This article is written by OKOOBO ESELE DOREEN of UNIVERSITY OF BENIN in 400 LEVEL during her internship with Ledroit India
TOPICS DISCUSSED
- Meaning of proxy
- Proxy appointments
- Types of proxy appointments
- Rights and restrictions of proxies
- Revocation and termination of proxy appointment
- Importance of proxy
- Challenges faced
- Conclusion
Abstract
This article examines the concept of proxies in company meetings, analysing their legal basis, rights, and restrictions and some challenges faced under corporate law. It adopts a comparative perspective, drawing highlighting their role in shareholder participation and corporate governance.
Introduction
Each member of a board of directors has a duty to demonstrate corporate governance and lead the organization in a positive direction. Whether it’s a corporate business or a nonprofit, board members and other stakeholders come together at board meetings and annual general meetings to make decisions that shape the vision of the organization. However, it is not always possible for each member to attend every meeting in-person due to scheduling issues, the travel demands, and other life events. To ensure inclusiveness and continuity in operation and governance, the law permits shareholders to appoint proxies to represent them . Proxy serves as an important mechanism for shareholders participation though being subject to some specific legal control to prevent abuse.
PROXY MEANING
A proxy is defined by Lord Hanworth M. R. in ‘Cousins v. International Brick Co.’, (1931) 2 Ch. 90 as“a person representative of the shareholder who may be described as his agent to carry out a course which the shareholder himself has decided upon.
In other words, a proxy is someone appointed to act on behalf of a corporation or an individual at a general meeting to participate and vote at the said meeting.
Under section 105(1) of the Companies Act, 2013, it provides that any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf.
The appointment of a proxy isn’t as simple as asking your friend to represent you at a meeting. Company law has established specific requirements to ensure the process is legitimate and transparent. The most fundamental requirement is that proxy appointments must be made in writing. This written document is called a “proxy form” or “instrument of proxy.”
This written requirement serves multiple purposes. First, it provides clear evidence of the shareholder’s intention to delegate their voting rights. Second, it protects both the company and the proxy from potential disputes about whether authorization was actually given. Finally, it creates a paper trail that can be audited if questions arise about the legitimacy of votes cast.
“The proxy form” typically includes essential information such as the shareholder’s name and details, the proxy’s name, the specific meeting for which the proxy is appointed, and clear instructions on how votes should be cast on various resolutions. Some proxy forms are general, giving the proxy discretion on how to vote, while others are specific, directing exactly how each vote should be cast.
One of the most critical aspects of proxy law is the timing requirement. Proxy forms must be submitted to the company at least 48 hours before the meeting begins.
This rule gives company administrators time to verify the authenticity of proxy forms, check that the appointing shareholders are legitimate, and prepare accurate voting records. The reason for this is that if the administrators try processing all forms while the meeting is in progress , it would be chaotic and prone to errors. In essence, this requirement ensures that all proxy appointments are properly documented before voting begins. It prevents last minute manipulation and gives all parties confidence in the integrity of the voting process.
PROXY APPOINTMENTS
It is worthy to note that not all proxy appointments are the same and so we have different types of proxy appointments.
1:GENERAL PROXY
A general proxy gives the proxy holder broad discretion to vote on all matters that come before the meeting. This type of appointment is suitable when shareholders trust their proxy’s judgment completely and are comfortable with them making decisions on their behalf. However, general proxies require careful consideration because they essentially hand over complete voting control.
2: SPECIFIC PROXY:
Specific proxies come with detailed instructions on how to vote on each resolution. The shareholder specifies whether to vote “for,” “against,” or “abstain” on each item on the agenda. This type gives shareholders maximum control over how their votes are cast while still allowing them to miss the meeting.
3:TWO- WAY PROXY
Some proxy forms offer two-way options, where shareholders can choose between supporting management recommendations or following alternative suggestions from other shareholders or activist groups. These proxies are particularly common when there are contested issues or competing proposals.
4:HYBRID PROXY:
Here, the proxy holder has to follow certain directions.
A proxy who has duly been appointed in accordance with the law, enjoys certain defined rights which enable effective representation of the appointing shareholder at company meetings.
These rights, though limited, are crucial to preserving shareholder participation and corporate democracy. These rights include:
1: Right to attendance and voting on polls
A Proxy has the right to attend general meetings of the company, including Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs), on behalf of the shareholder who appointed them. This right ensures that a shareholder’s presence is legally recognized even in physical absence. In the case of Cousins v. International Brick Co. Ltd (1931) the higher regional court held that the infringement of the plaintiff’s right to attend the meeting as a shareholder constituted an autonomous and definitely relevant ground for challenge within the meaning of s 243 (1) AktG. The Regional Court had therefore been right to uphold the action for avoidance and declare the contested AGM resolutions null and void.
The decision of the Schleswig Higher Regional Court makes it clear that the right of shareholders to attend or be represented at the annual general meeting can only be limited under strict conditions. Attendance may be made dependent on prior registration or special proof of authorisation to attend only if the statutes contain corresponding regulations. This also holds true for the attendance by shareholder representatives (proxies)
2: .Right to Proper Recognition by the Company
In Cousins v. International Brick Co. Ltd (supra) the court ruled that:
Where proxy forms are validly lodged, the company is bound to accept and count the votes cast by proxies.
This case reinforces the right of a proxy to be lawfully recognized, and that directors cannot arbitrarily reject proxy votes to influence outcomes.
3:Demand polls: In some jurisdictions, proxies can demand that voting be conducted by poll rather than by show of hands, ensuring that the actual shareholding strength is reflected in the voting outcome.
As usual, there can be no right without some restrictions thus, the rights given to proxies are not absolute but limited. The restrictions of proxy holders will therefore be discussed
RESTRICTIONS OF PROXY
1: Speak or participate in discussions: One of the most significant limitations is that proxies cannot speak at meetings or participate in debates. They are essentially silent representatives whose role is limited to voting. This restriction maintains the principle that discussion and debate should come from actual members of the company.
2: Appoint sub-proxies: Generally, a proxy cannot delegate their authority to another person. The relationship is personal between the shareholder and their chosen proxy.
3:Vote on show of hands: In many jurisdictions, proxies cannot participate in voting by show of hands – they can only vote when a poll is conducted. This is because show of hands voting is meant to gauge the sentiment of physically present members.
REVOCATION/ TERMINATION OF PROXY APPOINTMENT
Just as proxies are appointed by their principal, so also they can be revoked by their principal. Thus, it is safe to say that the proxy appointment is dependent on the shareholder who appointed them. The law therefore recognises the right of a shareholder to revoke or terminate a proxy appointment in order to retain ultimate control over the exercise of voting rights.
A proxy may be revoked expressly by the shareholder at any time before the meeting or before the vote is taken. This may be done by issuing a notice of revocation, appointing another proxy, or by the shareholder attending the meeting personally, which automatically overrides the authority of the proxy. Such revocation reflects the principle that proxy voting is a matter of convenience and not a permanent delegation of shareholder rights.
Additionally, a proxy appointment may terminate by operation of law. Circumstances such as the death, insanity, or loss of legal capacity of the shareholder may render the proxy appointment ineffective, since a proxy acts as an agent and cannot continue once the principal is incapable of acting. Similarly, where the proxy appointment is subject to specific time or procedural limits, failure to comply may also lead to its termination.
The right to revoke a proxy appointment serves as an important safeguard in corporate governance. It ensures that shareholders remain in control of their proprietary voting rights and prevents the unintended or continued exercise of authority by a proxy beyond the shareholder’s intention.
THE IMPORTANCE OF PROXIES IN CORPORATE GOVERNANCE.
Proxies play a vital role in maintaining the democratic nature of corporate governance. Without proxy voting, many shareholders would be effectively disenfranchised simply because they cannot attend meetings in person. This is particularly important for:
1:Small investors: Individual shareholders who own a few shares may not find it economically viable to travel to meeting locations, especially for companies headquartered far from their residence.
2:Institutional investors: Large institutional investors like pension funds or mutual funds often hold shares in hundreds of companies. Attending every meeting would be logistically impossible.
3:International shareholders: In today’s global economy, shareholders may be spread across different countries and time zones, making physical attendance challenging.
4:Busy professionals: Working individuals may have schedule conflicts that prevent them from attending meetings during business hours.
By enabling proxy voting, companies ensure that corporate decisions reflect the will of all shareholders, not just those who can physically attend meetings. This inclusivity strengthens the legitimacy of corporate governance and helps maintain investor confidence.
Notwithstanding the statutory regulation of proxy voting, certain practical challenges continue to affect its effectiveness in corporate governance.
One major challenge is shareholder apathy, particularly among minority shareholders, who often fail to engage with proxy materials due to the belief that their votes carry little weight. However, where minority shareholders act collectively, proxy voting can significantly influence corporate decisions, especially in closely contested resolutions.
Another challenge lies in the complexity of proxy materials. Proxy statements frequently contain multiple resolutions accompanied by technical and legal explanations that may be difficult for the average shareholder to understand. In response, many companies have adopted the practice of providing simplified summaries and voting guides to enhance shareholder comprehension and participation.
Advancements in technology have further transformed proxy voting through electronic and online voting platforms, which increase accessibility and participation. Nevertheless, these systems raise concerns relating to data security, authentication, and transparency. Consequently, regulatory authorities continue to refine legal frameworks to accommodate technological innovation while safeguarding the integrity of the proxy voting process.
CONCLUSION
In conclusion, the law on proxies reflects a careful balance between facilitating shareholder representation and preserving the integrity of corporate governance. By allowing members to exercise their voting rights through proxies, corporate law in both India and Nigeria ensures inclusiveness in decision-making. However, the effectiveness of proxy voting ultimately depends not only on statutory provisions but also on shareholder engagement, clarity of proxy materials, and robust regulatory oversight, particularly in the face of evolving digital voting mechanisms.
