CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process
A company has 10 million shares outstanding and seven directors are to be elected under cumulative voting. An investor wants to be certain of electing one director regardless of how other shareholders vote. The minimum number of shares the investor needs is closest to:
The investor needs about 1.25 million shares. Under cumulative voting, the shares required to guarantee one seat are total shares divided by the number of seats plus one, so 10 million divided by 8, plus one share. Dividing by seven instead overstates the requirement.
- A1.25 millionCorrect
- B1.43 million
- C5.00 million
Explanation
To guarantee n seats out of N, shares needed = [n x S / (N + 1)] + 1 share. Here 1 x 10 million / (7 + 1) = 1.25 million, plus one share. The 1.43 million figure divides by 7 and would overstate the requirement. 5 million is the simple majority-style requirement for statutory voting, which is not needed.
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