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by Laura Anthony, Esq.

Elements Constituting “Solicitation” Such that a 14A Proxy Solicitation is Required Instead of a 14C Information Statement Under the Section 14 Proxy Rules of the Securities Exchange Act of 1934

If you are a private company looking to go public on the OTCBB, securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel. Ms. Anthony counsels private and small public companies nationwide regarding reverse mergers, corporate transactions and all aspects of securities law.

Companies with securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are subject to the Exchange Act proxy rules found in Section 14 and the rules promulgated thereunder. The proxy rules govern the disclosure in materials used to solicit shareholders’ votes in annual or special meetings held for the election of directors and the approval of other corporate action.

The information contained in proxy materials must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules. Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which holders are asked to vote. The disclosure information filed with the SEC and ultimately provided to the shareholders is enumerated in SEC Schedule 14A.

In instances when a shareholder vote is not being solicited, such as when a Company has obtained shareholder approval through written consent in lieu of a meeting, a Company may satisfy its Section 14 requirements by filing an information statement with the SEC and mailing this statement to its shareholders. In this scenario, the disclosure information filed with the SEC and mailed to shareholders is enumerated in SEC Schedule 14C.

As with the proxy solicitation materials filed in Schedule 14A, Schedule 14C information is reviewed by the SEC to ensure all important facts are disclosed. However, Schedule 14C does not solicit or request shareholder approval or any other action for that matter, but rather informs shareholders of an approval already obtained and corporate actions which are imminent.

The information requirements in Schedule 14C are less arduous in the respect that they do not include lengthy material regarding what a shareholder must do to vote or approve a matter. Moreover, the Schedule 14C process is much less time consuming, as the shareholder approval has already been obtained. Accordingly, when possible, Companies prefer to utilize the Schedule 14C Information Statement as opposed to the Schedule 14A proxy solicitation.

The SEC requires the use of a Schedule 14A proxy solicitation whenever the Company is making a solicitation of shareholder approval, however small that solicitation. A “solicitation” is defined by Rule 14a-1(l) as;

  1. any request for a proxy whether or not accompanied by or included in a form of proxy
  2. any request to execute or not to execute, or to revoke a proxy
  3. the furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.

Simply stated, whenever a Company requests a shareholder to consent to action, it is soliciting that shareholder’s approval and accordingly must abide by the Schedule 14A proxy solicitation requirements. According to the exact language of these SEC rules, a Schedule 14A proxy solicitation is required since the Company is requesting a shareholder to vote. In reality, a Company is nothing more than the officers and directors that run it and often these officers and directors are shareholders as well.

Although the SEC has not issued definitive guidance on the subject, by practice they have taken the position that where required shareholder consent can be had without requesting any shareholders other than the officers and directors of a company to issue such consent, a 14C Information Statement may be used rather than the 14A proxy solicitation.

That is, a 14C Information Statement is only appropriate where the majority shareholder(s) are comprised of only the officers and directors. This is so even in cases where the majority of shareholders is comprised of a small group of family and friends of officers and directors, or a small group of consultants or other insiders.

Attorney Laura Anthony is a Florida securities attorney and the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The Florida corporate and securities attorneys of Legal & Compliance offer specialized legal services to small and mid-size private and public (OTCBB) companies, entrepreneurs, and business professionals throughout the country. Contact us today for a FREE consultation!