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CALIFORNIA CORPORATE & SECURITIES LAW

Who Votes As Proxy For Shares Standing In The Name Of Another Corporation?

The Proxy Season blog yesterday discussed the following question from the Q&A Forum of TheCorporateCounsel.net:

Under Delaware law, can a Board of Directors authorize a person who is not an officer of the company to act as agent and vote shares of stock for the Company that it holds in another entity?

John Jenkins responded by citing several provisions of the Delaware General Corporation Law governing the power of the corporation to appoint proxies (Sections 122, 123 and 212(c)).  He also provides the following caveat:

One cautionary note: this response assumes that the entity in which the corporation owns shares is itself a Delaware corporation. If not, the laws of that other jurisdiction may need to be considered in determining the persons to whom a proxy may be given, or whether it is preferable to designate an officer as proxy.

If the issuing corporation is a California corporation, Corporations Code Section 703 provides that shares standing in the name of another corporation, whether domestic or foreign, may be voted by an officer, agent, or proxyholder:

  •  As the bylaws of the other corporation may prescribe, or
  • In the absence of a bylaw provision, as the board of the other corporation may determine, or
  • In the absence of a board determination, by the chairperson of the board, president or any vice president of the other corporation, or
  • By any other person authorized to do so by the chairperson of the board, president or any vice president of the other corporation.

The statute also provides a helpful presumption: Shares that are purported to be voted or any proxy purported to be executed in the name of the corporation, whether or not any title of the person signing is indicated, are presumed to be voted or the proxy executed in accordance with the statute, unless the contrary is shown.

Putting this together, suppose Blue Hen, Inc. a Delaware corporation, owns shares in Sutter Mill, Inc., a California corporation.  DGCL Sections 122 and 123 govern Blue Hen’s corporate power to appoint a non-officer proxy to vote shares that Blue Hen holds in other corporations.  However, CGCL Section 703 governs who may vote Sutter Mill’s shares held in Blue Hen’s name.

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