Class Voting / Series Voting
The requirement that holders of a particular class or series of shares vote separately, as a class, on a specified matter. Substantially modified by SB 29 effective May 14, 2025, permitting Texas corporations to waive class and series voting in their certificates of formation.
Class voting (or series voting) is the requirement that the holders of a particular class or series of shares vote separately, as a class, on a specified matter. Where class voting is required, the matter must be approved by both the corporation's overall shareholder vote and the separate vote of each affected class, giving each class effective veto power over actions that disproportionately affect it.
The pre-SB 29 default
Unless the certificate of formation provides otherwise, the statute requires a separate class or series vote on certificate amendments that would, among other things, change a class's authorized shares, par value, or rights and preferences (§ 21.364(d)), and, among other cases, on a merger, conversion, or share exchange in which the class's shares are converted or exchanged (§ 21.458(a)-(b)). A class votes separately on a sale of all or substantially all assets only if the certificate of formation gives it that right. § 21.458(c).
The SB 29 change (eff. May 14, 2025)
Under § 21.365(b)(2), added by SB 29, the certificate of formation may provide that all classes and series vote only as a single class, with no separate class or series vote, on any matter, including fundamental actions and fundamental business transactions. Amended § 21.364(d)(1) separately allows the certificate of formation, or a qualifying amendment, to permit a class's authorized shares to be increased or decreased, but not below the shares outstanding, by a majority of the stock entitled to vote.
Strategic significance
Amended § 21.364(d)(1) tracks the authorized-share provision of Delaware General Corporation Law § 242(b)(2). Section 21.365(b)(2) goes further than Delaware, which still requires a separate class vote on an amendment that would adversely change a class's powers, preferences, or special rights. For a Texas corporation with several preferred series, a waiver can reduce the number of separate votes a transaction needs.
The waiver requires affirmative election in the certificate of formation; existing Texas corporations seeking the benefit must amend their certificates. The waiver is most relevant for venture-stage, growth-stage, and pre-IPO Texas corporations with complex preferred-stock structures. Closely-held corporations with single-class structures are unaffected.
Companion article: Raising Capital in Texas