Series 7 Exam Question 210: Answer and Explanation

Question: 210

When compared to statutory voting, cumulative voting provides an advantage to

I. larger shareholders

II. mortgage bondholders

III. smaller shareholders

IV. convertible bondholders

• A. I only
• B. II and IV
• C. III only
• D. II and III

Correct Answer: C

Explanation:

C. Cumulative voting allows shareholders to aggregate (combine) their votes and vote for whomever they please. For argument's sake, if an investor owned 1,000 common shares and there were four members of the board of directors open for vote, the investor could use all 4,000 votes (1,000 shares × 4 members) for a single candidate, if desired. Cumulative voting can be used to make it easier for smaller shareholders to gain representation on the board of directors.