Key Takeaways

  • A proxy agreement authorizes one party to act on another’s behalf, commonly used for voting in corporate or legal contexts.
  • Proxy agreements are legally binding and must comply with corporate bylaws and relevant regulations.
  • There are different types of proxy arrangements, including limited, general, and irrevocable proxies.
  • Proxy holders can be subject to fiduciary duties and may need to follow specific procedures to exercise rights.
  • Proxy agreements can be terminated or revoked under certain conditions.

A proxy contract is necessary if you want to have another person act on your behalf in a corporate matter. This is a useful tool if you live a far distance from where the stockholder’s meetings are held, you have other business to tend to, you cannot physically get to the voting location, or if you simply cannot be there for any reason.

The Definition of a Proxy Agreement

A proxy agreement is an agreement that allows a person to do legal tasks for another person. Proxy agreements are commonly seen in stock voting, in which a person gives another person permission to vote on their behalf.

In many cases, the power of the stockholder to vote can be granted to a proxy. It is a simple agreement that lets one person represent someone else.

Common Uses of Proxy Agreements

Proxy agreements are most often used in corporate governance, where shareholders may be unable to attend meetings and instead appoint a proxy to vote on their behalf. However, their use extends beyond shareholder voting. They may also be used in:

  • Healthcare decisions, such as authorizing someone to act as a healthcare proxy in the event of incapacitation.
  • Real estate transactions, where a buyer or seller designates a proxy to sign documents.
  • Legal proceedings, allowing an individual to act on behalf of another in litigation or arbitration settings.
  • International business, where investors or owners based abroad appoint a domestic representative.

Proxy Voting

Proxy voting is commonly used during legislative voting. It is only permitted if the legislative body as decided to use it during the proceedings.

Legal Requirements and Formalities

To be valid, a proxy agreement must typically meet specific legal requirements depending on the jurisdiction or organization’s bylaws:

  • Written Authorization: Most proxy agreements must be in writing and signed by the party granting authority.
  • Duration: Some agreements specify a timeframe, while others remain valid until revoked.
  • Scope: The agreement should define whether the proxy can vote on all matters or is limited to specific issues.
  • Compliance with Law: Proxy arrangements must adhere to federal and state corporate governance laws (e.g., SEC regulations for publicly traded companies).

Proxy

With regard to corporate law, proxy refers to the authority to make stock votes. It is provided in the corporate charter and bylaws of the corporation. If the authority is not stated in the company charter, a proxy cannot be used. The owner of the stock that has his or her name registered with the corporation is the only one who can delegate his or her right to vote.

Unless it is required, there is no form you need to use to vote as a proxy. However, there has to be evidence that the proxy is allowed to vote.

A proxy is still valid even if there are errors or other problems with the document. In general, anyone who is a stockholder with power at a corporate meeting can delegate that power to a proxy.

A proxy may vote on normal corporate business matters. The proxy may not vote on major corporate matters, like a merger, without explicit authority.

Anything the proxy does within his or her authority is bound by the stockholder just as if he or she acted at the meeting in person.

A proxy may be removed whenever the stockholder sees fit unless it is being made irrevocable. If the stockholder decides to sell his or her shares in a company, it automatically removes any proxies that were given the right to vote.

Proxies can also be revoked if the stockholder attends the meeting himself. A stockholder in a company may act as a proxy for another stockholder, but is not a requirement.

Types of Proxy Agreements

There are several types of proxy agreements, each suited to different scenarios:

  • General Proxy: Grants broad authority to act on the shareholder's behalf for all voting matters.
  • Limited Proxy: Restricts the proxy to specific issues or agenda items.
  • Irrevocable Proxy: Cannot be revoked for a certain period or under specific conditions (commonly seen when tied to a contract or debt obligation).
  • Revocable Proxy: Can be withdrawn at any time by the principal.

Understanding the type of proxy used is essential for determining its enforceability and limits.

Designation of Proxy

To designate a proxy, a shareholder has to appoint a proxy and provide complete power of substitution for that person to vote on his or her behalf at a shareholder meeting held by the company.

Exercise of Voting Rights

  1. Voting discretion- the proxy is allowed to vote and otherwise act on any other right given to the stockholder at a meeting. The proxy is given the consent to deal with any action required of the company.
  2. Action requiring previous approval- a proxy cannot do certain things without written permission from the shareholder. This includes making a sale of assets belonging to the company, consolidating, reorganizing, or dissolving the company.

Fiduciary Responsibilities of a Proxy

While not always legally bound by fiduciary duty, proxies—especially in shareholder scenarios—may be expected to:

  • Act in the best interest of the shareholder they represent.
  • Avoid conflicts of interest.
  • Abstain from self-dealing or misrepresentation.
  • Follow any instructions provided in the proxy agreement.

Violations could result in legal consequences or invalidation of actions taken.

Action Upon Approval

When provided with a written request, and proxy can take certain actions that authorize or approve any action requiring prior approval. The proxy must discuss anything dealing with those actions with the shareholder or she won’t have all the necessary information to ensure that any action taken will be legal.

Anything that the proxy does with regard to the company without the written approval of the shareholder is considered void.

Limitations on Liability

If the shareholder has not left any instructions for the proxy, he or she has to act for the shareholder according to his or her best judgment. The proxy will not be responsible for any action taken against the shareholder after making his or her judgment call.

Termination and Revocation of Proxy Agreements

A proxy agreement can be terminated or revoked through various means:

  • Written Revocation: The principal may issue a signed statement canceling the proxy.
  • Attending the Meeting: If the principal attends the meeting and votes, it typically overrides the proxy.
  • Expiration Clause: Some proxies automatically expire after a specific date or event.
  • Transfer of Shares: Selling the stock usually nullifies the proxy unless otherwise specified.
  • Mutual Agreement: Both parties can agree to end the proxy relationship.

In some cases—such as irrevocable proxies—the agreement may remain in effect until certain conditions are met.

Frequently Asked Questions

  1. What is a proxy agreement used for?
    A proxy agreement is used to authorize someone to act on your behalf, often in shareholder meetings, legal proceedings, or healthcare decisions.
  2. Is a proxy agreement legally binding?
    Yes, if properly executed and compliant with relevant laws, a proxy agreement is legally enforceable.
  3. Can a proxy agreement be revoked?
    Most proxy agreements are revocable unless explicitly stated as irrevocable. They can typically be revoked in writing or by direct participation in the authorized matter.
  4. Do proxy holders have fiduciary duties?
    In many cases, yes. They must act in the best interest of the individual they represent and may be held accountable for misconduct.
  5. What’s the difference between a general and limited proxy?
    A general proxy grants broad authority to act on all matters, while a limited proxy restricts authority to specific decisions or issues.

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