A “proxy” is the appointment of a person to act for you in terms of voting your shares and/or in terms of exercising your various rights as a shareholder under the bylaws and statutory law of the state of incorporation. See our article on Corporate Warfare: Who Has What Power When Push Comes to Shove?
Both the bylaws of a corporation and the state statute may restrict or expand the ability to appoint proxies, the methods to appoint them, and the length of time the proxy retains power. Normally, the proxy is charged with a fiduciary duty to the shareholder but in all other respects is free to exercise his or her judgment subject to any instructions given to the proxy by the shareholder. Absent restrictions in the bylaws, the corporation normally does not have the right to bar appointment of proxies.
The usual bylaws of a typical California corporation will provide that every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. Usually, no proxy shall be valid after 11 months from the date of the execution, unless otherwise provided in the proxy. California Corporations Code. (See Cal Corp Code§ 705.)
Powers of a person or persons acting as a Proxy:
The proxy has the power to vote with respect to the shares of the shareholder who authorized the proxy. Cal Corp Code §§178, 705.
Authorizing and appointing a person or persons to act as a Proxy:
Who can authorize:
Every person who is entitled to vote shares may authorize another person or persons to act as a proxy in respect to those shares. Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the California Corporations Code (as discussed herein) shall be presumptively valid. The proxy continues in full force and effect until revoked by the person executing it (or until it expires after 11 months.)
Form and method of authorization:
Under the California Corporations Code, Section §178, a proxy is written authorization which is signed, or an electronic transmission that is authorized by the shareholder or the shareholder’s attorney in fact. “Signed” under the code means placing the shareholder’s name or other authorization on the proxy whether by manual signature, typewriting, telegraphic or electronic transmission or otherwise by the shareholder or the shareholder’s attorney. A proxy may also 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. California Corp Code§ 178.
Generally, no specific words are required to create a proxy. The instrument that creates the proxy may be informal, Smith v. San Francisco & N.P.R. Co. (1897) 115 Cal. 584, 598, such as a letter that acknowledges the right of one who is not a shareholder to vote. Shamel v. Lite Prod. Sales, Inc. (1955) 131 Cal. App. 2d 33, 36-37.
One often hears of proxy wars in public corporate struggles to achieve control of large corporations. Typically, a minority shareholder will seek to obtain proxies from enough other shareholders to form a block sufficient to take control of the company. With most publicly traded companies, in which millions of shares are outstanding, voting by proxy is often the typical way in which most people vote and the company often sends forms to nominate proxies (a committee of the board quite often) to the various shareholders scattered about the world. Proxy wars in that context usually have mailings to the shareholders in which a group of other shareholders seek to undercut the Board’s own proxy solicitation.
In privately held companies, use of proxies is normally done for convenience since quite often family members do not want to attend meetings or learn the intricacies of the company and select other family members or professionals to attend and vote the stock. However, if there is a struggle within the company, the same motivations that exist in the largest company can exist in the privately held company and use of proxies can shift the balance of power.
By limiting the length of time before renewal of a proxy is required by law, the State has sought to avoid fully absentee owners in which the vital protections and powers given to shareholders are forever given away by “permanent” proxies. That should indicate to the reader both the importance of carefully selecting who should be given a proxy and what limits should be imposed on the holder of the proxy.