Electronic Shareholder Forums: Amendment to Exchange Act Rule 14a-2 and New Exchange Act Rule 14a-17 — A Small Entity Compliance Guide1
Introduction
The Securities and Exchange Commission recently adopted new Rule 14a-17 and an amendment to Rule 14a-2 under the Securities Exchange Act of 1934 to facilitate the use of electronic shareholder forums by public companies and their shareholders. The amendments are designed to remove two major obstacles to the use of electronic shareholder forums. The first major obstacle addressed is the concern that statements made by participants in an electronic shareholder forum will be construed as a “solicitation” under the proxy rules. The second major obstacle addressed is the concern that someone who establishes, maintains, or operates an electronic shareholder forum will be liable under the federal securities laws for statements made by forum participants. New Rule 14a-17 and amended Rule 14a-2(b)(6) operate the same for all companies, regardless of size.
Exchange Act Rule 14a-2(b)(6)
Section 14(a) of the Exchange Act subjects any solicitation of proxies in connection with securities that are registered under Section 12 of the Exchange Act to the filing and disclosure requirements of the SEC’s proxy rules. The proxy rules apply to any person seeking to influence the voting of proxies, regardless of whether the person is seeking authorization to act as a proxy.
New Rule 14a-2(b)(6) clarifies that a communication on an electronic shareholder forum that could potentially constitute a proxy solicitation in connection with an annual or special meeting of shareholders that would be subject to SEC regulations is exempt from most of the proxy rules. This could include, for example, a company-sponsored online forum used to provide a means for management to communicate with shareholders on matters of shareholder interest. Any communication on an electronic shareholder forum must meet the following conditions to qualify for the exemption:
- The electronic shareholder forum communication must occur more than 60 days before the date announced by a company for the annual or special meeting of shareholders or, if the company announces the shareholder meeting fewer than 60 days before the meeting date, the communication cannot occur more than two days after the company’s announcement; and
- The person posting the communication (or on whose behalf the communication is posted) on an electronic shareholder forum must not be seeking the power to act as a proxy for a shareholder.
A person who participates in an electronic shareholder forum in reliance on Rule 14a-2(b)(6) can later solicit proxies after the date that the exemption is no longer available, or is no longer being relied upon, if the later solicitation complies with the SEC’s proxy rules.
New Exchange Act Rule 14a-17
New Rule 14a-17 clarifies that a shareholder or company (or third party acting on behalf of a shareholder or company) that establishes, maintains, or operates an electronic shareholder forum will not be liable under the federal securities laws for any statements made by another person participating in the forum, if the forum is conducted in compliance with the federal securities laws, applicable state law and the company’s charter and bylaws.
Persons providing information to, or making statements on, an electronic shareholder forum, however, will remain liable for the content of those communications under traditional liability provisions of the federal securities laws, such as Rules 10b-5 and 14a-9 under the Exchange Act. Other applicable federal or state laws also will continue to apply to persons providing information or statements on an electronic shareholder forum.
Other Resources
The adopting release for new Rule 14a-17 and the amendment to Exchange Act Rule 14a-2 that facilitate the use of electronic shareholder forums by public companies and their shareholders can be found on the SEC’s website at http://www.sec.gov/rules/final/2008/34-57172.pdf.
The SEC’s proxy rules can be accessed through the “Corporation Finance” section of the SEC’s website at http://www.sec.gov/divisions/corpfin/ecfrlinks.shtml.
Additional materials regarding the application of the proxy rules generally are available at http://www.sec.gov/divisions/corpfin/cfguidance.shtml.
Contacting the SEC
The SEC’s Division of Corporation Finance is happy to assist small companies with questions regarding new Rule 14a-17 and the amendment to Rule 14a-2. The Division’s Office of Chief Counsel answers questions submitted by e-mail and telephone. You can submit a question by e-mail to cfletters@sec.gov and a staff member of the office will call you to discuss your question. In addition, you can contact the Office of Chief Counsel at (202) 551-3500. Questions on other corporate finance matters concerning small companies may be directed to the Division’s Office of Small Business Policy by e-mail at smallbusiness@sec.gov, or by telephone at (202) 551-3460.
Footnotes
1
This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.