A proxy is an authority given by the stockholder of a voting stock to another to vote for him at a shareholder meeting. Proxies may be used to vote on behalf of a shareholder not in attendance at a shareholder meeting. Proxy not only denotes the person empowered to vote instead of the stockholder but also the document that transfers the voting power to the person voting instead of the shareholder. The shareholder indicates his voting preferences on the proxy form and returns it to the corporation. The proxy may appoint an officer or director of the corporation to vote as indicated in the proxy form, unless prohibited by the law of the concerned state or jurisdiction. Frequently voting at meeting of large corporations becomes only a formality or ritual, since a corporation generally receives enough proxy votes before the meeting to reach a majority decision.
Generally any corporation bound by the registration requirements of the Securities Act of 1933 or the Securities Exchange Act of 1934 must follow the proxy requirements of the said Exchange Act. In terms of Section 14(a) of the Exchange Act, it is unlawful to solicit proxies in violation of the rules and regulations of the Securities and Exchange Commission.
Rules 14a-1 through 14b-1 under the Securities Exchange Act stipulates the specific requirements for soliciting proxies, including the filing of proxy statements with the SEC.
Rule 14a-3 mandates that proxy solicitations by management for an annual general meeting at which directors are to be elected must be accompanied by an annual report disclosing specified information about the company, including annual financial statements for the last fiscal year.
Through proxy fights outsiders attempt to gain control of a company's management. Takeover bids call for garnering adequate number of votes by proxy to unseat the existing directors of the incumbent management group and elect nominees of the raider as directors in place of those removed. The design is to wrest control of the target company by obtaining majority on its board of directors. Usually such proxy battles occur in a poorly performing target company to replace its inefficient management.
