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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

DGCL Sec. 214 - Cumulative voting option for directors

Headnote

Although plurality voting is the default rule for the election of directors under §216, a corporation may, in its certificate of incorporation, opt into a cumulative voting structure. The cumulative voting structure gives minority blockholders the power to elect representatives to the board in a manner that would be impossible under plurality voting. It does so by permitting stockholders to accumulate all their votes into a single (or multiple) block and then allocate that block of votes to a single candidate. 

For example, if the election is for four directors and the stockholder has 500 shares, under the default plurality voting regime, the stockholder can vote a maximum of 500 shares for each one candidate. Under a cumulative voting regime, the stockholder has that number of votes equal to the number of shares owned by the stockholder multiplied by the number of available board seats in the election. In this case: 500 * 4 = 2,000 votes. The stockholder is then free to allocate those votes in any many she pleases, for example all 2,000 votes on candidate A, splitting her votes 1,000 each between candidate A and B while giving no votes to candidates C and D.

Under §141(k), the director removal provision, a director may be removed under cumulative voting, however, remova of a director may be blocked by minority stockholders. Under §141(k), no director in a cumulative voting regime may be removed when the votes cast against removal would be sufficient to elect the director if voted cumulatively at an election where all memberships entitled to vote were voted.

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TITLE 8

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Corporations

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CHAPTER 1. GENERAL CORPORATION LAW

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Subchapter VII. Meetings, Elections, Voting and Notice

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The certificate of incorporation of any corporation may provide that at all elections of directors of the corporation, or at elections held under specified circumstances, each holder of stock or of any class or classes or of a series or series thereof shall be entitled to as many votes as shall equal the number of votes which (except for such provision as to cumulative voting) such holder would be entitled to cast for the election of directors with respect to such holder's shares of stock multiplied by the number of directors to be elected by such holder, and that such holder may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any 2 or more of them as such holder may see fit.

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8 Del. C. 1953, § 214; 56 Del. Laws, c. 5057 Del. Laws, c. 148, § 3757 Del. Laws, c. 421, § 571 Del. Laws, c. 339, § 32.;