May 27, 2020

May 26, 2020

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Did The SEC Misstate State Law In Proposing Changes To Shareholder Proposal Rule?

Yesterday, the Securities and Exchange Commission proposed amendments to Rule 14a-8, which requires companies subject to the federal proxy rules to include shareholder proposals in their proxy statements, subject to certain procedural and substantive requirements.  The proposing release asserts the following with respect to state law:

"Under state law, a shareholder generally has the right to appear in person at an
annual or special meeting and put forth a resolution to be voted on by the shareholders."

That sounds like a correct statement, but is it?  Interestingly, the California General Corporation Law does not expressly provide that shareholders have a right to appear and put forth resolutions.  Nonetheless, the GCL implicitly assumes that shareholders will be present at meetings of shareholders either in person or in proxy.  

It is clear, however, that shareholders do not have a right to show up at a special meeting and put forth a resolution as to matters, the general nature of which was not included in the notice of meeting.  Corporations Code Section 601(a) provides that in the case of a special meeting the notice of meeting must state "the general nature of the business to be transacted, and no other business may be transacted . . ." (emphasis added).

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...