What is a Vetoing Stock?

Malcolm Tatum

Vetoing stock is a particular class of stock that allows a limited amount of participation on the part of the shareholder. In general, investors who hold shares of vetoing stock are permitted to vote on many corporate issues, generally with a simple approach of voting for or voting against an issue that is put before the shareholders. However, vetoing stock normally does not include the privilege of participating in the election of a board of directors, or participating in the process to fill a vacancy on the board.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

The exact cope or range of privileges extended with vetoing stock may vary somewhat from one company to another. Generally, the founding documents for the company will specify the classes of stock that the corporation may issue. Within those specifications, the documents will define the rights and privileges that are extended to investors who hold a given class of stock. In the case of vetoing stock, this will often involve providing information on how and when it is appropriate for the shareholder to participate in a vote, as well as identifying a core group of instances where investors holding vetoing stock will not be eligible to participate.

While the voting privileges associated with vetoing stock are somewhat limited, the actual rate of return on the shares is generally in line with any other classes of shares issued by the company. Vetoing stocks are often a good choice for investors who desire no more than limited involvement with the operations of the company, since they will provide dividends that are not unlike stock options that allow full voting privileges.

While vetoing stocks are offered by many companies in a variety of industries, not all corporations will provide the option of purchasing this class of stock. However, investors who are provided with the opportunity to purchase shares of vetoing stock usually do not have a problem with the limitations. The combination of an equitable return and the need to be less involved in the decision making process is often very attractive to investors who have a broad range of investments to manage.

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