Shareholder voting rights

Short definition

Shareholders have what is known as voting rights, the right to vote on certain decisions at the general meeting of the listed companies in which they hold shares. Whether and to what extent this right exists depends on various factors. Since the votes at the general meeting determine, among other things, the overall return on the shareholders’ share investment, it is worthwhile to exercise the right to vote at the general meeting.

What are the shareholders’ rights to vote?

The right to vote in a stock corporation is the right of a shareholder to participate with a certain voting weight in votes at the annual general meeting (AGM) of the listed companies in which the shareholder holds an interest. Private investors in particular often leave their shares with the custodian until the time of sale and merely wait for the most ideal time to sell.

Since shareholders are owners of parts of the company, it is highly plausible that they have a say in the respective public limited company via the voting right. The voting right in the listed company is exercised at the general meeting. In addition to the possibility of exercising the voting right, the AGM also offers shareholders the opportunity to learn more about the public company and its development.

Does every share include voting rights?

No, not every share necessarily gives the investor voting rights. Depending on the type of share, voting rights in the listed company may be excluded. The purchase of preference shares does not include voting rights. While preference shareholders have no voting rights, holders of ordinary shares, on the other hand, do have voting rights.

Voting rights are also excluded for treasury shares, i.e. shares held by the company itself. Members of the supervisory board and management board who hold shares in their company are also excluded from participating in a vote if the vote concerns their own rights and obligations and compliance with them. Another situation where a shareholder might be denied the right to vote in a listed company is when the upcoming vote concerns another company that is dependent on the shareholder. Depending on the situation, the right to participate in the vote may be completely excluded or limited in this circumstance.

How does the voting right in a publicly traded company work?

Holders of ordinary shares have voting rights in the respective listed company. At the AGM, which has to be held once a year, they have the right to participate in the votes that take place. The voting weight with which an investor participates in the AGM votes depends on the number of shares held by the shareholder. The more shares an investor owns, the higher the weight of his vote. It is therefore particularly important for publicly traded companies to build and maintain a strong relationship of trust with relevant shareholders with large stakes in the company as part of their investor relations work.

To exercise one’s own voting rights in the public limited company, participation in the AGM is initially a prerequisite. However, investors have the option of being represented either by an authorised person or by the bank where the investor’s securities account is held. Depending on the statutes of the respective listed company, the option of a postal vote may also be exercised.

In order to participate in the general meeting and to exercise the voting right in the listed company, the shareholder requires an invitation and admission ticket to the AGM. The shareholder’s custodian bank blocks the shareholder’s shares in the respective company. This blocking remains in place until the following day of the AGM. This ensures that only shareholders can exercise their voting rights at the AGM.

To which votes does the voting right apply at the general meeting?

The voting right within a public limited company serves to vote on the following points at the general meeting:

  • The so-called discharge of the board of directors and the supervisory board – this is about expressing confidence in the members of these groups of persons.
  • The salaries of the executive board – within the framework of the “say on pay” principle, a vote is taken on the amount of remuneration to avoid remuneration that is considered unreasonably high.

  • The election of supervisory board members – the voting rights in public limited companies also include this election, which is usually held every four years.
  • The amount of the dividend or the appropriation of the balance sheet profit – this gives investors the opportunity to influence the overall return on their investment. This makes exercising voting rights in the listed company particularly worthwhile.

When shareholders are invited to the general meeting, they also receive the agenda directly with the invitation. It lists all upcoming decisions.

Legal framework for the exercise of voting rights in public limited companies

Shareholder rights such as voting rights at general meetings have been strengthened by the first and updated second Shareholder Rights Directives (Directive 2007/36/EC and 2017/828). The aim of the EU Directives is to strengthen shareholders’ rights, facilitate their exercise and improve the flow of information from issuers to the investment community.

As the Shareholders rights directive I and II (SRD I / SRD II) was to be individually implemented by each EU state into national legislation, the exact legal framework for shareholder’s voting rights may vary by country. As an example, the following describes the legal framework for shareholders’ rights to vote in Germany, as it was implemented into the German Stock Corporation Act (German: Aktiengesetz / short: AktG).

Example: shareholder voting rights in Germany

Provisions specifying under which conditions and in which form the voting right in the public company can be used by shareholders can be found in the articles of association of the respective company (§ 134 para. 4 AktG). Pursuant to § 123 (2) AktG, participation in voting at the AGM can be made dependent on registration for the AGM. The reason for this common practice is that this is the only way for public companies to anticipate how many shareholders will show up at the AGM.

The Law on Corporate Integrity and Modernisation of the Right of Avoidance (UMAG, which came into force in November 2005) reformed the voting rights of public limited companies. As a result of the UMAG, shareholders must submit a certificate of share ownership to exercise their voting rights. This certificate is issued by the depository bank. The following applies in this regard:

  • The certificate must refer to the 21st day before the AGM (“Record Date”).
  • The certificate must be received by the public limited company at the latest on the seventh day before the AGM.

Pursuant to § 67c AktG, intermediaries holding shares in custody for shareholders are obliged to support the flow of information from the issuers to the shareholders. They must forward notifications and invitations to general meetings to shareholders and are also responsible for the information backflow, for example if the listed company needs information on the identity of shareholders to enable them to exercise their rights. The information flow back can be either along the intermediary chain or directly from the ultimate intermediary to the issuer. It is up to the shareholder to decide which route is to be used and to communicate this through appropriate instructions.

Pursuant to § 118 para. 1 AktG, the receipt of the vote in the case of electronic voting, which is common in the context of virtual general meetings, must be confirmed electronically by the stock corporation.

Pursuant to § 129 (5) AktG, shareholders have the opportunity to receive confirmation within one month after the AGM whether and how their vote was counted, i.e. whether they were able to exercise their voting rights in the public limited company in accordance with the law.

Shareholder identification: basis for exercising shareholder and voting rights

Since shares are often held through long chains of custody consisting of several intermediaries, making public companies initially unaware of who exactly their shareholders are, notifying shareholders of the convening of the general meeting at which voting rights are exercised can be a challenge. It is almost impossible to do this manually. For this reason, the WM-SRD Hub offers efficient solutions for intermediaries, issuers and service providers that enable time-efficient and accurate shareholder identification and notification.

Contact me for your querires or questions!

Edgar Neves Head of Sales – Financial Markets & Regulation

Edgar Neves
Head of Sales – Financial Markets & Regulation

+49 – (0) 69 – 2732 – 577


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