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Schedule 14C of the Exchange Act: What Corporate Lawyers Should Know

Having a basic understanding of the U.S. securities laws can be essential for corporate lawyers. Section 14 of the Securities Exchange Act of 1934 (Exchange Act) details the proxy rules that companies must follow.

Information is provided to shareholders about corporate actions in either a proxy statement on Schedule 14A or an information statement on Schedule 14C. Common corporate actions requiring either a Schedule 14A or Schedule 14C filing include corporate name changes, reverse stock splits, mergers, the election of new directors, and the approval of accountants. Such events require shareholder approval.

In contrast to a Schedule 14A proxy statement, a Schedule 14C is not a solicitation for shareholder approval. Rather, the purpose of a Schedule 14C is to inform investors of a corporate action that has already been approved by the majority of shareholders. As a result, the Schedule 14C information statement is generally shorter in length than a Schedule 14A proxy solicitation.

Section 14(c) of the Exchange Act sets forth the requirements for when a company’s shareholders can approve a corporate action by the written consent of a majority of shareholders in lieu of a shareholder meeting.

Schedule 14C Information Statement

An information statement filed pursuant to Section 14(c) of the Exchange Act typically includes the following disclosure:

  • Information Concerning the Action by Written Consent
  • Questions and Answers About the Information Statement
  • Description of the Transaction
  • Interest of Certain Persons in or in Opposition to Matters to be Acted Upon
  • Securities Ownership of Certain Beneficial Owners and Management
  • Householding Information
  • Where You Can Find Additional Information

The Schedule 14C information statement is subject to SEC review. If the SEC has comments, the company may have to file an amendment to the information statement in order to disclose the requested information. Assuming there are no SEC comments, the company may file the definitive information statement ten days after filing the preliminary information statement on Schedule 14C.

In addition to being publicly filed with the SEC, the Schedule 14C information statement must also be mailed to shareholders of record of the company’s outstanding voting stock. The mailing should occur at least 20 calendar days prior to the effectiveness of the corporate action. Pursuant to Rule 14c-2 under the Exchange Act, the corporate action being approved by the written consent of the majority of shareholders will not become effective until at least 20 calendar days after the mailing of the information statement.

Stock Exchange Requirements

The proxy rules of Section 14 of the Exchange Act are governed by a number of regulations, including those stemming from the applicable U.S. stock exchange. All companies who have a class of shares registered under the Exchange Act are subject to the proxy rules of Section 14.

Nasdaq Listing Rule 5635 requires a company to obtain stockholder approval for the sale, issuance, or potential issuance of 20% or more of the company’s outstanding common stock or voting power.

Section 312.03 of the New York Stock Exchange (NYSE) Listed Company Manual requires a company to secure stockholder approval in the event of certain transactions. Such transactions include the sale and issuance of securities in a private placement transaction of 20% or more of the company’s outstanding shares of common stock.

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