Annual meeting: Publicly-traded corporations are required to hold at least an annual shareholders meeting, at which members of the Board of Directors are elected. Other matters that may be voted on include the issuance of additional stock, a merger with another company, the approval of the company’s independent public accounting firm or an amendment to the corporation’s Articles of Incorporation or by-laws.
Corporations may hold a special shareholders meeting, in addition to the annual meeting, if there are important issues that require a shareholder vote at other points in the year. Special meetings may be scheduled by the company’s Board of Directors, or any other party listed in the company’s by-laws.
Annual report: By law, a corporation must provide its stockholders with information about its management and operations, including financial statements. Companies do this through an annual report, which also sometimes serves as a marketing tool. Annual reports also generally include a letter from the Chairman and/or Chief Executive Officer, a description of the company’s business initiatives and a summary of its successes over the past year.
Annual reports are generally available through a company’s investor relations department and on the company’s website.
Articles of Incorporation: To form a company, its founders must file a document called the Articles of Incorporation with the State. In some states, this document is referred to as a Certificate of Incorporation. Articles of Incorporation typically include the company’s main address, business purpose, the names of the original members of the Board of Directors, and the types and amount of stock the company is entitled to issue.
A company’s Articles of Incorporation, once filed with the State, establishes the corporation’s legal existence. Articles of Incorporation differ from a corporation’s by-laws, which is a document containing the company’s internal management and operations policies and procedures.
Beneficial owner: If you hold your securities in street name, it means your shares are registered in the name of your broker or bank. However, you’re the beneficial, or true, owner of the securities and benefit from all of the privileges associated with owning stock.
Board of Directors: A company’s Board of Directors are individuals elected by the company’s shareholders to carry out certain tasks established in the Articles of Incorporation. The Board of Directors is responsible for overseeing the corporation’s management and operations. Among its specific duties include the appointment of senior executives, including the CEO, and declaration of dividends.
A company’s Board of Directors includes both internal members of the company’s management as well as individuals from the outside community.
Broker: A broker is a general term meaning either a brokerage firm or an individual stockbroker. Brokerage firms, or broker-dealers, are registered with the Securities and Exchange Commission (SEC) to buy and sell securities on behalf of clients of the firm as well as for the firm’s own accounts.
Stockbrokers work for brokerage firms and handle buy and sell orders on behalf of clients of the firm for a commission or asset-based fee. They must pass an examination administered by the Financial Industry Regulatory Authority (FINRA) and register with the Securities and Exchange Commission (SEC).
Broker-dealer: A broker-dealer is a brokerage firm licensed to handle securities transactions on behalf of its customers and for its own account.
Broker-dealers may act in both capacities simultaneously as long as the client is notified. For instance, a broker-dealer may fill an order for a client from its own inventory of securities, as long as the broker-dealer informs the client about the details of the transaction.
By-laws: By-laws are written rules developed by a corporation to establish its internal operations and procedures. By-laws typically include information about the company’s structure, voting procedures and how often shareholder meetings are held. Companies may provide any number of provisions in their by-laws, as long as they stay within the boundaries of federal, state and local law.
Common stock: Shares of common stock represent ownership in a corporation. Common stock shareholders benefit from certain privileges associated with ownership. These rights typically include the right to receive proof of ownership, sell or transfer your shares, share in the company’s profits if the Board of Directors decides to pay a dividend, and vote on certain issues that affect the corporation.
Contested proposal: A contested proposal is a proposal submitted by a shareholder that takes a position that is different from the corresponding position taken by management, such as nominees to the Board of Directors. Under NYSE Rule 452, brokers may not vote on any contested matters on behalf of clients with uninstructed shares.
Control number: Shareholders who vote by proxy online or over the telephone identify themselves using a 12-digit control number, which is used to distinguish individual shareholders for voting purposes.
Shareholders can also vote by proxy by submitting a Vote Instruction Form (VIF) or proxy card, or can vote in person by attending a shareholder meeting after obtaining the necessary forms as directed in the proxy statement.
Corporate governance: Corporate governance is a set of processes and procedures that constitutes how a company is managed, controlled and administered. It falls under the responsibility of the Board of Directors and is defined in the corporation’s by-laws, Articles of Incorporation and by law.
Specific responsibilities of the Board of Directors include appointing and supervising the company’s executive management, authorizing major corporate strategic decisions, setting executive compensation and examining the company’s auditing and financial reporting.
Corporation: A corporation is an organization made up of one or more individuals authorized by law to perform specific functions as defined in its Articles of Incorporation.
In general, a corporation is formed when it files its Articles of Incorporation with the State. A company’s Articles of Incorporation, once filed with the State, establishes the company’s legal existence.
While shareholders may share in a corporation’s profits, the corporation is solely responsible for its debts.
Direct registration: Direct registration is one of the ways in which shareholders may choose to hold their securities. With this option, the shareholder’s name is recorded electronically on the issuer’s books. Though shareholders don’t receive a physical certificate, they do receive a statement of ownership, as well as all shareholder communications directly from the company.
Shareholders may select direct registration even if their securities are purchased through an intermediary, such as a broker-dealer.
Director: A director is an individual elected by a company’s shareholders for a position on the corporation’s Board of Directors.
The Board of Directors is responsible for overseeing a corporation’s management and operations. Among its specific duties include the appointment of senior executives, including the CEO, declaration of dividends, and other responsibilities established in the company’s Articles of Incorporation. A company’s Board of Directors typically includes both internal members of the company’s management as well as individuals from the outside community.
Discretionary voting: NYSE Rule 452 gives brokers discretionary voting rights. Under the rule, brokers may vote their clients’ shares if the client hasn’t given specific voting instructions 10 days prior to a shareholder meeting, providing the proxy material is transmitted at least 15 days before the meeting. The rule also provides that when the proxy material is transmitted 25 days or more before the meeting, the brokers may vote their clients’ shares if the client hasn’t given specific voting instructions 15 days prior to a shareholder meeting. Rule 452 applies to routine proposals only, such as the ratification of independent auditors. Contested matters, or those that would alter the rights and privileges of the stock, such as the issuance of additional stock, do not fall in this category. Brokers typically vote as management recommends, but are obligated to act in the best interests of the client.
Dividend: Shareholders have the right to a share of the company’s profits, if paid, in the form of dividends. Dividends are typically paid in cash, but may be in the form of additional shares or scrip. The amount received is based on the amount of the per-share dividend times the number of shares owned.
Electronic delivery (e-delivery): Electronic delivery (e-delivery) is a means for shareholders to receive electronic copy of proxy materials, or other shareholder materials, instead of hard copy by mail.
Fiduciary: A fiduciary is a person or entity that assumes responsibility for managing the assets for and acting in the best interests of another individual or entity, who is typically known as the beneficiary. Examples of fiduciaries include trustees, executors, guardians and agents with powers of attorney.
Householding: When different members of the same family own securities in multiple accounts at the same address, they may receive duplicate copies of a company’s proxy materials, annual report or other documents. As a result, the Securities and Exchange Commission (SEC) permits the option of householding to companies and mutual funds. Should a corporation decide to household an account, only one set of materials is mailed to any given address.
Corporations must send a notice to the affected investors at least 60 days before householding the accounts. Investors can refuse to allow this practice at any time by notifying the corporation of their wishes.
Issuer: An issuer is a corporation, government, agency or investment trust that issues securities to investors. Issuers may offer securities through public offerings and private placements.
Institutional investor: An institutional investor is an organization, such as a mutual fund, pension fund, insurance company or university endowment fund that buys and sells stocks or other securities in large-block trades. Institutional investors account for the majority of daily transactions on the New York Stock Exchange and the NASDAQ Stock Market.
Legal proxy: A document that assigns voting rights from the record owner of a security to another person or entity who wishes to vote in person at a meeting.
Majority voting: Majority voting is a standard voting method for the election of Board members. In order for a director to be elected or re-elected, there must be a majority of affirmative votes. In cases where abstentions are allowed, the number of “for” votes must equal more than half of the votes “against” and abstained.
Majority vote standards are typically defined in one of three ways: the majority of votes eligible to be cast, the majority of outstanding shares, or the majority of votes present and eligible to vote.
Management: A company’s management is composed of the CEO, CFO, COO, President and other executives responsible for overseeing the administrative and operational aspects of a company, including the supervision of its employees.
Management proposal: A management proposal is a resolution put forward by a corporation’s management to be presented and voted on at a shareholder meeting. Management proposals may address various issues that affect corporate governance, such as the election of the Board of Directors, issuance of additional stock or merger with another company.
No-action request: A company may submit a no-action request under SEC Rule 14a-8 to the Securities and Exchange Commission (SEC) if it would like to petition to exclude a shareholder proposal from its proxy materials. Companies must file no-action requests at least 80 days prior to a shareholder meeting.
The SEC generally requires a company to include a shareholder proposal with its proxy materials, but may give the company the right to exclude it should it violate one of the SEC’s 13 standard reasons for rejection. These reasons include, but aren’t limited to, when the proposal isn’t a proper matter for shareholder action, would violate a law if adopted, relates to a matter of the company's ordinary business operations, has already been substantially implemented or the company lacks the authority to implement the proposal.
Nominee: A nominee is a person or firm who holds securities on behalf of an investor, though the investor remains the actual, or beneficial, owner of the securities. Holding stocks in nominee, or street, name may facilitate the transfer of ownership when securities are traded.
Non-Objecting Beneficial Owner: Non-Objecting Beneficial Owners of securities purchase shares through a broker or bank and do not object to releasing their name to requesting issuers. NOBOs hold their securities in street name, but receive all shareholder communications directly from the issuer.
Non-routine proposals: Non-routine proposals generally include any contested matter or those matters that would significantly affect the rights and privileges of a stock, such as the issuance of additional stock.
Notice and Access Model: The Securities and Exchange Commission (SEC) amended its proxy rules in 2007 by adopting the Notice and Access Model of proxy materials delivery to reduce the printing and mailing costs associated with sending proxy materials to shareholders. The amended rules require issuers in most cases to post their proxy materials on an Internet website. Issuers now have the option to mail a Notice of Internet Availability of Proxy Materials (Notice) to all shareholders with information about how to access the materials online, in lieu of mailing a full set of proxy materials to shareholders.
Companies must mail Notices at least 40 calendar days in advance of the shareholder meeting, if a hard copy of the proxy materials isn’t included with the Notice.
Notice of Internet Availability of Proxy Materials (Notice): In 2007, the SEC amended its proxy rules in an effort to decrease the costs associated with creating and sending proxy materials to shareholders. Known as the Notice and Access Model, the rule requires companies to send a Notice — a document informing shareholders that a company’s proxy materials are available online — to shareholders in advance of an annual or special meeting.
The Notice must contain information about how shareholders can access the proxy materials online, explain how shareholders can elect to receive proxy materials through e-delivery or in hard copy going forward, if desired, and inform shareholders how to attend the meeting in person.
Unless the corporation includes a hard copy set of the proxy materials with the Notice, the Notice must be sent at least 40 calendar days prior to a shareholders meeting.
Objecting Beneficial Owner (OBO): Objecting Beneficial Owners of securities purchase shares through a broker or bank and object to releasing their name to issuing companies. OBOs hold their securities in street name and receive all shareholder communications through their broker.
Positions: The number of positions represents the number of shareholders of a corporation.
Proportional voting: An alternative to discretionary voting, proportional voting means that a broker votes the shares of shareholders who have not provided voting instructions in the same proportion, or ratio, as the voted shares.
For example, say 10 shareholders voted in total, 6 voting “for” a proposal and 4 voting “against” the proposal, resulting in a ratio of 3:2. A broker voting on behalf of 20 shareholders would vote 12 votes “for” the proposal and 8 “against” to maintain the same proportion.
Proportional votes are cast 48 hours before the shareholder meeting.
Proxy: A proxy is the authority or instrument that permits another individual to vote on a shareholder’s behalf at an annual or special shareholder meeting. Proxy may also mean the person empowered to act as an agent to vote on behalf of the shareholder.
Shareholders may vote by proxy online, by mail or by telephone. Or, shareholders may vote in person by attending the shareholder meeting with the proper documentation as directed in the proxy statement.
Proxy card: A proxy card is a ballot on which registered owners of shares may vote for management and shareholder proposals. Proxy cards are made available with the company’s proxy materials and allow shareholders to vote by proxy, instead of attending the meeting in person to cast their vote. Shareholders may also vote by proxy online or over the telephone.
Proxy contest: A proxy contest, or proxy fight, occurs when a dissident shareholder or group of shareholders, submits a proposal in a company’s proxy materials for the election of a slate of Board of Directors that differs from the management’s nominees.
Proxy contests typically occur when an acquiring company seeks to persuade the shareholders of the target company to vote for its nominees for the Board of Directors. If shareholders vote for the acquiring company’s selection, the acquiring company gains control over the company without having to pay a significant price to purchase the firm. A proxy contest could also occur outside of the acquisition context.
Proxy statement: Proxy statements, which are included in a company’s proxy materials, are intended to provide enough information for shareholders to vote in an informed manner on matters to be brought up at a shareholders meeting. Issuers are required to send proxy statements to all shareholders under the Securities Exchange Act of 1934.
Publicly-held company: The shares of common stock of a publicly-held company are registered with the Securities and Exchange Commission (SEC) and listed for trading on a securities exchange. These shares can be owned by individual or institutional investors who may buy and sell their shares as they wish in the secondary market.
Quorum: A quorum is the number or percentage of voting shares required to constitute a valid shareholders meeting. Though typically the majority of the outstanding shares entitled to vote at a meeting, this number is determined based on the State law where the company is incorporated and the provisions in a company’s Articles of Incorporation. Proxies may count toward achieving a quorum, in addition to those who attend the meeting in person.
Record holder: A record holder, or registered owner, is the name of the individual or firm recorded on a company’s books as the owner of securities.
The record holder may or may not be the beneficial, or true, owner of securities. For example, shareholders who hold their shares in street name are the beneficial owners, and the broker or bank is the record holder — as it’s the bank’s name that appears in the company’s records.
Dividends and all other distributions are paid in the name of the record holder.
Registered Owner: A registered owner, or record holder, is the name of the individual or firm recorded on a company’s books as the owner of securities.
The registered owner may or may not be the beneficial, or true, owner of securities. For example, shareholders who hold their shares in street name are the beneficial owners, and the broker or bank is the registered owner — as it’s the bank’s name that appears in the company’s records.
Dividends and all other distributions are paid in the name of the registered owner.
Routine proposal: Routine proposals are generally defined as those that don’t change the rights and privileges of a stock, such as the ratification of independent auditors. Under NYSE Rule 452, brokers who vote on their clients’ behalf because their clients haven’t given specific instructions in advance of a shareholder meeting are permitted to vote on routine proposals only. Under the rule, brokers may vote their clients’ shares if the client hasn’t given specific voting instructions 10 days prior to a shareholder meeting, providing the proxy material is transmitted at least 15 days before the meeting. The rule also provides that when the proxy material is transmitted 25 days or more before the meeting, the brokers may vote their clients’ shares if the client hasn’t given specific voting instructions 15 days prior to a shareholder meeting. Rule 452 applies to routine proposals only, such as the ratification of independent auditors.
Securities and Exchange Commission (SEC): Congress created the Securities and Exchange Commission (SEC) in 1934 as an independent federal agency to regulate the securities industry and enforce securities laws in the United States. Any company wishing to issue securities must file with the SEC and abide by its registration requirements. Furthermore, the SEC defines rules regarding proper conduct of those who sell and trade securities and exerts disciplinary action against firms or individuals who do not adhere to its regulations.
Created to help protect investors from fraudulent and deceitful practices, and to promote stability in the markets, the SEC is composed of four divisions: Corporation Finance, Trading and Markets, Investment Management and Enforcement.
Proposals must be submitted to the company at least 120 days before the release date, which is contained in the company’s previous year’s proxy statement. Company management typically opposes shareholder proposals, but is only entitled to exclude a proposal from its proxy materials with the SEC’s authorization.
Solicitor: A proxy solicitor is a firm hired by a corporation to solicit and collect proxies on its behalf. Proxy solicitors help ensure confidentiality and protect integrity in the voting process.
A proxy solicitor may disclose information contained on a proxy ballot in the matter of a proxy contest, or as otherwise required by law.
Stock certificate: A stock certificate represents stock ownership. Certificates show the shareholder’s name, the name of the issuer, number of shares owned and other important information. Shareholders who wish to sell their shares must endorse the certificate and send it to their broker. Shareholders may be charged a fee to replace lost or stolen certificates.
Today, most shares are registered electronically, which means shareholders don’t receive physical certificates, though they may request them for an additional charge. In order to sell shares, shareholders can place orders over the telephone or online.
Street name: Shareholders who hold stock through a broker or bank are said to hold their securities in street name. Stock is registered in the name of the broker or bank, as opposed to the beneficial, or true, owner of the securities. Most brokers or banks will automatically hold shares in street name unless given specific instructions not to do so.
Summary prospectus: The Securities and Exchange Commission (SEC) has recently adopted rule amendments to improve mutual fund disclosure by requiring that all mutual fund investors receive a Summary Prospectus — a clear, concise statement of the key information they need to make an informed decision about investing in the fund.
The Summary Prospectus would include information about investment objectives, costs, principal investment strategies, risks, performance, the top ten holdings, the identity of the fund manager, or managers and relevant financial information.
Transfer agent: A transfer agent is responsible for keeping records of who owns a company’s stock and bonds, and how those securities are held — whether in street name, in the name of the investor through direct registration, or by issuance of a certificate. Today, most shares are registered electronically, though transfer agents will issue stock certificates upon request. Transfer agents also receive returned certificates from investors who hold physical certificates and want to sell their shares.
Vote Instruction Form (VIF): A Vote Instruction Form (VIF), or proxy card, is contained in the set of proxy materials made available to beneficial shareholders in advance of annual and special meetings. Shareholders may vote by proxy on all management and shareholder proposals up for a vote by completing and submitting a VIF in advance of a meeting. Shareholders may also vote by proxy online or over the telephone.