What is a 'Proxy'?

A proxy is an agent legally authorized to act on behalf of another party or a format that allows an investor to vote without being physically present at the meeting. Shareholders not attending a company's annual meeting may choose to vote their shares by proxy by allowing someone else to cast votes on their behalf, or they may vote by mail.

BREAKING DOWN 'Proxy'

While proxy voting is often provided as an option, a shareholder is encouraged to vote in person whenever possible. If the shareholder cannot attend, voting by proxy is another option. For a person to act as a proxy for an individual, formal documentation may be required that outlines the extent to which the proxy can speak on the individual's behalf. A formal power of attorney document may be required to provide the necessary permissions to complete certain actions. The power of attorney is signed by a shareholder and extends official authorization to the designated individual to vote on behalf of the stated shareholder at the annual meeting.

Proxy Statements

Before the annual shareholder meeting, a packet of information containing the proxy statement is sent to all shareholders. The proxy documents provide shareholders with the information necessary to make informed votes on issues important to the company's performance. A proxy statement is known to offer shareholders and prospective investors insight into a company's governance as well as management operations. The proxy discloses important information on agenda items for the annual meeting, lists the qualifications of management and board members, serves as a ballot for elections to the board of directors, lists the largest shareholders of a company's stock and provides detailed information about executive compensation.There are also proposals from management as well as shareholder proposals.

Proxy statements must be filed with regulatory authorities, such as the Securities and Exchange Commission (SEC) in the United States, on an annual basis before the company's annual meeting.

When voting by proxy is done remotely, shareholders may be eligible to vote by mail, phone or internet. Shareholders use the information in the proxy statements to aid in the decision-making process.

Reasons for Shareholders to Vote by Proxy

Management often encourages shareholders to vote by proxy so that ownership interests are fully represented even if shareholders are unable to attend the company's annual meetings in person. Information presented during annual meetings often affects the future direction of the company, which can directly impact the value of a shareholder’s stake in the company.

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