Previously, The Jayson Law Group LLC discussed the ability of shareholders of a corporation to call into the year meeting. In today’s post we will examine proxy voting. So, what is proxy voting? To help explain it, we are going to give you a situation:

Rachel and Steven are two of many shareholders in Widget Co, a corporation based in New Jersey.  Widget Co. holds its annual meeting every June.  During this year’s June meeting Widget Co. will be voting on a myriad of issues.  Steven will be unable to attend this year’s annual meeting.  Rachel will be attending.  Since Steven knew this, and Rachel and Steven have always agreed on issues pertaining to Widget Co., Steve told Rachel to vote his shares at this year’s annual Widget Co. meeting.

In this situation Rachel is serving as a proxy for Steven in voting his shares. Proxy voting gives the power of attorney to a shareholder to cast the vote of another legal vote holder. Proxy voting requires a signed statement authorizing one person to vote in the signer’s stead. It is used in stock businesses, where shareholders have a monetary interest. 

How is a Proxy Granted?
A proxy must be granted in the governing documents of the organization or by corporation law.

Who Prepares the Proxy?
It is usually prepared by the board of directors and mailed out whenever the association has some item of business to vote on.  These items include elections, budgets, removing directors, assessments increases or decreases, or other matters where shareholders have the right to vote.

What are the Different Types of Proxies?
A general proxy is a proxy that is written in a way that gives the proxy holder the right to vote as he or she sees appropriate on any business. Using the example above, if Steven gives Rachel a general proxy she could vote on all of the issues brought during the annual meeting.

There is also a limited proxy which only gives the proxy holder to vote on a specified issue as the member being represented chooses. The proxy holder is legally required to cast the vote the way he or she has been designated by the member. Using the example above, if Steven only wants Rachel to vote on the members of the board of directors and not vote on any of the other issues he would give her a limited proxy.  Steven would tell Rachel which members to vote for new terms.

What are the Problems With Proxy Voting?
There are two big problems with proxy voting. The first problem is that members who do not attend the meeting often do not hear the full discussion and therefore may not have all the information required to make an informed decision. The second problem is that general proxies basically give their rights to another to decide them, which could be a problem if the proxy holder changes their mind without consulting the non-present member.

This concludes The Jayson Law Group LLC’s discussion of proxy voting.  Check back for more articles discussing business law.