What is a Shareholder-Sponsored Proposal?

A Proposal put forth to all shareholders of a company for the annual proxy voting, sponsored by one of the company’s shareholders or a group of the company’s shareholders, is called a Shareholder-Sponsored Proposal. The Security and Exchange Commissions (SEC) Rule 14a-8, regulates the rules to monitor and exclude shareholder proposals from company proxy materials.

How Does a Shareholder Sponsored Proposal Work?

Resolutions that require shareholders to vote on to be brought into effect are called Proposals. Proposals vary in content, ranging from appointment of new Board of Directors, to sale of specific assets, change in pay structures of senior management, and similar matters that can bring in significant changes to the corporate.

Types of Proposals

• Management Proposals: Company resolutions put to vote proposed by the management.
• Shareholder Sponsored Proposals: Company matters proposed by its shareholders and put to vote annually by being included in the company’s annual proxy materials, in keeping with rule 14a-8 of the SEC Shareholder Proposals guidelines. Shareholders can forego being included in the company proxy materials and sponsor a proposal for voting by giving an advance, 120 days notice to the company and shareholders, and publishing their own proxy cards or statements. The company’s bylaws publish this advanced notice in the following proxy statement. These proposals could deal with corporate governance issues, ecological impact of the company, social responsibilities, financial liabilities, and more.
• Eligibility to Sponsor a Shareholder Proposal – Being in possession of at least $2000 worth of equities in the company, or 1% stake in the company, for a period of one year, is a must to be eligible to propose a vote as a shareholder. Equities holding must continue until the Proposal goes to vote. The Company Proxy Materials published after the Proposal to Vote, mention the company’s stance on the issue.
• SEC Rules and Regulations Regarding Proposals – Company’s can take one of the following routes once a Shareholder Sponsored Proposal enters the picture.

1. Entertain a Shareholder Sponsored Proposal by publishing its details in the next proxy materials issue. Declare their stance in favour of, or against, the proposal, and let it go to vote.
2. Approach the shareholders to negotiate a deal to withdraw the proposal or make appropriate amendments to accommodate its demands.
3. Submit a No-Action request to the SEC to exclude the Proposal from the next proxy materials issue. There are many clauses on the basis of which a No-Action request can be filed. Chief amongst them are:
   1. Proposed action is in breach of State Laws.
   2. Legal implications if the proposal is passed.
   3. Proposal is based on misleading data and assumptions.
   4. It doesn’t fall under SEC guidelines for Shareholder Sponsored Proposals and relates to matters that aren’t a shareholders domain.
   5. Proposed changes are negligible and already in effect.