Often, smaller public companies want to take advantage of majority written consent of their shareholders, and the corresponding use of a Schedule 14C Information Statement, rather than a proxy solicitation and corresponding Schedule 14A Information Statement. This can be done when one party, or a small number of parties, owns enough voting securities of the issuer to approve the desired action. There are significant benefits to doing so, not the lease of which is time and cost.
But how many shareholders can an issuer approach, and ask to approve the pending corporation action, before it becomes a solicitation? There is no published guidance from the SEC as to the number of people that may be contacted by management before such contact is considered a solicitation. However, in the past, we have successfully argued the following:
1. Rule 14a-2(b)(2) sets forth an objective number of contacts in the context of solicitations other than on behalf of the issuer, and indicates that not more than ten (10) is an appropriate number. This number may be analogous to the situation described above.
2. The relationship between the consenting shareholders and management of the issuer. If the shareholders are in regular communication with management, and have access to management to ask questions, then contact between the two would not necessarily be only to seek approval for the contemplated action.
3. The number of shareholders consenting as a percentage of the number of overall shareholders can be a factor.
What is the maximum number that is allowed? Like many things, it depends.
