Vote Pooling: What It Is and Its Implications

Shareholders are entitled to a lot of rights within their corporation. Chief among them are information and voting rights. When voting, shareholders can often turn to different strategies to ensure their voice is heard best. Chief among these tactics is vote pooling. Vote pooling is a legal way where shareholders can agree to vote the same way. It is important to understand how vote pooling works, and what it entails.

Vote pooling is a tactic whereby shareholders can agree ahead of time as to how they will vote for directors. In the 1999 case of Ringling Bros. v. Ringling, the Supreme Court looked extensively into vote pooling agreements. There, three major shareholders had agreed ahead of time, to vote in five of the seven directors, and if they couldn’t agree on the fifth director, their attorney would arbitrate and decide the fifth candidate. The court held that this agreement was entirely legal. Even though they had passed on their voting rights to a third party, which is generally impermissible, the bestowing of such a right was merely nominal.

The voting agreement can be among any number of shareholders. The voting rights are then transferred to a third party, as in the case of Ringling Brothers case. As such, the individual shareholders vote in a uniform way. It is therefore much more difficult to sway the votes of these shareholders because they agree ahead of time to vote together.

Vote pooling is a relatively new phenomenon. Having read this article, you should be able to now recognize when it is occurring, and the fact that is legal. Voting agreements technically go against most trends in corporations, whereby other parties generally are not allowed to have rights in the corporation. To ensure your voting agreement is in line with corporate norms, it may be best to consult an experienced attorney. Call the Trembly Law Firm at (305) 431-5678 today to schedule your consultation.