In the business world, the ownership structure of the company plays an important role. One of the elements in the ownership structure that needs to be understood is “Multiple Voting Share” or “shares with multiple voting rights”.
In this article, we will explain in simple terms what a Multiple Voting Share is and how it can affect companies.
Definition of Multiple Voting Share
Multiple Voting Share is a type of share that gives the owner more voting rights than ordinary shareholders. In more understandable terms, while the common stock casts one vote per share, multiple voting shares can cast more than one vote per share.
The main difference between multiple voting shares and common stock is the voting rights. Owners of multiple voting shares have greater power in making important decisions within the company, such as selecting members of the board of directors or approving important changes in the company.
Mechanism of Multiple Voting Share
Multiple Voting Share is implemented in the company’s ownership structure by giving several shares to the owner with multiple voting rights. For example, a person could own 10 shares with multiple voting rights, which means he or she has 20 votes at a shareholder meeting.
In the shareholder meeting, votes will be counted based on the number of shares with multiple voting rights. This means that shareholders with multiple voting rights have greater influence in making corporate decisions. By having more voice, they can influence the direction of the company and the decisions it makes.
The application of this mechanism allows owners with multiple voting shares to have greater control within the company, and this can have an impact on strategic decisions and the direction of the company’s business.
Implications of Multiple Voting Shares
Multiple Voting Share has several important implications in the company. Here are some of them:
A. Benefits for shareholders with Multiple Voting Share:
Shareholders with Multiple Voting Shares can experience several benefits, such as:
1. Greater control: By having more voice, they can influence key decision-making within the company.
2. Protection of long-term interests: Shareholders with multiple voting rights can safeguard the company’s long-term vision and goals, as they have greater influence in determining the direction of the company.
B. Potential risks and issues:
However, there are also risks and problems associated with Multiple Voting Shares, such as:
1. Imbalance of power: Multiple Voting Shares can result in an imbalance of power among shareholders. Owners with multiple voting rights can dominate decision-making without much consideration of the opinion of common shareholders.
2. Lack of control and protection: Common stockholders have more limited voting rights, which means they have less control and protection over important corporate decisions.
Example of Using Multiple Voting Share
Some well-known companies that implement Multiple Voting Shares include:
1. Google (now Alphabet Inc.)
By the time the company made its initial public offering (IPO) in 2004, founders Larry Page and Sergey Brin owned stock with dual voting rights. This allows them to maintain strong control over strategic decision making, even though they have smaller shareholdings.
2. Facebook
Mark Zuckerberg, the founder of Facebook, also uses the Multiple Voting Share structure to maintain control over the company. This allows Zuckerberg to still have a strong influence on important decisions at Facebook.
These examples illustrate how Multiple Voting Shares are used by the founders or major shareholders to maintain their control and influence within the company, even after the company has gone public.
There are several reasons why companies choose to implement MVS in their ownership structure:
* Control and Stability: MVS provides controlling shareholders with the ability to maintain long-term control and stability over the company. By having more say in the election of directors and important decisions, controlling shareholders can protect their interests and prevent unwanted changes in company management.
* Protection against Takeover: In the case of attempted takeover of a company, MVS can provide protection to the controlling shareholder by giving a greater say in the decision. This makes takeovers more difficult and gives the controlling shareholder more bargaining power in negotiations.
* Trust and Credibility: MVS can provide trust and credibility to controlling shareholders in making strategic decisions. By having more voice, controlling shareholders can demonstrate their long-term commitment to the company and provide confidence to the market and business partners.
Although the MVS provides additional powers to the controlling shareholder, it can also create several issues or controversies:
* Injustice: Some argue that MVS violates the principle of equal voting rights among shareholders. This can lead to injustice because the controlling shareholder has disproportionate control over the company.
* Lack of Accountability: The additional power provided by the MVS can result in a lack of accountability towards minority shareholders and their interests. Controlling shareholders can easily make decisions that benefit themselves without considering the interests of all shareholders.
* Disruption of Innovation and Efficiency: A strong MVS structure can stifle innovation and efficiency within a company. When controlling shareholders have full control, they may tend to prioritize their own short-term interests over innovative initiatives or efficiency efforts that can support a company’s long-term growth.
The Debate on Multiple Voting Shares
There is debate about the existence of Multiple Voting Shares. Its proponents argue that this allows the original owners or founders of the company to maintain a strong long-term vision and control within the company. However, critics argue that this creates an unfairness in voting rights and can undermine the opinion of common shareholders.
The views of regulators and related parties are also an important factor in this debate, because they can influence policies and regulations related to Multiple Voting Shares in various jurisdictions.
So, that’s our discussion about multiple voting share. Even though these shareholders have great “power” in determining the direction of company policy, these types of shares are usually rarely issued or only issued to certain people, such as company founders, angel investors and others.
In addition, multiple voting shares are different from majority shareholders. This means that even though the owners of multiple voting shares have more votes, most of the company’s profits, which are distributed as dividends, will be owned by the majority shareholders.
