What is Proxy Statement?

Investors invest in a company with a positive point of view, hoping that every managerial decision will be favourable and contribute to the company’s growth. However, if a decision turns out to be negative, it can force the shareholders to lose a chunk of their investments as the share price is likely to dip. In such cases, the shareholders demand that the decisions taken by the management must go through them by voting in shareholder meetings.

In the US, the Securities and Exchange Commission has made it mandatory for every publicly traded company to provide such valuable information regarding every managerial decision to the shareholders. Therefore, the SEC requires the filing of a proxy statement.

What is the Securities and Exchange Commission (SEC)?

The Securities and Exchange Commission (SEC) is the nodal department of the United States that regulates and manages the securities market in the US. Similar to SEBI, the SEC is also an independent central regulatory agency that protects the rights of investors and ensures that the securities market functions within the specified guidelines and framework. The main aim of the SEC is to avoid any fraudulent activities in the securities market by promoting full and transparent disclosure. Furthermore, the approval registration statements are also given by the Securities and Exchange Commission (SEC) to various bookrunners among underwriting firms.

What is a Proxy Statement?

A proxy statement is a legal document that a company must provide to its shareholders (investors who hold the company shares) to make further informed investment decisions. It is a document that the Securities and Exchange Commission requires under its regulatory measures to ensure that the shareholders are informed of the matters that will be discussed in the Annual General Meeting or the shareholder meeting of the company. The general issues covered in a proxy statement tend to include the directors’ salaries, the addition of new directors, information about bonuses or dividends, options plan for directors and any other declarations the company’s management makes.

Understanding a Proxy Statement

Every decision a company’s management takes directly affects the company's profits and the share price. The shareholders who currently hold the shares of the company hope for the share price to go up or the company to make good profits and declare dividends. However, if the company’s management takes a decision that can negatively affect the company’s operational structure, they want to know it as soon as possible so that they can adjust their positions and limit their losses.

A proxy statement allows the shareholders to know about such decisions in detail. A publicly-traded company is under a legal obligation to file a proxy statement before the annual meetings. The SEC requires such companies to provide material information to the shareholders through the proxy statement to allow shareholders to vote on affecting matters and approve the nominated directors. The SEC requires the companies to file the proxy statement as Form DEF 14A or as a definitive proxy statement. Shareholders can find it for any publicly-traded company on the SEC's database known as the electronic data gathering, analysis and retrieval system (EDGAR).

Benefits of Proxy Statement

The main aim of the proxy statement is to ensure that the shareholders get all the relevant information that can change the course of their investment. The various benefits of a proxy statement are as follows:

  • Company’s Management: The proxy statement allows shareholders to know about the company’s management profile and the employment history of the directors. The shareholders can analyse the management based on their experience, educational qualification and past decisions. Furthermore, the proxy statement also provides information on the new candidates for directors, which the shareholders can vote on in the annual meetings.

  • Compensation of Directors: The proxy statement allows shareholders to seek transparency in the salary structure of the company’s directors. The shareholders can know whether the company is insider-oriented or shareholder-oriented based on how much they are paying the directors. The proxy statement also provides information regarding the options positions of the management along with the vested interest for each of them.

  • Senior Level Debt Structure: Almost all companies provide loans to their senior-level directors or executives, which is not looked at positively by the shareholders as it increases the company’s financial obligations and reduces cash. The proxy statement allows the shareholders to have information about any loans the company has extended to the senior management and the status of such loans regarding default or repayment.

  • Company Deals: A part of the proxy statement details the deals made by the company for benefiting the shareholders. The shareholders can know about the transactions made by the company to purchase raw material from a related party such as the directors or the executives. It allows shareholders to understand whether the company is treating any executive on a preferential basis.

  • Auditor’s Change: Auditors are third party individuals who audit the company to ensure every transaction is done legally and there are no hidden company operations. The proxy statement allows shareholders to know about any audit structure in the company regarding new auditors.

Features of Proxy Statement

Here are some of the most important features of a proxy statement that is required to be filed by every publicly traded company:

  • Voting Procedure: The proxy statement discloses the voting procedure of the company and the structure of how the shareholders will vote on various matters in the annual meeting.

  • Conflict of Interest: The proxy statement discloses any conflict of interest within the management, such as between the directors, executives and auditors.

  • Indirect Shares: If the shareholders are holding the shares indirectly; in the name of the broker or any other company, they may not be entitled to the company’s proxy statement.

  • Proxy Vote: The proxy statement allows for a proxy vote, where the shareholders can delegate their right to vote to a representative if they can not physically attend the shareholder meetings. However, the shareholders are still entitled to a proxy statement.

  • Penalties: If a company fails to file the proxy statement in time with the SEC can file the statement using SEC Form 12b-25, also known as the Notification of the late filing. However, if the company fails to file again, it can be penalised by the SEC depending on the number of days passed before it is filed again.

Final Word

A proxy statement is one of the most vital documents for the shareholders to know where the company is headed and how they can adjust their investments for the future. You can find the document on the Electronic Data Gathering, Analysis and Retrieval System (EDGAR). Once you do, you can analyse the proxy statement to find all the information about the company you have invested in and make further informed investment decisions.

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Frequently Asked Questions Expand All

You can find the proxy statements of all the publicly traded companies proxy statements on EDGAR and analyse them to better understand how the companies file proxy statements.

All the foreign companies that have SEC-registered securities in the US are required to file their proxy statements with the SEC. You can find the proxy statements using EDGAR.

If a company fails to file the proxy statement on time, it can file through the Notification of late filing using SEC Form 12b-25.