Statutes and by-laws often provide for the closing of books during a certain period, usually about two weeks, imniediately preceding the annual meeting. Transfers during that time cannot be registered and the sellers are .entitled to vote.' 21. Method of counting votes.—Since shares, an.d not persons, are really entitled to votes under mod ern statutes, a vote unless unanimous, by standing, by "ayes and noes" or by showing of hands will be im proper. Informal questions about which no dissent is expected may be placed before the stockholders with out ceremony, but if any opposition develops, the vote should be taken by ballot, or by call of roll, and in either case the shares voting on one side or the other should be counted.
22. Cumulative some states stockhold ers must be permitted to vote on the cumulative plan; in other states the question is left to the charter or by laws of each corporation. If nothing is said in the law of the state, .or in the charter or by-laws of the compan37 it would seem that straight voting nmst be used ; i.e., each stockholder casts as many votes for each candidate intended to be voted for as equal the num ber of his shares. In cumulative voting, however, the votes may be accumulated and cast for one or any number of the candidates.
23. The strategy of euniulative mi nority stockholders of a company may exercise their right to cumulative voting, when so permitted by the bv-laws or charter, without proclaiming their inten tion. Hence it is possible under this system for a large minority, by careful planning and secrecy, to get a majority of the directors. Let us take an ex ample where five directors are to be elected and the majority have 400 shares while the minority have 300. The minority's total vote is 1,500. Let us suppose, also, that thru ignorance, forgetfulness or avarice, the majority cast 400 votes for each position. The minor ity, by dividing their total number of votes equally among three candidates instead of among five, would elect their three candidates by pluralities of 100, and would have three out of five directors.' 24. Proxies.—Under the common law each stock holder was required to cast his votes in person, but under modern statutes and by-laws, votes may be cast by proxy. Under Canadian companies acts, gen erally speaking, votes may be given by proxy, if the proxy is himself a shareholder. Ordinarily, a proxy need be in no particular form nor need it be witnessed nor acknowledged. The following form of proxy is recommended: While a stockholder who attends a meeting that is not called according to law would be estopped from denying the validity of the meeting, he may question its validity if it was attended by his proxy, since the proxy is authorized to vote only at lawful meetings.
Large corporations generally send proxies along with the notice of a stockholders' meeting, and these proxies name a so-called proxy committee that rep resents the interests of the management. In this way continuity of managerial policy is insured.
In some states, as in New Jersey, a proxy becomes invalid in a certain period—say three years. In New York, proxies may be made for any definite time, but if not limited they are valid only for eleven months after their execution. Proxies are generally revoca ble at any time by the stockholder, irrespective of any agTeement to the contrary between the stockholder and his representative.
25. Right to maintain proportion of Three men, A, B and C agree to form a corporation, each one to have one-third interest. They form the corporation for $60,000, each taking $20,000 of the capital stock. Presently the company needs more money, and it is proposed to double the capital stock. A objects, on the ground that be is not financially able to take $20,000 of the additional stock, and that the increase without his participation would involve a breach of the contract in which he was given a one third interest.' These facts illustrate the importance of the rule that each stockholder must be given the right to subscribe to increa.ses of stock in proportion to his holdings. This rule maintains the proportionate control of the various parties in interest—majority and minority stockholders.
The right to subscribe need not be offered to the stockholders at par. It is sufficient if the price is not made higher than that at which the stock is subse quently offered to outsiders. If any of the stockhold ers refuse or neglect to exercise their right to subscribe, the other stockholders cannot insist upon taking their places.
26. Form, of negotiable right to sub scribe to stock is usually given to stockholders in the form of certificates that can be negotiated in the market. Thus, if the stock is being increased twenty five per cent each stockholder will be entitled to sub scribe to stock, equal in amount to one-quarter of his holdings. If A owned twenty-three shares, be would probably .be given two certificates; one would state that A is entitled to subscribe to five shares, and the other that he is entitled to subscribe to three-fourths of a share.