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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.