Purchasing a stock makes you a shareholder of a company, but does it give you the right to weigh in on how a company is run?
In most cases, you don’t get a direct say in a company’s day-to-day operations, but, depending on whether you own voting or non-voting stock, you may have a hand in shaping its board of directors and deciding on special issues.
Key Takeaways
- Buying a share of a company makes you a shareholder, but it does not give you a say in the day-to-day operations of a company.
- Shareholders own either voting or non-voting stock, and that determines whether they can weigh in on big-picture issues the company is considering.
- Someone with voting stock has the right, but not the obligation, to vote on the company’s board of directors or other business matters.
Voting Stock
If you own voting stock and you’re a shareholder of record when a decision must be made through a vote, you have a right to vote on it. The right to vote for a company’s directors or on a specific business decision is similar to the right to vote for an elected government office, e.g. a senator or local mayor, or on an issue put to a ballot vote.
As a registered voter, you aren’t obligated to vote. Also, you don’t really get a direct say in daily government operations (although you do vote on the people who do). The one main difference between voting as a citizen and voting as a shareholder is that if, as a shareholder, you choose not to submit your vote, there is the possibility that a default choice will be made regardless of your true desires. That’s why it’s important to carefully read the fine print on the proxy form sent to you.
Non-Voting Stock
A non-voting stock doesn’t allow you to participate in votes affecting shareholders and the company. With this class of shares, investors forfeit their right to have a say in the direction of the company for what is often an incremental stock price advantage over voting shares.
Voting vs. Non-Voting Stock Example
For example, Alphabet Inc. (the company formerly known as Google) split its stock in 2014 into three classes of shares to preserve the control of founders Larry Page and Sergey Brin. Class A (GOOGL) shares are held by regular investors with regular voting rights.
Class B shares (which don’t typically trade in the open market) are held by the founders and have 10 times the voting power of the Class A stock. Class C (GOOG) shares have no voting rights and are normally held by employees and Class A stockholders.
While the two classes of stock have historically tracked each other in price movement, those voting rights will cost you more, as GOOGL shares typically trade at a premium to the GOOG shares. However, this is not always the case. For example, on Dec. 9, 2024, GOOGL shares closed at $175.37, while non-voting GOOG stock closed at $177.10.
Who Decides?
Not all companies offer these two different types of stock and not all types of voting stock have the same voting rights. If you are interested in playing a part (albeit a very small one) in the decision-making processes of a company, make sure you buy the right type of stock.
What Do Stock Voting Rights Allow Shareholders?
Voting rights allow shareholders to participate in company decisions. Depending on the specific share/company, voting rights allow shareholders to vote on board elections, mergers and acquisitions, dividend payouts, new issues, executive compensation, and more.
What Are Shareholders Not Allowed to Do?
While some shareholders have voting rights, allowing them to make some company decisions, such as electing board members, they are now allowed to participate in every facet of a company. Shareholders are not allowed to participate in the day-to-day management of a company. This includes business strategy, hiring/firing employees, and deciding rules around paid leave.
Can a Shareholder Sell Their Shares to Anyone?
Yes, shareholders can sell their shares to anyone, as long as they abide by all laws. In general, shares are bought and sold on stock exchanges, so shareholders aren’t directly selling to an individual. If they wanted to sell their shares, they would just sell them through their brokerage account without needing to know the other side of the transaction.
The Bottom Line
When you buy company stock, you become a shareholder. Depending on how the company structures its stock will depend on how much influence you have in company decisions. Stocks that come with voting rights allow shareholders to vote on certain company decisions, such as board elections and mergers.
Stocks with non-voting rights do now allow shareholders much say in the company. When purchasing shares, ensure that the rights offered align with your investment goals. It may be that you are not interested in participating in company decisions, which in that case, voting or non-voting rights will make no difference to you. Conversely, if you would like to participate in company decisions, you will want stocks with voting rights.