To Seek Exclusion Of Shareholder Proposals, Companies May Bypass "No-Action Letter Request" And Go Directly To Federal Court


The SEC notes it will defer to a court's decision to exclude shareholder proposals. Companies faced with unwelcome shareholder proposals might consider seeking declaratory judgments to exclude them.

As an alternative to filing a Rule 14a-8 No-action Letter Request with the U.S. Securities and Exchange Commission (SEC), a company may seek a declaratory judgment from a federal court to exclude a shareholder's proposal from its proxy materials. A federal court recently allowed a shareholder proposal to be excluded from a company's proxy materials, based on the proposing shareholder's failure to properly demonstrate ownership of the company's shares.

The court concluded that:

A company has standing under the Declaratory Judgment Act to challenge a shareholder proposal, even if the proposing shareholder promises not to sue if the proposal is excluded.

A shareholder must comply with the proof-of-ownership requirements to submit a proposal.

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Published In: Business Organization Updates, Civil Procedure Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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