The SEC’s Proxy Rules

Most public companies hold a stockholders’ meeting annually and hold special meetings to vote on special corporate actions such as name changes and mergers.  Shareholder voting on takes place either in person or by proxy.

Proxy solicitation is governed by a number of rules and regulations including: (i) state corporate law; (ii) stock exchange listing requirements; (iii) SEC
proxy rules; and (iv) the issuers’ articles and bylaws.

Issuers who have a class registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are subject to the proxy rules. The SEC’s proxy rules are located in Section 14(a) of the Exchange Act.

The Section 14 Proxy Rules govern the disclosures required to solicit shareholders’ votes for certain corporate actions such as the election of directors and approving accountants.

Shareholders receive information about corporate actions and shareholder meetings in either a Proxy Statement on Schedule 14A or an Information Statement on Schedule 14C.  Common corporate actions requiring Schedule 14A or 14C filings include name changes, reverse mergers, stock splits, domicile changes, corporate reorganizations and other events requiring a vote of the issuer’s shareholders.

SEC Schedule 14A Informational Requirements

The information contained in proxy materials is provided to the issuer’s shareholders and the SEC prior to any solicitation to ensure compliance with the disclosure rules. A Preliminary Schedule 14A is subject to review by the SEC’s Division of Corporation Finance.  If no comments are rendered then the issuer may file its Definitive Information Statement 10 days after the filing of its Preliminary 14A. Solicitations on Schedule 14A, whether by management or by shareholder groups, must disclose all material facts concerning the issues on which holders are asked to vote. The disclosure information is provided to the public and the SEC on Schedule 14A.

SEC Schedule 14C Informational Requirements

When a shareholder vote is not being solicited and action has been taken by the written consent of majority shareholders in lieu of a shareholder meeting, an issuer may satisfy its Section 14 requirements by filing an information statement with the SEC on Schedule14C and mailing the Schedule 14C to its shareholders.

As with the proxy solicitation materials filed in Schedule 14A, Schedule 14C information is subject to SEC review to ensure all material facts are disclosed.  The SEC may render comments to the Information Statement on Schedule 14C and request modified or additional disclosures. Unlike a Schedule 14A Proxy Solicitation, a Schedule 14C Information Statement does not solicit or request shareholder approval. Instead, the Schedule 14C provides investors with information about important corporate actions that have been approved by the issuer’s majority shareholders. Ten days after filing a Preliminary Information Statement on Schedule 14C, if no SEC comments are received, the issuer may file its Definitive Information Statement.

The information required by Schedule 14C is substantially the same as that found in a Schedule 14A, other than the disclosures related to voting. Using Schedule 14C is less time consuming, since no shareholder approval is being sought. As such, most issuers prefer to use the Schedule 14C Information Statement rather than the Schedule 14A proxy solicitation.

Solicitation under Rule 14a

Whenever an issuer is seeking shareholder approval by soliciting votes, Schedule 14A is required.  Rule 14a-1(l) defines a “solicitation” for purposes of the proxy rules as:

♦ any request for a proxy whether or not accompanied by or included in a form of proxy;

♦ any request to execute or not to execute, or to revoke a proxy; or

♦ the furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.

The bottom line is if an issuer requests a shareholder to consent to action, it is soliciting that shareholder’s approval and, accordingly, the issuer must comply with Schedule 14A’s proxy solicitation requirements.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.gopublic101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
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