What is a Proxy Statement?

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Investing in a company over the long term isn’t merely about capital appreciation. While you can always be a passive investor and simply hold the shares for several years before selling them off at a profit, you can also be more laboriously involved in the company’s decisions if you choose to. This is because as a shareholder, you can attend the periodic general meetings of a company and vote on important aspects that could impact the company’s future. To get involved in an informed manner, you as a shareholder need to be aware about the various aspects of the company —  be its working, management, or prospective investors. In this regard, a proxy statement is an important document that companies prepare and circulate to inform you about the agenda of the meeting.

Want to know further about what a proxy statement is and how you can use it to your advantage as a shareholder? Find out the answers to these questions and further in this composition.

What is a Proxy Statement?

A proxy statement or a proxy circular is a document a publicly listed company sends to its shareholders a few days before an Annual General Meeting or any other shareholder’s meeting. The statement provides shareholders with the meeting agenda and important information regarding the matters to be discussed and voted upon in the meeting and even contains details of the voting procedure that needs to be followed.  

Also Read: What is Capital Stock?

What Information Does a Proxy Statement Contain?

Now that you know the meaning of a proxy statement, let’s look at some of the key information it is likely to contain. 

  • Voting procedure adopted by the company 
  • Details of all of the candidates nominated for the company’s Board of Directors 
  • Details of the financial compensation provided to the company’s directors and other management executives including salaries, equity, bonuses and deferred compensations
  • Details of all the perks and perquisites enjoyed by the company’s directors and other management executives 
  • Details of any conflict of interest between the company and directors, auditors and other management executives 
  • Details of related-party transactions between the company and its key managerial personnel
  • Details of the company’s various committees including the audit committee
  • Details of the financial compensation provided to the company’s auditors 
  • Declarations made by the company’s key managerial personnel 

Also Read: Authorized Share Capital: Definition, and Types

The Key Features of a Proxy Statement

Here’s an overview of some of the key features of a proxy statement that every publicly listed company is mandatorily required to file with the market regulator. 

  • Meeting Information and Agenda 

One of the major features of a proxy statement is that it contains details regarding the date, time and location of the proposed shareholders’ meeting. Additionally, the document also contains information regarding the list of items that would be voted on during the meeting. 

  • Shareholder Proposals

As part owners of a company, shareholders have the right to put forth proposals to the company’s management. If shareholders have submitted any such proposals to the company, the proxy statement will list them out along with the company’s stand and arguments in favour of and against them. 

  • Corporate Governance Practices

Another key feature of the proxy statement is the detailed outline of the company’s various corporate governance practices. It consists of the code of ethics followed by the company, the nomination process for directors and other governance-related matters.

  • Voting Procedure

The voting procedure of the company is discussed in detail in the proxy statement. Additionally, shareholders are issued instructions on how to cast their vote if they’re unable to attend the meeting in person. The statement may even contain information on electronic voting or the process of completing and returning proxy cards. 

  • Financial Information and Annual Report 

A proxy statement, especially one that pertains to an Annual General Meeting (AGM), may feature an annual report compiled by the company for the financial year that passed. The annual report contains key operational and financial information about the company in detail. 

  • Risk Factors 

Although not common, a proxy statement may also feature a section dedicated to potential risks and uncertainties that could disrupt the company’s business in the future. 

Why is a Proxy Statement Necessary?

As you’ve already seen, a proxy statement contains a wealth of information about a company. Here are some reasons why this document is deemed necessary by the market regulatory authority. 

  • It serves as a means of communication between the company and its shareholders. 
  • It provides shareholders with the information necessary to make informed voting decisions in a general meeting.
  • It promotes transparency by providing detailed information regarding the company’s governance practices, financials, executives and their financial compensation. 
  • It holds the company and the managerial personnel accountable for the various actions they take as part of the day-to-day business operations. 
  • It discloses material information such as potential conflicts of interest involving the company and its directors, managerial executives and other large shareholders. 

To put it simply, the proxy statement ensures accountability, transparency and shareholder participation in a company’s decision-making process. The document helps foster a democratic environment, which is essential for the proper functioning of a company. 

Conclusion

Shareholders of a company who own shares with voting rights have the right to vote in many important matters like electing the directors, selecting the auditors, facilitating mergers and more. The proxy statement that companies file with the market regulator serves to inform shareholders about the matters pertaining to issues that need to be voted on. 

A proxy statement can be a very important document if you are interested in actively voting on issues related to the company you’ve invested in. You can read this document to understand the essential details and upcoming policies of a company and contribute to its decisions. So, make sure that you understand the proxy statement from end to end and vote in an informed manner.

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