Legal Definitions - proxy statement

A proxy statement is an important document that public companies — those whose shares are traded on stock exchanges — must send to their shareholders before an annual or special meeting. Its primary purpose is to provide shareholders with all the necessary information to make informed decisions about the matters they will be asked to vote on at the meeting.

Think of it as a comprehensive guide that explains each proposal in detail, including the company's recommendations, and allows shareholders to cast their votes even if they cannot attend the meeting in person. This is done by granting a "proxy" (permission) to someone else, often the company's management, to vote on their behalf according to their instructions. The U.S. Securities and Exchange Commission (SEC) mandates that these statements be filed and distributed to ensure transparency and protect investors.

Here are some examples of situations where a proxy statement would be issued:

• Amending Company Bylaws: Imagine "Tech Innovations Inc." wants to change its corporate bylaws to require a supermajority vote (e.g., 75% instead of 51%) for any future mergers or acquisitions. Before shareholders can vote on this significant change, Tech Innovations Inc. would issue a proxy statement. This document would explain the current bylaw, the proposed amendment, the board's rationale for the change (e.g., to protect against hostile takeovers), and how it might impact shareholder rights. Shareholders would then use this information to decide whether to approve or reject the amendment, either by attending the meeting or by submitting their proxy vote.

• Shareholder Proposal on Environmental Policy: A group of concerned shareholders at "Global Manufacturing Corp." submits a proposal asking the company to adopt a new policy committing to a 50% reduction in its greenhouse gas emissions over the next five years. Global Manufacturing Corp. would include this shareholder proposal in its proxy statement. The statement would detail the proposal, the arguments made by the proposing shareholders, and the board of directors' recommendation (which might be for or against the proposal, along with their reasoning). This allows all shareholders to understand the environmental implications and make an informed decision on how to vote on this initiative.

• Ratifying the Independent Auditor: Each year, "Financial Services Group" needs to appoint an independent accounting firm to audit its financial statements. While the board typically selects the firm, shareholders are often asked to ratify this appointment. The proxy statement would identify the proposed auditing firm (e.g., "AuditPro LLP"), explain why the board recommends them, and provide information about the fees paid to the auditor for the past year and any non-audit services provided. This ensures shareholders have oversight over the crucial function of financial auditing and can approve or reject the board's choice.