Irrevocable proxy: Overview, definition, and example
What is an irrevocable proxy?
An irrevocable proxy is a legal agreement that grants a person or entity the authority to vote on behalf of a shareholder or member, and this authority cannot be revoked without specific conditions being met. Unlike a regular proxy, which can be withdrawn at any time, an irrevocable proxy remains in effect until certain conditions are fulfilled or until the purpose of the proxy is achieved. This type of proxy is commonly used in situations where a shareholder wants to delegate voting authority but also ensures that their vote will be cast as intended.
For example, a shareholder may appoint a representative to vote on their behalf at a company’s annual general meeting (AGM) using an irrevocable proxy, ensuring that the representative votes in their best interest without the ability to withdraw the proxy.
Why is an irrevocable proxy important?
An irrevocable proxy is important because it ensures consistency and certainty in the decision-making process when voting on corporate matters or in situations requiring group consensus. It is often used to secure voting control in corporate governance, shareholder disputes, or during mergers and acquisitions, where a party wants to ensure that their vote is counted in a specific manner, without risk of revocation or change.
For businesses and organizations, an irrevocable proxy can help ensure that the party with the most at stake, or the one who has a vested interest, can maintain control over critical decisions while having the flexibility of delegating voting authority.
Understanding irrevocable proxy through an example
Imagine a shareholder of a publicly traded company who owns a large number of shares but is unable to attend the annual general meeting. The shareholder grants an irrevocable proxy to a trusted representative (such as a lawyer or board member), ensuring that the representative will vote according to their instructions. This proxy is irrevocable, meaning that it cannot be canceled or changed by the shareholder, even if they later decide to attend the meeting or change their mind about the vote.
In another scenario, a group of investors in a company may use irrevocable proxies to ensure that their collective voting power is not diluted or lost in an upcoming vote for a merger. The proxies are granted to a single party to vote on their behalf and ensure that the merger moves forward as they intend.
Example of an irrevocable proxy clause
Here's an example of how an irrevocable proxy clause may look like in a contract:
"The Shareholder hereby grants to [Name of Proxy], an irrevocable proxy to vote on the Shareholder’s behalf at the Annual General Meeting and any other subsequent meetings related to this Agreement. This proxy shall remain in effect until [Date or Event] and may not be revoked by the Shareholder without the written consent of the Proxy holder."
Conclusion
An irrevocable proxy provides a secure and binding arrangement for voting on behalf of someone else, particularly in situations where the voting power needs to be preserved or controlled over a period of time. It is a valuable tool for ensuring consistency and certainty in corporate governance, shareholder decisions, and other scenarios requiring collective action. By granting this type of proxy, shareholders or members can delegate their voting rights while ensuring their interests are represented, without the risk of withdrawal or change.
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.