Does equity stake truly affect voting position?


1

In this question, the original poster has a hidden question in:

Giving up an equity stake puts me at a disadvantage from a voting perspective (or does it?) Can you structure it as a non-voting equity stake? How much equity, if any, is fair? Should there be a vesting schedule? Buy-back option?
I'm looking for an answer to the "(or does it?)" question.

For example, if three partners have a 49-49-2% split and both of the 49% partners are always in disagreement, the partner with 2% runs the company (assuming votes actually matter). I'm not interested in a mathematical analysis on voting theory, but rather practical advice on whether equity really has any bearing on things "coming down to a vote."

Guy Kawasaki at about 23/24 minutes seems to say that contested voting never happens. Is this true (and therefore the answer to my question)?

EDIT:

Thank you very much for the answers. Rather than a technical argument as to how voting is legally carried out, I am more interested in how these disagreements get resolved "behind the scenes" in order to maintain the illusion of unanimity despite deep dissent.

Equity Partnerships

asked May 7 '13 at 17:05
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Nick O
108 points
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2 Answers


2

You'd have to check the bylaws of the company and it may also depend on your jurisdiction and differing classes of shares.

answered May 7 '13 at 17:13
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Steve Jones
3,239 points
  • Thank you very much for your answer. I edited the question to reflect that I am really looking for some perspective not on the technical side, but on the "how does a start-up keep an illusion of unanimity" – Nick O 7 years ago
  • It doesn't have to, as the properly structured company will always have a way to make a decision, even if the board has to fire the CEO to do what's best for the company (i.e. for the shareholders, who appoint the board). – Steve Jones 7 years ago

1

In Ontario, for example, you can set up a company with multiple classes of shares. One class may have voting rights, another not. Within the class that has voting rights, votes are split proportionally.

BUT you can also set up a shareholder's agreement that states what percentage of votes is needed to make changes, how many seats on the board of directors each shareholder is entitled to select, and what powers that board has. So even though in a single class of shares two people may have equal portions, one may get 4 seats, the other only 1. To change that might require a 90% vote by the directors, so neither can change the structure without the consent of the other partner.

I am not a lawyer, and this is just for illustration purposes. You'd need to check you local legislation, and ideally consult with a local lawyer who knows what you're trying to accomplish, and how best to do so.

answered May 9 '13 at 01:49
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Elie
4,692 points
  • Nice expansion of what I said earlier. – Steve Jones 7 years ago
  • Thanks! Was not intended to steal your thunder. – Elie 7 years ago
  • Thank you very much for your input. I like the idea of requiring a certain threshold beyond just 50% of votes required to clear a disagreement. But in practice, how often do serious votes really come down to the wire? – Nick O 7 years ago
  • Depends how many people you're dealing with. If it's just a few, then this should not happen very often, because you should be able to get consensus without a vote, and the vote, if required, is only a formality. – Elie 7 years ago

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