she/he owns for a single candidate during the board elections.In non-cumulative voting system there is no accumulation of vote. The result is that a majority shareholder will elect the entire board of directors.
Suppose four people stand for the position of directors in the election and you hold 500 shares (with one vote per share), under the non-cumulative method you can vote a maximum of 500 shares for each one candidate.
With cumulative voting, you are afforded the 2,000 votes (giving you 2,000 votes total—500 votes per each of the four candidates)from the start and you can choose to vote all 2,000 votes to first candidate, 1,000 each to second candidates, or otherwise divide your votes whichever way you wanted.