| A Shareholder Voting Agreement is a legal contract | | | | for Ben for a seat on the board of directors. In |
| among shareholders of a corporation relating to the | | | | addition, they also include a provision that if they are |
| voting of shares. The shareholder voting agreement | | | | outvoted on this matter, they will try to convince |
| often covers how members of the Board of | | | | the company to pay Ben less than the other |
| Directors are to be elected and sometimes covers | | | | directors. |
| major corporate events such as mergers and | | | | In this hypothetical, the first part of the agreement is |
| acquisitions. Venture capital investors often expect a | | | | valid because it relates to an issue on which Mike and |
| shareholder voting agreement to be executed in | | | | Jessica can vote. They can legally agree, through |
| connection with their investment in a start up | | | | shareholder voting agreement, not to vote for Ben. |
| company. | | | | The second provision cannot be enforced, however, |
| Voting Agreements are enforceable pursuant to | | | | as a shareholder voting agreement because Ben's |
| state statutes enacted in all 50 states. For example, | | | | pay is within the discretion of the board of directors |
| the pertinent statute of Indiana's State Statutes | | | | and will not come up for shareholder vote. |
| reads: Sec. 2. | | | | Voting pools may specify exactly how the |
| (a) Two (2) or more shareholders may provide for | | | | participating shares should be voted, or they may |
| the manner in which they will vote their shares by | | | | allow for negotiation and agreement for each |
| signing an agreement for that purpose. | | | | individual issue. Many voting pools include an |
| (b) A voting agreement created under this section is | | | | alternative dispute resolution procedure for reaching |
| not subject to the provisions of section 1 of this | | | | agreement on such issues. |
| chapter. | | | | Some states require that voting pools follow specific |
| Often Shareholders may choose to pool their votes | | | | guidelines to be valid. These laws may limit the length |
| for a particular goal. Voting agreements may specify | | | | of a shareholder agreement, or may require that the |
| that the involved shareholders will vote their shares | | | | shareholders deposit a copy of the agreement with |
| together or cooperatively. Courts usually uphold | | | | the corporation. If a party to a valid voting |
| shareholder voting agreements as long as they relate | | | | agreement violates the agreement, the other parties |
| to issues upon which shareholders can vote. | | | | may sue the uncooperative party. Courts may |
| For example, lets say Don and Mike are shareholders | | | | require that the dissenting shareholder vote according |
| of Detric Pesticide, Inc. Let us say that neither of | | | | to the agreement, or they may disqualify violating |
| them likes Ben, another shareholder, and they want | | | | votes. |
| to formally agree that neither of them will ever vote | | | | |