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Corporate Governance: What is a Shareholder Proxy?

San Diego and California corporations are owned by shareholders. Typically, at least once a year, the shareholders meet to vote their shares — usually one vote per share — for members of the board of directors. The board runs the corporation in terms of business operations. The shareholders also vote on other “high-level” corporate matters such as mergers and/or acquisitions. Sometimes a shareholder cannot attend the shareholder meetings and will appoint or designate a person to vote on his or her behalf. This is called a “proxy.” A proxy is usually a document that designates the proxy-holder and is signed by the person giving the proxy. A proxy allows the person appointed to vote and exercise other shareholder rights.

Proxies are governed by three mechanisms – what the proxy says, the bylaws or other rules of the corporation, and California statutes. Each may affect the powers of the proxy in the following categories:

  • Method of making a proxy — in writing only, for example
  • Who may give a proxy — only the shareholder or the shareholder’s attorney, or can the proxy-holder give the proxy to another?
  • Notice to the corporation
  • Length of time that the proxy is valid
  • Powers that can be exercised — does the proxy give discretion or must the proxy-holder vote as instructed?
  • Fiduciary duties owed by the proxy-holder

The main statutory provision for proxies is California Corporations Code, § 705. Section 705 provides that “[e]very person entitled to vote shares may authorize another person or persons to act by proxy with respect to such share…” The section also provides that proxies are “presumptively valid” and are valid for eleven months unless the proxy says otherwise. The statute sets out rules for revoking proxies (revoked by writing and giving notice to the corporation or by giving a new proxy to another person) and the effect of death or incapacity (proxy is valid until notice is received by the corporation).

In general, the person holding the proxy owes his or her duty of loyalty to the shareholder who authorized and gave the proxy.

In general, proxies must be in writing. California Corporations Code, §178 states that a proxy “means a written authorization…” The concept of “written” now includes various electronic formats. A proxy must also be “signed,” but, again, a “signature” need not be a manual signature with pen and ink but can include a typewritten signature and various electronic signatures. While in general a proxy must be in writing, section 178 does provide this alternative: “[a] proxy may be transmitted by an oral telephonic transmission if it is submitted with information from which it may be determined that the proxy was authorized by the shareholder, or his or her attorney in fact.”

In terms of who may make a proxy, the shareholder or his/her attorney in fact may sign the proxy. In terms of what the proxy must say, no specific words are required as long as the proxy expresses the intent to allow another to vote the shares held by the shareholder.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses. Mr. Leonard can provide advice and counsel on starting up a new business, forming a new corporate entity, can assist with corporate formalities like proxies and shareholder meetings, and can help review and draft business contracts. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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