FREE DOWNLOAD: Living with Rejection – Reasons Why Shareholder Proposals are Excluded

The Shareholder Activist - FREE DOWNLOAD: Living with Rejection – Reasons Why Shareholder Proposals are Excluded Shareholder proposals are rarely successful. However, before your proposal can even be considered, it first needs to pass muster, and there are many reasons why it can be “excluded” by management.

Below is a basic summary of many of the reasons executive management may exclude your shareholder proposal. This list is meant for informational purposes only and is not meant to be the definitive list. Any investor planning to submit a shareholder proposal should first review the latest guidance provided by the US Securities & Exchange Commission or, ideally, consult with an attorney that specializes in securities law.


 Summary of Reasons for Exclusion (With Descriptions)


You do not meet the minimum eligibility requirements as a shareholder.

In order to be eligible to submit a proposal, you must have continuously held at least $2,000 in market value, or 1%, of the company’s securities entitled to be voted on the proposal at the meeting for at least one year by the date you submit the proposal. You must continue to hold those securities through the date of the meeting.

Your name does not appear on the company records as a shareholder of record.

If you are the registered holder of your securities, which means that your name appears in the company’s records as a shareholder, the company can verify your eligibility on its own, although you will still have to provide the company with a written statement that you intend to continue to hold the securities through the date of the meeting of shareholders. However, if like many shareholders you are not a registered holder, the company likely does not know that you are a shareholder, or how many shares you own. In this case, at the time you submit your proposal, you must prove your eligibility to the company in one of two ways:

 (i) The first way is to submit to the company a written statement from the “record” holder of your securities (usually a broker or bank) verifying that, at the time you submitted your proposal, you continuously held the securities for at least one year. You must also include your own written statement that you intend to continue to hold the securities through the date of the meeting of shareholders; or

 (ii) The second way to prove ownership applies only if you have filed a Schedule 13D (§240.13d–101), Schedule 13G (§240.13d–102), Form 3 (§249.103 of this chapter), Form 4 (§249.104 of this chapter) and/or Form 5 (§249.105 of this chapter), or amendments to those documents or updated forms, reflecting your ownership of the shares as of or before the date on which the one-year eligibility period begins. If you have filed one of these documents with the SEC, you may demonstrate your eligibility by submitting to the company:

 (A) A copy of the schedule and/or form, and any subsequent amendments reporting a change in your ownership level;

 (B) Your written statement that you continuously held the required number of shares for the one-year period as of the date of the statement; and

 (C) Your written statement that you intend to continue ownership of the shares through the date of the company’s annual or special meeting.

You submitted more than one proposal.

Each shareholder may submit no more than one proposal to a company for a particular shareholders’ meeting.

Your proposal exceeds the maximum word count of 500 words.

The proposal, including any accompanying supporting statement, may not exceed 500 words.

You submit your proposal late.

If you are submitting your proposal for the company’s annual meeting, you can in most cases find the deadline in last year’s proxy statement. However, if the company did not hold an annual meeting last year, or has changed the date of its meeting for this year more than 30 days from last year’s meeting, you can usually find the deadline in one of the company’s quarterly reports…In order to avoid controversy, shareholders should submit their proposals by means, including electronic means, that permit them to prove the date of delivery.

You do not personally present the proposal at the annual shareholders’ meeting.

Either you, or your representative who is qualified under state law to present the proposal on your behalf, must attend the meeting to present the proposal. Whether you attend the meeting yourself or send a qualified representative to the meeting in your place, you should make sure that you, or your representative, follow the proper state law procedures for attending the meeting and/or presenting your proposal…If you or your qualified representative fail to appear and present the proposal, without good cause, the company will be permitted to exclude all of your proposals from its proxy materials for any meetings held in the following two calendar years.

Your proposal is considered “improper” under state law.

Depending on the subject matter, some proposals are not considered proper under state law if they would be binding on the company if approved by shareholders. In our experience, most proposals that are cast as recommendations or requests that the board of directors take specified action are proper under state law. Accordingly, we will assume that a proposal drafted as a recommendation or suggestion is proper unless the company demonstrates otherwise.

Your proposal advocates the violation of law.

If the proposal would, if implemented, cause the company to violate any state, federal, or foreign law to which it is subject…We will not apply this basis for exclusion to permit exclusion of a proposal on grounds that it would violate foreign law if compliance with the foreign law would result in a violation of any state or federal law.

Your proposal is a violation of proxy rules.

If the proposal or supporting statement is contrary to any of the Commission’s proxy rules, including §240.14a-9, which prohibits materially false or misleading statements in proxy soliciting materials.

Your proposal is an attempt to address a personal grievance or is self-serving your interests.

If the proposal relates to the redress of a personal claim or grievance against the company or any other person, or if it is designed to result in a benefit to you, or to further a personal interest, which is not shared by the other shareholders at large.

Your shareholder proposal has questionable relevance.

If the proposal relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.

The company lacks the authority to implement.

If the company would lack the power or authority to implement the proposal.

Your proposal is related to general management functions.

If the proposal deals with a matter relating to the company’s ordinary business operations.

Your proposal is related to director elections.

If the proposal:

 (i) Would disqualify a nominee who is standing for election;

 (ii) Would remove a director from office before his or her term expired;

 (iii) Questions the competence, business judgment, or character of one or more nominees or directors;

 (iv) Seeks to include a specific individual in the company’s proxy materials for election to the board of directors; or

 (v) Otherwise could affect the outcome of the upcoming election of directors.

Your proposal conflicts with company’s proposal.

If the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting… A company’s submission to the Commission under this section should specify the points of conflict with the company’s proposal.

What you propose is already being implemented.

If the company has already substantially implemented the proposal.

Your proposal is already being proposed by another shareholder.

If the proposal substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company’s proxy materials for the same meeting.

Your proposal is being resubmitted.

If the proposal deals with substantially the same subject matter as another proposal or proposals that has or have been previously included in the company’s proxy materials within the preceding 5 calendar years, a company may exclude it from its proxy materials for any meeting held within 3 calendar years of the last time it was included if the proposal received:

 (i) Less than 3% of the vote if proposed once within the preceding 5 calendar years;

 (ii) Less than 6% of the vote on its last submission to shareholders if proposed twice previously within the preceding 5 calendar years; or

 (iii) Less than 10% of the vote on its last submission to shareholders if proposed three times or more previously within the preceding 5 calendar years; and

Your proposal relates to specific amount of dividends.

If the proposal relates to specific amounts of cash or stock dividends, it can be excluded.

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