What is a shareholder voting agreement and when can it be enforced?

Website design By BotEap.comA shareholder voting agreement is a legal contract between shareholders of a corporation related to the voting of shares. The shareholder voting agreement often covers how the members of the Board of Directors will be chosen, and sometimes covers major corporate events, such as mergers and acquisitions. Venture capital investors often expect a shareholder voting agreement to be executed in relation to their investment in a start-up company.

Website design By BotEap.comVoting agreements can be enforced in accordance with state statutes enacted in all 50 states. For example, the relevant statute of the Indiana State Statutes reads: Sec. 2.

Website design By BotEap.com(a) Two (2) or more shareholders may foresee the way in which they will vote their shares by signing an agreement to that effect.

Website design By BotEap.com(b) A voting agreement created under this section is not subject to the provisions of section 1 of this chapter.

Website design By BotEap.comOften times, shareholders may choose to pool their votes for a particular objective. Voting agreements may specify that the shareholders involved will vote their shares together or cooperatively. Courts generally uphold shareholder voting agreements as long as they relate to matters on which shareholders can vote.

Website design By BotEap.comFor example, let’s say Don and Mike are shareholders of Detric Pesticide, Inc. Let’s say neither of them likes Ben, another shareholder, and they want to formally agree that neither of them will ever vote for Ben for a seat on the board. of Directors. In addition, they also include a provision according to which if they are defeated in this matter, they will try to convince the company to pay Ben less than the other directors.

Website design By BotEap.comIn this scenario, the first part of the agreement is valid because it relates to an issue on which Mike and Jessica can vote. They can legally agree, through shareholder voting agreement, not to vote for Ben. However, the second provision cannot be enforced as a shareholder voting agreement because Ben’s payment is at the discretion of the board of directors and will not be submitted to a shareholder vote.

Website design By BotEap.comVoting groups can specify exactly how participating shares should be voted, or they can allow negotiation and agreement for each individual issue. Many groups of voters include an alternative dispute resolution procedure to reach an agreement on such issues.

Website design By BotEap.comSome states require that groups of voters follow specific guidelines to be valid. These laws may limit the duration of a shareholders agreement or may require shareholders to deposit a copy of the agreement with the corporation. If one party to a valid voting agreement violates the agreement, the other parties can sue the uncooperative party. The courts may require the dissenting shareholder to vote in accordance with the agreement, or they may disqualify votes in violation.