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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.

Related Topics

• Corporate Governance Law (Intro)
• What is Business Governance?
• Berle-Means Thesis 
• Corporate Governance Rating Definition
• Who are the members of a corporation?
• Corporate Charter
• Shareholder Register
• Common Stock
• Preferred Stock
• Par Value
• Authorized Shares
• Issued Shares of Stock
• Unissued Shares of Stock
• Outstanding Shares
• Institutional Shares
• Dual Class Shares
• What is a closely-held corporation?
• Close Corporation Plan Definition
• What is a Private Company vs a Public Company?
• What is the role and purpose of the corporation?
• What is the Agency theory of corporate governance?
• Shareholder-Centric Perspective
• Shareholder Value
• What is the Stakeholder theory of corporate governance?
  
• What is the role & rights of Shareholders in the corporation?
  
• Shareholder Democracy Definition
• Quorum Definition
• Information Circular
• Straight and Cumulative Voting
• Statutory (Straight)
  
• Cumulative Voting
• Plurality Voting
• Class Voting Shareholders
• Changing the Voting Rules
• Supermajority (Voting)
• Shareholder Sponsored Proposal 
• What are the variations on attributes of Ownership structure?
• Stock Split
• What are the fiduciary duties owed by shareholders?
• When is a shareholder personally liable for corporate obligations?
• Appraisal Rights
• Dissenter's Rights
• Say on Pay Rights
• How can shareholder enforce their rights (direct and derivative actions)?
• Amotion
• What is the process for bringing a Derivative action?
• What are corporate vote Proxies?
• Proxy Statement
• Proxy Fight or Contest Definition & Explanation 
• What is Shareholder Activism and the significance of Institutional Investors?
• Activist Investor
• Overview of Board of Directors
• Board Decision Making
• Advisory Board (Observer Directors)
• What is the role of the Board of Directors?
• Board of Trustees
• Board of Governors
• What is the composition of the board of directors?
• Chairman of the Board
• CEO as Chairman of the Board
• Inside Director
  
• Outside Director
• Outside Director or Non-Executive Director Definition
• Independent Outside Director
• Budget Committee
• Audit Committee
• Compensation Committee
• Nomination Committee (Corporate Board)
• What standards govern the actions of the board of directors?
• Duty of Candor Definition
• Duty of Care (Board of Directors)
• Duty of Loyalty (Directors) 
• Self-Dealing
• Board Evaluation Definition
• What is the Business Judgment Rule?
• What is D&O insurance?
• Codetermination (Foreign)
• What is the role of Managers of the corporation?
• What standards govern manager actions?
• Chief Executive Officer (CEO)
• Chief Financial Officer
• Chief Information Officer (CIO)
• Chief Investment Officer (CIO)
• Chief Legal Officer
• Chief Operating Officer
• Chief Risk Officer
• Chief Security Officer
• Chief Technology Officer (CTO)
• What are the primary state and federal corporate governance laws?
• What is the role of the state in corporate governance?
• What is the role of Securities Laws in corporate governance?
• What is the role of the Foreign Corrupt Practices Act in corporate governance?
• What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
• Sarbanes-Oxley Act (SOX)
• What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
• Corporate Monitors
• What industry organization standards affect corporate governance?
• How do proxy advisory firms affect corporate governance?
• What is the role of ethics in corporate governance?
• What are the major causes of corporate governance issues?
• What are the access to information issues?
• What are decision-making structure issues?
• What are the power struggle or competition issues?
• Holding Company
• What are hostile takeovers and defenses to hostile takeovers?
• Williams Act
• Staggered Board
• Shark Repellent Defenses?
• Poison Pill Defenses?
• Flip Over Poison Pill Definition
• Flip In Poison Pill Definition
  
• Voting Poison Pill Plan
• Delay-Tactic Defenses?
• Legal Lockup Defenses?
• White Knight and Pac Man Defenses?
• Jonestown Defense
• Lady Macbeth Strategy
• Macaroni Defense
• Yellow Knight
• Back-end Plan Definition
• Backflip Takeover Definition
• Dead Hand Provision Definition
• Kamikaze Defense
• Operating Company Property Company Model
• Whitemail
• Scorched Earth Policy Definition
• Revlon Rule
• What are benefit-alignment issues?
• Cadbury Rules Definition