Definition: A proxy is a legal document that allows shareholders to give agents the ability to carry out their voting rights. In other words, it’s a way for shareholders to exercise their voting rights without actually attending a voting meeting.
What Does Proxy Mean?
You can think of a proxy like an absentee ballot. If you are registered to vote, you are entitled to cast a vote whether you are physically able to make it to the voting booths on election day or not. If you can’t make it to the booths, you can fill out an absentee ballot to cast your vote and you are not required to show up on Election Day.
Proxies are very similar. A common stock shareholder has the right to vote at any corporate meeting. That is one of the many benefits of being a common shareholder over a preferred stockholder. If a shareholder is not able to attend the corporate meeting, he doesn’t forfeit his vote. Instead, he can fill out a proxy that appoints someone else to carry out his vote for him. This agent could be another current shareholder or simply someone who the shareholder trusts to carry out his intent.
The articles of incorporation typically specify the rules of voting by proxy, the deadlines associated with appointing an agent, and the requirements the agents must fulfill. Proxy voting is more common in large corporations, especially publicly traded companies.
Think about it like this. Millions of individual investors own Apple, Inc. Only a small percentage of the owners can actually attend the annual shareholders meeting. Some aren’t able to travel. Some can’t afford to travel and some owners just don’t care to be there. Whatever the case, these owners do not forfeit their rights to vote simply because they aren’t able to attend the meeting. They can vote by proxy.