Full Definition
Most corporate decisions—routine board resolutions, annual meeting business, ordinary business matters—require only a simple majority vote (more than 50% of votes cast) to pass. Supermajority requirements—typically 66.7% (two-thirds), 75%, or 80% of shares or director votes—are applied to specific matters where requiring broad consensus provides important governance protections. Supermajority requirements serve two primary purposes: protecting minority shareholders from having their fundamental rights altered by a bare majority controlled by a dominant shareholder, and creating structural stability by requiring a high level of agreement before significant changes occur. Common supermajority requirements in public and private company governance include: charter and bylaw amendments (requiring 75-80% shareholder approval to prevent controlling shareholders from unilaterally changing governance rules to their advantage), fundamental corporate transactions (mergers, asset sales, dissolutions requiring shareholder approval, often with supermajority thresholds for related-party transactions), removal of directors (requiring more than a majority to protect board stability), and anti-takeover provisions (classified board elections, shareholder rights plan adoption or removal). In PE-backed companies, supermajority voting provisions appear primarily in preferred stock protective provisions: the terms of preferred stock in the certificate of incorporation specify matters that require approval by a supermajority of preferred holders (often 60-67% or more), protecting investors from having their rights modified without broad investor consensus. These "protective provisions" typically include: amending the charter in ways that adversely affect preferred rights, creating new classes of stock with preference over existing preferred, changing the size of the board, selling the company, or incurring debt above defined thresholds. Protective provisions with supermajority thresholds give significant minority investors effective veto rights over actions that could harm their investment thesis.
FAQs
Why do some companies have supermajority voting requirements for charter amendments?
Supermajority charter amendment requirements protect against a controlling shareholder using their majority ownership to unilaterally change governance rules—particularly anti-takeover protections—in ways that benefit the controlling party but harm minority shareholders. A charter amendment supermajority requires the controlling shareholder to obtain some minority support before changing fundamental governance documents, providing minority shareholders some protection against unilateral governance changes. Critics argue that entrenched supermajority requirements make governance changes too difficult even when a clear majority wants change; proponents argue they provide important stability and minority protection.
What is a 'majority of minority' approval requirement?
A majority of minority (or 'MOM') approval requirement for conflicted transactions requires approval by a majority of the shareholders excluding the conflicted party—the majority shareholder or interested director. This requirement is common in related-party transactions: if a PE-backed company is selling to a buyer who is also an investor (creating a conflict for the investor-director), the transaction may require approval by a majority of the non-conflicted shareholders (excluding the investor's shares). MOM requirements provide protection against majority shareholders using their control to approve transactions that benefit them at minority shareholders' expense.
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