MegaCorp has five directors. The company has 1,050 shares of voting stock. Jessica would like to purchase enough stock to elect herself to the board of directors. The company allows for cumulative voting. Explain the concept of cumulative voting and also state how many shares of MegaCorp stock Jessica will need to own to assure herself a place on the board of directors
Cumulative voting allows a shareholder to pool her votes for one nominee to the board. The formula for cumulative voting is:
Number of shares needed to elect one director = (Number of shares outstanding ÷ Number of directors to be elected plus one) plus one.
In this situation, if all five directors are elected at the same time, then Jessica needs to purchase at least 176 shares of voting stock [1,050/5 + 1] + 1 = 176]. If she has 176 votes, she can cast all her votes for herself. Since 176 votes is enough to guarantee her election to the board, she will be elected.
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