What is a Voting Agreement and How Does it Work?
A voting agreement is a legal contract between shareholders or members of a corporation or limited liability company. The agreement sets out the terms and conditions governing how the shareholders or members will vote on certain matters related to the company.
The voting agreement is usually signed when the company is formed, and it can be amended as the company grows and changes. It is a useful tool for ensuring that the company`s decision-making process is efficient and effective. Here are the key features of a voting agreement:
1. It defines what matters require a vote: The agreement will outline the types of matters that require a vote from the shareholders or members. For example, it could be a major acquisition, a merger, or a change in the company`s bylaws.
2. It specifies how the vote will take place: The voting agreement will also establish how the vote will be conducted. Will it be a simple majority vote, or will it require a supermajority (two-thirds or more)? Will shareholders be allowed to vote by proxy, or must they be present at a meeting to cast their vote?
3. It determines who can vote: The agreement will set out which shareholders or members are eligible to vote on the matters outlined in the agreement. It may, for example, exclude certain classes of shareholders or members from voting on certain issues.
4. It lays out penalties for noncompliance: The voting agreement may include penalties for shareholders or members who do not comply with the agreement`s terms and conditions. For example, a shareholder who votes against the agreement may be required to sell their shares or forfeit certain rights.
Overall, a voting agreement is a useful tool for ensuring that a company`s decision-making process is efficient and effective. It sets out the terms and conditions governing how shareholders or members will vote on certain matters related to the company. If you are considering forming a corporation or limited liability company, it is a good idea to consult with legal counsel to see if a voting agreement is appropriate for your business.