N. Depriving certain classes of the right to vote.— A very usual provision in modern corporate charters divides the stock of a company into several classes, some of which, or all but one class, are not given vot ing power. It has been held that such provisions are entirely legal since the stockholders have the right to modify their normal rights by contract in any way they see fit. Sometimes the right to vote is taken from a class, but a provision gives this class the right to control the board if dividends are not regularly paid to it. A similar provision is found in the char ter of the California Petroleum Company: The preferred stock shall have no voting power cxcept as above stated, and except that in case the Corporation shall fail for four quarterly periods to declare and pay the full reg-ular quarterly dividend on the preferred stock, then and so long as there shall be any arrears of dividends upon the preferred stock the holders of record of the preferred stock outstanding, voting as a class, shall be entitled to elect the remainder of the board. If, however, all such accrued in stalments and arrearages shall be paid by the Corpora tion at any time, then and thereupon the power of the pre ferred stockholders to elect directors shall cease, subject, however, to being again revived upon any subsequent failure of the Corporation to comply with the conditions herein stated.
17. Special rights to vote on certain questions.— Where the peculiar rights of a certain class of stock holders are likely to be affected by certain actions, that class is usually given a veto on the decision of the stockholders generally, with respect to such actions. Thus, the preferred stockholders of the California Petroleum Company, referred to in the previous sec tion, tho not having the right to participate in the election of directors unless four quarterly dividends have not been paid, are given the right to veto the resolutions of the common stockholders on the follow ing subjects and in the following manner: Without the affirmative vote or written consent of the holders of at least three-fourths in amount of the outstand ing preferred stock, the Corporation shall not: (1) Change either by increase, diminution or otherwise the voting power of either the preferred or common stock as fixed in this certificate; or (2) Sell, lease or otherwise dispose of the property, fran chise and business of the Corpora.tion in their entirety or any stock of any subsidiary company, or permit any sub sidiary company to make such sale or other disposition of its property, except to the Corporation or some other sub sidiary company; or (3) Create or permit any subsidiary company to create any mortgage or other lien to secure an issue of bonds or otherwise, or permit any subsidiary company to issue any additional bonds under any present mortgage; or (4) Create any shares of stock having priority. over w on a parity with the authorized preferred stock, or permit any subsidiary company to issue any shares of stock with out acquiring its proportionate part thereof or (5) Issue any of the authorized preferred stock in excess of $15,000,000 in the aggregate except for the acquisition of additional income-producing oil properties; or (6) After October I, 1913, issue any of the authorized preferred stock, in excess of $12,500,000 in the aggregate, unless the net earnings or profits of the Corporation avail able for dividends on the preferred stock for the last pre ceding fiscal year of twelve months shall have been at least equal to twice the annual dividends on the preferred stock outstanding and so to be issued.
18. R ef erring matters to stockholders.—As we shall see later, the ordinary every-day business of a corpora tion is managed by the board of directors. :Under modern statutes, however, certain questions are of such grave importance to the stockholders that actions of the directors concerning them must be referred to the stockholders, and must receive the sanction of a large majority, usually two-thirds or three-fourths, before the company can proceed. Such questions include the consolidation of the company with other corporations, mortgaging all the corporate property, selling or leas ing it, and dissolving the company. In brief, any ac tion which affects the entire property of the companY, or changes the corporate charter, is usually required by statute to be placed before the stockholders.
19. How many votes has each stockholder?—Under the common law each stockholder has but one vote, ir respective of the number of shares held. In most jurisdictions this rule has been changed by statute and the stockholder is entitled to as many votes as the number of shares he holds. This rule, of course, may be modified by contract and it is possible to give a stockholder one vote for two or more shares; one vote for each share up to five shares; or one vote only for each two or more shares above five. The usual prac tice, however, is to give each share of stock of the voting class, one vote. The other practice, that of giving one vote to a share up to a certain number only, was used frequently in the promotion of middle west ern railways. It obviated the objections of the farmers who claimed that their small holdings would be worthless when pitted against the large holdings of the city capitalists.
20. Between successive and between, joint owners, who has the right to vote?—As between the seller and purchaser of stock, the former is entitled to vote until the shares have been transferred on the books of the company. In some states the rule is that the pur chaser may vote if the corporation has notice of his interest, even before the formal transfer has been made. As between a bankrupt and his assignee, the former is entitled to vote until the latter registers his ownership with the company, in spite of the fact that the Bankruptcy Act vests in the assignee the title to all the bankrupt's property. A. surviving partner may vote on the stock standing in the name of the firm, and usually an executor or administrator may vote on stock before a transfer is made on the com pany's books, by exhibiting his letters of appointment or a certified copy thereof. When shares are owned by two or more persons, all must agree or the shares cannot be voted, but anyone may vote all the shares if the others do not object. If the corporation should become the owner of some of its own stock, it will have no right to vote them, but when a corporation is per mitted either by statute, or by legal decisions, to hold shares of stock in another company the board of directors of the holding company may vote these shares.