Shareholder Resolutions

By David Gass

Shareholders can bring a proposal for certain resolutions as part of the company’s annual meeting procedures. In order to file a proposal a shareholder must own at least $2,000 worth of shares or roughly 1% of all shares in a company and own these shares for a minimum period of one year as per the rules of the US Securities and Exchange Commission (SEC). The Securities and Exchange Commission protects the interest of the company and the shareholders. A resolution must be submitted usually 120 days before the date on which the company releases its previous year’s proxy statements to its shareholders. The shareholder may file one resolution per year and it cannot be longer than 500 words. The resolution proposed has to be clearly written and must have background material that ought to justify the need to implement the proposed resolutions. The shareholder may send a draft to the company and get a clear idea, if the company objects the proposed resolution partially or fully. The resolution has to be submitted along with a covering letter to the Chief Executive Officer (CEO) of the company. The secretary of the corporation is the one who deals with shareholder resolutions. It is recommended to file the resolution well in advance in order to negotiate with the corporation and to prepare for the annual meeting. It is advised to send a copy of the proposed resolution to the SEC also. A corporation may decide to put to vote the resolution, or object partially or fully and may send its reasons to the SEC regarding the company’s decision on the proposed resolution. The SEC allows the corporation 13 reasons to reject a proposal.

Reasons for a Company to Reject a Proposal

1. If the company considers the proposal not a proper subject to take action, this depends on the applicability under the State laws.
2. If the proposal would require the company to violate state and federal laws.
3. If the proposal is contradicting the company’s proxy rules and regulations
4. If the proposal benefits only the shareholder who proposed the resolution and not all the other shareholders, or if it acted out of a grudge against the company.
5. If the proposal accounts for only 5% or less than the company’s assets at the end of the recent fiscal year, or less than 5% of the net earnings and gross sales of the recent fiscal year.
6. If the resolution involves issues outside the company’s control.
7. If it relates to the conduct of ordinary business operations of the company.
8. If the resolution concerns an election to office.
9. If it is counter to a resolution to be submitted by the company at the annual meeting.
10. If the proposed resolution has been rendered moot.
11. If the proposed resolution is a duplicate of another proposal submitted earlier by another shareholder, which is going to be voted on at the annual meeting.
12. If the proposal is a duplicate of any proposal submitted within the preceding 5 calendar years.
13. If the resolution that has been proposed relates to specific amounts of cash or stock dividends.

The shareholders must be quick to act as the company may wait until the last 60 days before the annual meeting to disclose the proxy statements. The company has to notify that it is omitting and rejecting the resolution based on the 13 reasons and the SEC will review the situation and decide if the company has the right to do that based on the rules.

The Internet and the variety of softwares available today are helping the shareholders and corporations regarding the implementation of corporate resolutions.

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