Communication by holders with other holders: Overview, definition, and example
What is communication by holders with other holders?
Communication by holders with other holders refers to the right or ability of security holders, shareholders, or other investment stakeholders to communicate with one another regarding matters related to their ownership interests. This may include discussions on voting rights, corporate governance, shareholder resolutions, or collective action in response to company decisions.
For example, shareholders of a publicly traded company may communicate to organize support for a proxy vote on executive compensation or board member elections.
Why is communication by holders with other holders important?
This type of communication is important because it allows investors and stakeholders to collaborate, share information, and collectively influence decisions that impact their investments. Open communication supports corporate transparency, governance accountability, and investor rights.
For companies, regulations often govern how and when holders may communicate, ensuring fairness and preventing market manipulation or unauthorized disclosures. For investors, the ability to engage in discussions and organize action strengthens their influence in decision-making processes.
Understanding communication by holders with other holders through an example
Imagine a group of bondholders holds a significant percentage of a company’s debt securities. The company announces a debt restructuring plan that could reduce bondholder returns. Under securities laws, these bondholders may communicate with each other to discuss collective action, such as negotiating better terms or opposing the restructuring plan.
In another scenario, a group of minority shareholders in a corporation wants to challenge a proposed merger that they believe undervalues their shares. They organize discussions, share legal insights, and vote together at the next annual general meeting (AGM) to oppose the deal.
Example of a communication by holders with other holders clause
Here’s how a communication by holders clause might appear in a shareholder agreement:
“Holders of securities under this Agreement shall have the right to communicate with other Holders regarding matters related to their ownership, including corporate governance, voting rights, and investment strategies, subject to compliance with applicable securities laws and confidentiality obligations.”
Conclusion
Communication by holders with other holders plays a critical role in shareholder rights, corporate governance, and investment decisions. By allowing stakeholders to exchange information and coordinate actions, this communication fosters transparency, fairness, and collective decision-making in financial and corporate environments.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.