Shareholder Proposal Law and Legal Definition

A shareholder proposal means a recommendation or proposal submitted by a shareholder or group of shareholders to change company policy or procedure. In order to make a proposal the shareholders must meet the minimum requirement for stock ownership. The shareholder proposal must satisfy certain specific guidelines with respect to its submission such as the statements of fact and a "resolved" clause. Generally, a distinctive shareholder proposal involves voting rights, management compensation, and corporate charitable contributions. It is also referred to as a proposal, shareholder resolution, or resolution.

Ordinarily, a shareholder proposal is moved at the company's annual shareholder meeting; and it will be put to the vote of the shareholders. The shareholder proposal will be included in the proxy statement, if the shareholder gives timely notice of his/her intentions. As a result the remaining shareholders will get a chance to vote for or against the proposal. Generally, the corporation will inform about the proposal to all shareholders before the next shareholder meeting.

In Amalgamated Clothing & Textile Workers Union v. Wal-Mart Stores, 821 F. Supp. 877 (D.N.Y. 1993), the court observed that “A shareholder proposal pertaining to ordinary business operations would be improper if raised at an annual meeting, because the law of most states (including Delaware) leaves the conduct of ordinary business operations to corporate directors and officers rather than the shareholders.”

Further, in Fountain v. Avondale Indus., 1995 U.S. Dist. LEXIS 5598 (D. La. 1995), the court held that “A board of directors is under no obligation to mention shareholder proposals in its proxy statement, but once it does, it is obligated to portray the proposals in an accurate and non-misleading manner.”