Okay, so let’s pretend that you’re going to a concert, and you want to get your friends to go, too. Your goal is to influence the number of people who head to the gig. You’ll call up your most reliable friends and ask them to join you. If they’re awesome friends, they’ll say yes. But don’t be secretive about your dealings. Otherwise, you might have a lot of explaining to do, and you might greatly irk the members of the band.
The same goes for “acting in concert” in the financial world. In short, if you want to acquire parts of a company (shares) and make a lasting impression, you’ll ask your influential friends and business buddies to take the exact same actions that you do...with a goal of creating a unified end-result.
That said, there are times when you must declare your intentions to avoid violating securities laws. In other words, never act in concert without consulting with your attorney first. This move could violate the law if you directly harm a third-party, or if you fail to state your intentions in accordance with the percentages required by law.
Related or Semi-related Video
Finance: What is Cumulative Voting?6 Views
Finance, a la shmoop. What is cumulative voting? All right people there are two
flavors of voting in the land of common stock, there's cumulative and statutory. [Two ice cream cones held next to each other]
Cumulative voting just somehow sounds cooler, doesn't it? It allows teams to [Guy points at the ice cream cone and drops it]
join forces and pool their votes cumulatively
for target candidates to get elected that is it allows for the disaggregation,
$5 word there, of board members when voting. That is if a shareholder has one [5 dollar price tag appears]
percent of the common shares outstanding of a company and cumulative voting is [Pie chart showing the small 1% holding]
allowed and there are five candidates being elected, well that shareholder can
vote effectively five percent of their total shares voteable for just one
candidate. Said graphically with blood and guts it looks like this. Cumulative [Table showing shares equalling number of votes per candidate]
voting helps the little guy to have a big presence, with only 1% of the shares [Kid sat at a shareholder meeting]
the little guy can be felt as a 5% holder which makes you know him or her a [Kid jumping to hit a Mario coin box]
relatively major player. It also encourages boards to rotate seats [People swapping seats in the boardroom]
gradually, that is if there were seven seats coming up for election while that
1% could feel like 7% which starts to get dangerous in a contentious board and [The people in the boardroom start fighting]
company situation. You can imagine someone who only owns a small part of
the shares outstanding could elect a whole lot of board. Yeah that'd be a [Wooden boards replace the people in suits]
little scary. Well, score one for the little guy... [Kid laughing will an evil face]
Up Next
The Williams Act is federal legislation enacted to make acquisitions and/or takeovers fair. Nothing to do with tennis...sorry about that, tennis fans.
How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...
What rights does a public stockholder have? Common shareholders elect the board of directors. They vote. They have the right to quarterly financial...
What is the All Holders Rule? The All Holders Rule is a rule made by the Securities Exchange Commission. It’s basically the “all created equal...