It’s always best to attend board meetings and vote in person. When that’s not possible, a proxy provides a process that works much like an absentee ballot. It’s a system that works well when board directors take measures to prevent the potential for illegal voting and other legal problems.
What Is a Proxy?
A proxy is a written statement that authorizes another person (called the proxy holder) to vote the shares or common interests for another shareholder or unit owner at a shareholder or special meeting.
A general proxy gives the proxy holder the leverage to vote their own conscience. A specific proxy must vote the wishes of the proxy. There’s a third way to set up a proxy, and that is a hybrid proxy. The hybrid proxy is a general proxy, but it allows the proxy to give special directions to the proxy holder.
How Proxies Affect Quorums
Boards must ensure that they have a quorum in order to conduct official business. The terms of the quorum will be stated in the bylaws, but it’s usually a 2/3 or a majority vote of the outstanding shares or common interests. Voters can vote in person or ask a proxy to vote for them.
When boards suspect attendance will be low, encouraging proxy votes may help to meet the quorum. It’s not necessary to send reminders, but reminders often get enough people through the door to meet the quorum. Boards may send a reminder in writing, in person or via phone. This is a good time to ask them to submit the proxy form even if they plan to attend. That way, their vote counts even if they can’t make the meeting at the last minute.
Boards may allow proxies at annual and special board meetings, but not for regular board meetings.
Some voters make a strategic move by not voting. If they don’t want to take a stand on a contested issue, they may choose not to supply a proxy in order to avoid the situation. This situation may make it more difficult to get a quorum, but there’s a viable workaround. The proxy can record their vote for the purpose of the quorum and then not vote for either side of the issue.
Board members who undertake a proxy solicitation may have concerns about designating one or more of themselves as proxy holders. This situation may lend an appearance of improper voting, so it’s best not to give the proxy holder any discretionary authority at all and ensure that they only use the specific proxy form. Taking these steps eliminates any worry that the managing agent ends up choosing the board by default.
Boards Must Pay Attention to Special Rules for Issuing Proxies
Boards or oppositional groups may arrange proxy solicitations with the intent of electing certain candidates. It’s okay for them to mobilize a vote and they can even center a campaign around their candidates. However, they must still follow all the rules for issuing, drafting and soliciting proxies. Those who don’t follow the proxy rules can set up a situation in which votes get disqualified and thereby defeat their original purpose in the process.
Proxy forms must be in writing and they must be signed and dated by the record owners and their attorneys; otherwise, the vote is invalid. The term of the proxy is 10 months from the date of issuance. Shareholders or unit owners may use multiple proxies, but the latest one is the only valid one.
In situations in which the proxy holder dies or is found to be incompetent, the proxy must notify the association secretary in writing prior to the meeting or the vote is considered invalid.
In the case of joint owners where one owner issues a proxy, the proxy acts on behalf of all owners. If one or more owners dissent, they must provide written notice to the association secretary before the meeting. In the case that the owners are evenly split, the board pro-rates their votes. If the majority of the owners favor a certain position, their vote counts over the dissenting vote.
Rules for Revoking Proxies
Boards must also be very careful about following the rules for revoking proxies. Voters can revoke a proxy by issuing a new one or by providing written notice to the association secretary. The owner can also revoke a proxy by attending a meeting in person and casting their own ballot. In this case, the voter must attend the meeting AND vote at the meeting in order for their vote to count.
Proxies may designate more than one proxy holder and choose which one votes. Proxies that designate two proxy holders simultaneously require the proxy holders to act jointly or their votes aren’t valid. This is especially important to remember when it’s known that joint proxy holders represent different sides of the issue.
One other note of importance is that shareholders and unit owners may not offer to pay proxies or offer valuable items in exchange for the promise that they’ll be given special treatment after the election.
Shareholders and unit owners must make their vote choices and proxies clear before the day of the meeting because they can’t revoke their vote on the day of the meeting.
There are two acceptable reasons for an individual to challenge a proxy. The books must indicate that the person issuing the proxy is indeed the owner of subject stock or common interests. The other reason for challenging a proxy vote is the suspicion that the proxy is not legally valid. Investigators of complaints don’t have the authority to decide if the proxy issuer was legally competent when they issued a proxy or whether the proxy was forged or obtained under duress.
The Business Corporation Law requires investigators to write up and issue a report of votes where there were challenges or questions. Shareholders and unit owners may request a certificate of fact relative to the investigator’s findings. Courts may also request a certificate of the findings, but they must request the certificate within 120 days.
In conclusion, the best scenario for ensuring legitimate voting is for all voters to make it a point to be present at meetings to exchange views properly and vote their true intent. As a second-best alternative, shareholders and unit owners should proceed with using informed consent. This requires them to use a specific proxy form and to initial all changes on the form for proper authentication. Boards should also be careful not to predate proxies the day before or the day of the meeting, as that is illegal.
As an extra measure of protection, boards may opt to use a board management software system to ensure that forms are properly filled out and have the proper signatures. BoardEffect’s board portal offers unlimited cloud-based storage for this and other document storage purposes.