The preferred share with multiple vote is one that gives its owner the power to cast more than one vote. This, in the decision-making of the company.
This power represents an exception to the rule. Generally, each share is entitled to only one vote.
Objective of Preferred Stock with Multiple Voting
The objective of preferred shares with multiple voting rights is to guarantee control of the company to certain investors. This, in the face of conflictive situations in the general shareholders' meetings .
Members entitled to more than one vote have greater decision-making power. Such authority is particularly important to prevent some new shareholder from taking over the company.
Imagine, for example, that an investor buys a large number of ordinary shares of a firm to which he is alien. Then the founding partners will see their dominance position and the continuation of their business vision threatened.
Legal framework of the preferred share with multiple vote
The legal framework for multiple voting preferred shares varies from country to country. In the European Union , in most nations, it is expressly prohibited.
In a 1970 draft prepared by the Commission of the European Community, it was noted that multiple voting shares abolish the relationship between risk capital and voting rights.
In other words, the community directives considered it reasonable that the greater the equity invested, the greater the decision-making power would always be.
This somehow set a precedent on the old continent. In Spain, for example, the 1989 Public Limited Companies Law vetoed all clauses that directly or indirectly modified the proportionality between the nominal value of the share and the right to vote.
Spanish legislation is similar to that of Italy, Portugal, Germany, Singapore and Hong Kong.
However, double voting shares are allowed in France. This, as long as the investor has been a partner of the firm for at least two years.
Likewise, in one of the most important stock markets such as New York, the issuance of shares with multiple votes is also allowed.