Cecily Zamora
Voting is a fundamental aspect of democratic societies, and it also plays a significant role in the realm of contract law. While the concept of voting is typically associated with elections and political processes, it is intriguing to explore whether voting can be considered a form of contractual agreement. This topic delves into the intersection of voting and contract law, examining the legal principles and precedents that shape our understanding of the relationship between these two seemingly distinct areas. By analysing various scenarios, such as shareholder voting agreements and the interpretation of voting instructions, we can gain insight into the complexities that arise when considering voting as a contractual obligation. In doing so, we explore the nuances of contract law and the dynamic nature of voting rights and agreements.
| Characteristics | Values |
|---|---|
| Voting rights | Holders of Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders. |
| Holders of Series E Preferred Units and Series F Preferred Units shall not have any voting rights, except with respect to those matters required by law. | |
| Voting instructions | If the contract says that your vote will only be counted if certain criteria are met, and you do not meet those criteria, then your vote will not be counted. |
| The Florida election code acknowledges that votes cannot be thrown out if the intent of the voter can be reasonably determined. | |
| Voting agreements | Voting agreements may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement. |
| A voting agreement may be between a company and its shareholders, or among shareholders, and may include provisions such as the election of directors, transfer restrictions, and specific performance obligations. | |
| Governing law | A voting agreement may be governed by the laws of a specific state, such as California, Georgia, or Delaware. |
| Enforcement | A voting agreement may provide for specific performance and/or injunctive relief in the event of a breach, and may include provisions for the recovery of costs and attorney's fees. |
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What You'll Learn
Voting instructions as a contract with the voter
Voting instructions can be considered a contract with the voter, with specific criteria that must be met for a vote to be counted. This is supported by classical contract doctrine, which states that if a contract sets out instructions that must be followed for a vote to be valid, and these instructions are not followed, the vote will not be counted.
However, the evolution of contract law has moved away from such formalism, and modern contract doctrine recognizes that no contract can be entirely simple, clear, and unambiguous. Interpretation and clarification are often needed due to potential sources of disagreement and misunderstanding. This is especially true in voting, where rigid rules can easily disenfranchise voters and hurt the less-educated or those who struggle to follow complex instructions.
For example, the Florida election code acknowledges the difficulty of objective ballot counting and provides that votes cannot be thrown out if the voter's intent can be reasonably determined. This parallels modern contract doctrine, which applies a variable, fact-specific "reasonableness" standard.
In the context of voting agreements, shareholders of a company may enter into a contract that gives certain shareholders the right to vote on their behalf or requires them to vote in a certain way, such as in favor of a specific director nominee. These contracts often include specific performance clauses, stating that the terms will be specifically enforceable, and governing law clauses, specifying which state's laws will apply.
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Voting rights agreements
The specific requirements for a shareholder voting agreement include having the contract in writing and depositing a copy at the corporation's principal office for inspection by all shareholders. It is important to note that voting rights agreements are only valid between shareholders. Shareholders can vote in person, by proxy, by written consent, or through any other manner permitted by applicable law.
In conclusion, voting rights agreements are essential in protecting the rights of shareholders and ensuring their participation in the decision-making process of a company. They provide a framework for shareholders to resolve disputes and exercise control over the operations of the business.
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Shareholder voting agreements
A shareholder voting agreement is a written agreement between shareholders to vote their shares in a specific way. In such an agreement, each shareholder pledges to abide by its terms. If the agreement is validly executed, any party to the agreement can sue for specific performance of the agreement if another party refuses to comply with it.
Voting agreements can be for any duration and do not need to be filed with the corporation. However, for a voting agreement to be valid, it must be in writing and signed, and it cannot be subject to any contractual defenses.
An example of a clause in a shareholder voting agreement is as follows:
> "At any annual or special shareholders meeting, and whenever the holders of the Company's common stock ("Common Stock") act by written consent with respect to the election of directors, the Lenders hereby authorize the Majority Shareholder to vote all of their shares of Common Stock (whether new or hereafter acquired or whether acquired through the conversion of their Series A Preferred Stock, Series A-1 Preferred Stock, or the exercise of warrants) only with respect to the election of directors. Accordingly, the vote of the Majority Shareholder will be deemed to be the vote of all the Lenders with respect to their shares of Common Stock for the purpose of all shareholder votes for the election of directors."
Other clauses in shareholder voting agreements may relate to specific individuals, such as McEwen, and the unanimous vote of directors or the consent of a majority of shareholders for the company to take specific actions.
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Voting agreements
A voting agreement typically addresses the voting rights associated with different classes of shares, such as Common Stock and Preferred Stock. For instance, holders of Common Stock are generally entitled to one vote per share held during shareholder meetings, as seen in the HCI Group, Inc. contract. This voting right is essential for making decisions within the company, such as increasing or decreasing the number of authorized shares.
In some cases, certain shares may have limited or no voting rights, as mentioned in the GLADSTONE LAND Corp contract. These shares can only be voted on for specific matters required by law. Additionally, some agreements may include provisions for the termination of voting rights upon the transfer or forfeiture of shares, as outlined in the Paycom Software, Inc. contract.
Furthermore, voting agreements may include provisions for specific performance, as mentioned in the Form of Voting Rights Agreement. This clause emphasizes the difficulty of measuring damages arising from a breach of the agreement and asserts the enforceability of the agreement's terms. It also includes a governing law provision, specifying that the laws of a particular state, such as California, will govern the interpretation and enforcement of the agreement.
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Voting as a consideration in contract law: the case of Florida
Voting can be considered a contract between the people and their leaders, as it requires "reasonable" actions in particular circumstances, applying a variable, fact-specific standard. In the case of Florida, the election code acknowledges the inherent challenge of entirely objective ballot counting. As a result, Florida's election laws mirror modern contract law by adopting a flexible, fact-specific "reasonableness" standard. This means that votes cannot be discarded, even if they are unreadable by machines, as long as the voter's intent can be reasonably ascertained.
Florida's election laws, therefore, deviate from the rigid, classical "caveat emptor" requirement, where the voter must protect themselves. Instead, they embrace a modern, flexible approach, recognising the fundamental right to vote. This flexibility is reflected in the state's willingness to relax the boundaries of formal election laws to safeguard this right.
In terms of business contracts, Florida statutes outline the voting rights of members and managers within limited liability companies. Members' votes are proportionate to their current percentage or interest in the company's profits. Managers or managing members make decisions by majority vote or unanimous written consent, and they can vote in person or by proxy. Additionally, the creation of different classes or groups of members with specific rights, powers, and duties is permitted under Florida law.
While there is a move away from formalism in contract law, some scholars argue that a degree of formalism is necessary for clarity and consistency. This is exemplified in the Florida voting context, where specific instructions, such as those regarding hanging chads, are provided to voters. However, the interpretation and clarification of contracts are often required due to situational ambiguities.
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Frequently asked questions
Voting instructions can be considered a contract with the voter, with the contract law principle being applied to the voting process.
A voting agreement is a contract that outlines the rights and obligations of shareholders or investors in a company with respect to voting on matters such as the election of directors, shareholder votes, and other corporate decisions.
Yes, voting agreements can be terminated. For example, the agreement may specify a duration, such as remaining in force for a set number of years.
