What Is Shareholder Resolution?
A shareholder resolution is a non-binding suggestion to the board of directors of a public corporation that's regulated by the SEC.3 min read
A shareholder resolution is a non-binding suggestion to the board of directors of a public corporation that's regulated by the U.S. Securities and Exchange Commission (SEC). Recommended by shareholders, resolutions are presented and voted on during the organization's annual shareholder meeting.
A shareholder resolution is usually required when one of the following documents needs an amendment:
- Corporate bylaws
- Articles of incorporation
- Other miscellaneous corporate documents
Additionally, a shareholder resolution may be requested to update the corporate directors or to sell, issue, or buy shares of stock.
Essentially, any important update or decision should be accompanied by a stockholder resolution document. Although shareholder resolutions are merely advisory, they're usually a motivational way to create change in corporate board policy. A shareholder resolution is a document that identifies the actions that were taken by the stockholders of a corporation.
In order for an individual stockholder to file a shareholder resolution, they must be a beneficiary or an owner of at least $2,000 of common stock and they must have owned the stock for at least one year. Also, the resolution needs to be relevant to the organization and must be related to something that the board can take action on. Stockholders are able to introduce shareholder resolutions to the management of the company prior to the next annual shareholder meeting. The resolutions may relate to:
- Company procedures and policies
- Environmental or social concern
- Corporate governance
Shareholder resolutions are considered by many to be an essential way to strengthen corporate responsibility and discourage unethical or unsustainable practices. Shareholder resolutions will often times fail to win the required number of votes to forcibly create change but still triumph in persuading management to support the change based on a significant following. Resolutions must be submitted 120 days prior to the date of the release of the annual proxy statement and are limited to 500 words.
Section 14a-8 in the Securities Exchange Act of 1934 regulates the inclusion of stockholder proposals included in proxy statements. Once the corporation receives the stockholder's proposal, they may decide to omit the resolution in the proxy statement if it doesn't meet the criteria laid out by the SEC. In order to omit the resolution from the proxy statement, the corporation will need to file a notice of omission with the SEC at least 60 days prior to the release. The SEC will notify the corporation if they are justified in omitting the resolution. In cases where the resolution meets the SEC criteria, it's included in the proxy statement that will be sent to stockholders.
A majority of stockholder voting takes place by proxy. In other words, most votes are cast prior to the annual meeting. The stockholder that proposed the resolution will present it at the meeting and a formal vote will take place. In cases where the resolution fails, the SEC may limit the number of times it may be presented again in the future. On the other hand, if the resolution passes, it will be used to inform and advise the board of directors. Stockholder resolutions are traditionally proposed to influence the board on the following types of issues:
- Human rights
Remember, a shareholder resolution is much different than a corporate resolution. A corporate resolution occurs when a decision is contrived by the board of directors and is mandatory on the business. This can sometimes be confusing in businesses where the stockholders serve as directors.
SEC Rules on Subject Matter and Format of Resolutions
SEC guidelines require all shareholder proposals to be no more than 500 words, may not embody any misleading or false information, and may not be based on or galvanized by personal resentment. Proposals may not address daily operations or ordinary business topics, such as personnel changes, employee benefits, or the sale of inventory. All proposals must address significant public concerns, such as social and governance policy or environmental related issues.
The stockholder that proposed the resolution must attend the annual meeting in person to formally present the resolution. Most businesses will treat resolutions that are not presented as if they were never filed. Corporations looking to block resolutions will typically challenge them by questioning the length or content of the proposal.
The SEC will act as a mediator in these types of cases and will mediate them by communicating information between both parties. The SEC will be the sole decision maker and will determine if the resolution will be omitted or included in the proxy statement.
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