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What is Shareholder Approval?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 03 December 2016
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Shareholder approval is a requirement for certain types of corporate decisions, where shareholders must be allowed to vote on a proposed activity to decide if it should occur. Regulatory authorities determine what kinds of activities require shareholder approval, and corporations are expected to comply with the law when it comes to their relationship with their shareholders. Generally, any large decision that could impact company profits and the future direction of the company must be voted on by the shareholders of the corporation, in recognition of the fact that the outcome of such decisions could affect their investments.

Shareholders are required to vote on the board of directors, and shareholder approval is also needed for mergers, sales, dissolutions, issuances of certain securities, and amendments to documents such as corporate charters. In some regions, input from shareholders is also required for equity compensation plans, where people in the company are offered compensation for their services in the form of a share of equity in the company.

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Votes from shareholders can be collected in a variety of ways, and it is not uncommon for shareholders facing a controversial decision to organize to vote in a block. This allows them more clout in terms of shaping company negotiations, as companies know they cannot push through unpopular decisions against the will of their shareholders. Shareholders can also use this power to remove members of the board and take other steps they feel are in the best interests of the company, even if the members of the board do not support those decisions.

In situations where shareholder approval is required, companies provide information about the decision in question in advance. This provides shareholders with time to review the proposed decision and conduct research so they can make informed decisions about how they want to vote. Companies generally need to follow a set series of steps when submitting measures to a vote, and if they violate financial regulations, they can be liable for damages and may be sued by shareholders.

Outcomes of major votes may be reported in financial publications and sometimes in the media at large, if they are especially notable. People not directly involved may have an interest in how shareholders vote and what kinds of decisions are being made by the people running corporations. News about displacements of board members and other important events involving shareholder approval may be of general interest and can be reported on and discussed in the media.

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