Question 1

What is the primary voting right held by common stockholders?

Accepted Answer

Common stockholders have the right to vote on major corporate matters such as electing the board of directors, approving mergers, and authorizing additional shares.

Question 2

Under statutory voting, how many votes may a shareholder cast for each open board seat?

Accepted Answer

Under statutory voting, a shareholder may cast one vote per share owned for each open board seat, meaning votes cannot be concentrated on a single candidate.

Question 3

Under cumulative voting, how are a shareholder's total votes calculated, and what is the key advantage?

Accepted Answer

Total votes equal shares owned multiplied by the number of open board seats. The advantage is that shareholders can concentrate all votes on one candidate, giving minority shareholders a better chance of board representation.

Question 4

What is a preemptive right, and what does it protect common stockholders from?

Accepted Answer

A preemptive right gives existing common stockholders the opportunity to purchase newly issued shares before the public, protecting them from dilution of their ownership percentage.

Question 5

In a corporate liquidation, in what order are common stockholders paid relative to other claimants?

Accepted Answer

Common stockholders are last in liquidation priority, paid only after secured creditors, unsecured creditors, and preferred stockholders have been satisfied.

Equity Securities – Series 7 Exam Flashcards

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