Cumulative Voting

Cumulative voting is a method of voting in director elections that gives each shareholder a number of votes equal to the number of shares held multiplied by the number of directors to be elected, with all such votes castable for a single candidate or distributed among multiple candidates. It enables minority shareholders to elect at least one director when their ownership stake is sufficient to overcome the relevant mathematical threshold.

Texas default

Texas is an opt-in cumulative-voting state. Under §§ 21.360 and 21.361, shareholders do not have the right to cumulate their votes unless the certificate of formation expressly provides for cumulative voting. Corporations incorporated before September 1, 2003 are treated differently. Their shareholders keep the right to vote cumulatively unless the certificate of formation limits or denies it. § 21.362.

Calculation example

A shareholder holding 100 shares in an election of three directors has 300 votes under cumulative voting, which may be cast 300-for-one or distributed 100-100-100. Under standard plurality voting, the same shareholder has 100 votes per director seat.

Notice requirement

Under § 21.361, where cumulative voting is authorized, a shareholder who intends to cumulate votes must give written notice of that intention to the corporation's secretary on or before the day preceding the date of the election. Once one shareholder gives notice, every shareholder entitled to vote cumulatively may do so. § 21.361(b), (c).

Companion article: Raising Capital in Texas