Who Votes Pledged Shares?

Allen Matkins

Allen Matkins

Under the California General Corporation Law, a shareholder whose shares are pledged is entitled to vote those shares until the shares have been transferred into the name of the pledgee.  Cal. Corp. Code § 702(c).   There are at least three exceptions to this general rule. 

First, the parties may agree otherwise in writing.  Cal. Corp. Code § 702(c).   While the parties may agree otherwise, the corporation may nonetheless treat to the holder of record as the person exclusively entitled to vote until the shares are duly presented for transfer.  Cal. Comm. Code § 8207.

Second, the pledgee's entitlement to vote is subject to Section 705, which governs proxies.  Thus, a pledgor may grant a proxy to the pledgee to vote the shares and that proxy may be irrevocable.   Cal. Corp. Code § 705(e)(1).   However,  if the shares are held of record by the pledgee, the pledgee is required, upon demand and payment of necessary expenses, to issue to the pledgor a proxy unless provided otherwise in a written agreement between the parties.   Cal. Corp. Code § 705(d).  

Finally, the Section 702(c) provides that once the shares are transferred into the name of the pledgee, the pledgee has the right to vote those shares.  

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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