CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process
A company has 10 director seats up for election and 1,000,000 shares outstanding, each with one vote per seat under cumulative voting. A minority group wants to guarantee winning one seat when all shares are voted. The number of shares the group must hold is closest to:
The group needs about 90,910 shares. With cumulative voting, guaranteeing one of 10 seats requires just over 1/(10+1) of the shares, which is 1,000,000 divided by 11, or roughly 90,909, rounded up. A simple majority of 500,001 is unnecessary under cumulative voting.
- A90,910Correct
- B100,000
- C500,001
Explanation
To guarantee one seat of n, a holder needs more than 1/(n+1) of shares: 1,000,000/11 = 90,909.1, so about 90,910 shares. 100,000 is 1/n, which is more than needed. 500,001 is the simple majority needed under statutory voting and is wrong here.
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