Can a Shareholder Propose a Resolution?

Shareholders, particularly large and controlling ones, often seek to have a say in corporate activities and governance through the proposal of resolutions. However, the legal framework governing these actions can be complex and varies significantly across jurisdictions and companies.

Right to Propose Shareholder Resolutions

In most markets, shareholders retain the right to propose resolutions at annual meetings, as stipulated by the company's bylaws. This authority typically stems from the jurisdiction’s company law, which may impose additional limitations on the types of resolutions that can be proposed.

The process of proposing a resolution is subject to certain procedural requirements. These can include the number of shares needed to support the proposal and the specific content the resolution must address. Once a resolution is proposed, it is then subject to a vote, with each shareholder voting based on the number of shares they own.

Limited Voting Rights

Despite the right to propose resolutions, the actual process of voting can be challenging. Most shareholders do not attend the annual meeting. Instead, they vote by proxy, giving company officers instructions to vote their shares on their behalf using a 'proxy ballot' distributed by management. As a result, if a resolution is proposed at the meeting, it may not be included on the proxy ballot, leading to a situation where most shareholders cannot vote on it if they do not receive a copy.

This limitation on voting rights highlights the importance of regulatory frameworks that ensure all shareholders have a meaningful voice. For instance, in the United States, the Securities and Exchange Commission (SEC) has established a set of Regulation 14a-8 that requires companies to include shareholder proposals in proxy materials if they meet certain conditions.

Key Types of Resolutions: Director Election and Removal

One of the most significant types of shareholder resolutions pertains to the election and removal of directors. The procedures and mechanisms for including shareholder nominees on proxy ballots can vary widely across different jurisdictions and companies. In the United States, recent provisions have been introduced for 'proxy access,' allowing shareholders to include their nominees on proxy ballots. However, as of Spring 2020, these provisions had not yet been utilized.

Practical Steps for Proposing a Resolution

Even if you are a shareholder, it is highly unlikely that your proposal will be considered unless you own a significant portion of the company and are already on the board of directors. Here are the practical steps for proposing a resolution:

Review Company Bylaws and Corporate Law: Understand the specific rules and requirements set forth by your company's bylaws and the relevant corporate laws. Ensure Compliance: Make sure your proposed resolution meets all necessary procedural requirements, including the number of shares required to support the proposal and the specific content the resolution should address. Follow Regulatory Guidelines: Familiarize yourself with any regulatory requirements that apply, such as Regulation 14a-8 in the U.S. Engage in Dialogue: Before formalizing your proposal, engage in dialogue with the company’s management and board to understand their position and potentially reach a compromise. Submit the Proposal: Follow the company’s schedule for submitting shareholder proposals, typically at least 120 days before the annual meeting.

Conclusion

The right to propose a shareholder resolution is a powerful tool for shareholders seeking to influence corporate governance. However, the process is fraught with challenges, particularly for smaller shareholders. Understanding the legal and regulatory landscape, as well as the practical steps involved, is crucial for effectively proposing and advocating for resolutions that align with your interests and the best interests of the company.

For more information, please refer to the relevant corporate laws, company bylaws, and regulatory guidelines applicable in your jurisdiction.