What it means
Most big corporate decisions need a shareholder vote, but a vote does not always require a meeting. If the company's charter and local law allow it, holders of the required number of votes can approve an action by signing a written consent.
This is common when a few large shareholders control the company. Because the other shareholders are not being asked to vote, the company does not file a proxy statement.
Instead, it sends an information statement under Schedule 14C. The preliminary version is filed as Form PRE 14C, and the final version is filed as Form DEF 14C.
The rules say that the information statement must be sent to shareholders at least 20 calendar days before the action can be taken. The preliminary version is generally filed at least 10 calendar days before the definitive one is sent.
Together, these periods give the SEC staff and shareholders time to review the plan. The document explains what has been approved, who approved it and what effect it will have.
Typical topics include a merger, a name change, an increase in authorised shares or the adoption of a stock plan. It also includes information on ownership and any rights that minority shareholders have.
For minority investors, the filing is a warning that a decision has been made without their votes. They should read it to understand the effect on their shares, such as dilution (a reduction in their percentage ownership) or a change in rights.
In some cases they may have appraisal rights. Companies use this route because it can be faster and cheaper than a shareholder meeting.
It also requires careful legal planning, since the consents must be valid and the information statement must be accurate.
In practice
Real-world examples.
Example
A technology company is controlled by two founders who hold a majority of the votes. They sign a written consent to approve a name change, and the company files a Form PRE 14C and later a definitive statement. The minority holders receive the information by mail or electronically.
Example
A small energy company wants to increase its authorised shares. Its largest shareholders approve the change by written consent, and the company sends an information statement to everyone else. The statement explains why the change is needed and how many shares will be available.
Example
A minority investor receives an information statement in the mail. She reads it to learn how the change will affect her shares, then asks her broker about her options. She also checks whether the change affects the dividend she expects to receive.
Case study
Seen in the real world.
Redstone Software is a fictional public company used as an illustrative scenario. Two early investors hold a majority of the votes and want to approve a new equity plan without holding a costly meeting. The founders also want to move faster than a meeting would allow.
They sign a written consent, and the company's lawyers prepare a Form PRE 14C. The consent states the exact wording of the plan and the date each investor signed. After the SEC staff has had the chance to comment, the company files the definitive information statement and mails it to shareholders. The cover note explains in plain language what has been approved and when it takes effect.
The action can take effect only after the required waiting period of at least 20 calendar days. The case shows how a company can act efficiently while still telling minority shareholders what is happening. The company's counsel keeps a copy of each signed consent in the minute book as evidence that the approval was valid.
Watch out
Common mistakes.
- Thinking the filing asks for a vote. It informs shareholders of an action that has already been approved. The only decision left for them is whether to keep, sell or question their shares.
- Ignoring the waiting period. The action cannot be taken until at least 20 calendar days after the definitive statement is sent.
- Confusing it with a proxy statement. A proxy statement asks for votes, while an information statement does not. Mixing them up can lead to using the wrong schedule and the wrong filing type.
Questions
People also ask.
What does the C stand for?
It refers to Schedule 14C, which sets out the information that must be provided.
Who benefits from this route?
Companies with controlling shareholders often use it, because it can save time and money. It is less useful for widely held companies, where no small group controls the vote.
Can minority holders object?
They can raise concerns, and in some cases they have legal rights, such as appraisal rights, depending on the action. The information statement is the place to look for details.
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