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SEC Rule 14n-1

John W. Sellers
Attorney John W. Sellers
SEC Rule 14n-1 Team Lead
Former DOJ Trial Attorney
envelope iconContact John

SEC Rule 14n-1 is one of the rules that allows a company’s shareholders to nominate someone for election to the company’s board of directors. While other SEC rules cover many of the other details surrounding this process, it is Rule 14n-1 that creates the process that nominating shareholders have to follow in order to get their nominee included in the company’s proxy materials. That process entails the filing of Schedule 14N, which contains the necessary information about the nominee and the shareholders nominating him or her as a director.

The SEC compliance and securities litigation attorneys at the national law firm Oberheiden P.C. have guided numerous corporations through this important and potentially threatening process, and have also helped shareholder groups nominate directors who have similar interests by complying with the rigid requirements of SEC Rule 14n-1.

An Overview of SEC Rule 14n-1

SEC Rule 14n-1 is a regulation promulgated by the U.S. Securities and Exchange Commission (SEC) under the powers vested in that agency by Congress through the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.). Section 14(a) of that Act (15 U.S.C. § 78n), which governs proxies and proxy voting, was itself amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111-203) in 2010 to allow, but not require, the SEC to make rules regarding shareholder nominees and their inclusion in a corporation’s proxy materials.

The SEC immediately made use of that amended provision to implement a handful of new rules governing proxies and shareholder nominees (75 Fed. Reg. 56,668 (Sept. 16, 2010)).

Among those rules was Rule 14n-1 (17 C.F.R. § 240.14n-1).

The basics of SEC Rule 14n-1 is that shareholders, or groups of shareholders, who want to nominate people to their company’s board of directors have to file Schedule 14N with the SEC and notify the company of that filing.

The information required on Schedule 14N is set by regulation (17 C.F.R. § 240.14n-101). For example, Schedule 14N has to:

  • Identify who is filing Schedule 14N
  • Attest that the filing is on their behalf
  • Nominate a candidate for the board
  • Identify the securities that entitle the filers to vote on the election for directors
  • Total up the number of votes attributable to those securities

Importantly, Schedule 14N is filed with the SEC, not with the company or the issuer of the securities that entitle the filer to vote in the election for the board of directors. The company, however, has to be notified of the filing of Schedule 14N.

To nominate someone for the board of directors, shareholders filing a Schedule 14N have to do so between 120 and 150 days before the anniversary of the mailing of the last year’s proxy statement to shareholders.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Rule 14n-1 Aims to Improve Voting Rights of Shareholders

According to the SEC, the goal of SEC Rule 14n-1 and its 2010 amendments are to benefit shareholders by improving their corporate voting rights. Giving them easier access to the ballot for the board of directors and letting them communicate their candidacies to the rest of the voting shareholders opens up the process of corporate governance, giving new blood more opportunities to run companies, letting more shareholders have their disparate voices heard in the electoral process, and allowing for more accountability when sitting directors do not act in shareholders’ interests.

In theory, this would mean that corporations would have stronger boards that are more closely aligned with their shareholders. In practice, that is hardly the case.

A Tool for Activist Shareholders and Hostile Takeovers

For large corporations, SEC Rule 14n-1 is a way to achieve a sought-after goal of most social and environmental activists, as well as the company’s own competitors: Inside influence on the corporation’s board of directors.

By opening ballot access to these parties and requiring corporations to publicize their infiltration efforts to other shareholders who vote by proxy, SEC Rule 14n-1 can pose a significant threat to corporate governance. It allows shareholders – even those who have only a single share, and potentially even those who only had that share for a tiny period of time – to propose candidates who have their interests at heart. Those interests can be completely contrary to the best interests of the vast majority of other shareholders, and can lead to the installation of directors who would use their inside influence on the company in order to:

  • Implement environmental policies
  • Adopt controversial social agendas
  • Push the company into merging with a competitor
  • Financially harm the corporation to drop the stock price and make it more enticing for an outside purchase

All of these can drastically harm the primary motivation of the majority of the company’s shareholders, which is strictly to secure the maximum return possibly for their investment.

State Law and Corporate Bylaws Still Control

Importantly, SEC Rule 14n-1 and other proxy rules only operate as “gap-fillers.” If either state law or corporate governing documents, such as the company’s bylaws, prohibit shareholders from nominating candidates for election as a director, those rules would control and the SEC’s regulations would fall away.

This presents an important defense for corporations that want to preserve their board’s elections and ward off interference from unwanted influences, and an obstacle for shareholders who want to have their voices heard.

Frequently Asked Questions About Oberheiden P.C. and SEC Rule 14n-1

Does SEC Rule 14n-1 Apply to Foreign Corporations?

 

Potentially, yes. The SEC has stated that Rule 14n-1 would apply to foreign issuers of securities, but only if:

  • The foreign company was regulated by the SEC’s other proxy rules, and
  • Applicable foreign law does not prohibit shareholders from nominating candidates for the board of directors.

Does the Rule Apply to Companies of All Sizes?

 

Yes. While the SEC’s amendments differentiated between large and small companies – with “small companies” being those that had less than $75 million of public float – the only impact of that distinction was when Rule 14n-1 went into effect. Small companies were given three years after the effective date of the amendments to see how the Rule played out and how larger corporations came into compliance with it. Because Rule 14n-1 went into effect on November 15, 2010, all companies now fall under its legal requirements.

What is SEC Rule 14a-11 and How Does It Impact Proxy Access Rules?

 

One of the SEC Rules that went into effect alongside SEC Rule 14n-1 was Rule 14a-11. When it was promulgated, Rule 14a-11 was the centerpiece of the regulations that expanded proxy access for shareholders. However, it was quickly challenged in federal district courts by advocates for large corporations that did not want to deal with proxy contests. In 2011, less than a year after the Rule was implemented, the Circuit Court for the District of Columbia vacated it in the case Business Roundtable and Chamber of Commerce v. SEC, calling the rule was an “arbitrary and capricious” use of the SEC’s power to regulate the securities markets.

Since then, however, the SEC has adopted other rules regarding proxy access, such as Rule 14a-19.

Why Should I Hire Oberheiden P.C. for SEC Guidance?

 

Oberheiden P.C. is one of the only law firms that exclusively employs senior-level lawyers. That means all of our guidance and legal work comes from attorneys who are highly experienced handling cases, situations, and concerns that are similar to your own.

Particularly when it comes to issues like proxy voting, where most of the damage will have already been done if your case ever reaches a courtroom, that experience matters.

However, it also means that all of your interactions with our firm will involve a senior lawyer on your case. Unlike other law firms, we do not employ junior associates or paralegals or even any legal secretaries. Nothing that you communicate with Oberheiden P.C. will have to work its way up the chain of command to the person who actually needs to hear it, potentially losing its correct meaning along the way and creating a costly miscommunication.

Why Don’t You Call Yourself the Best Securities Law Firm?

 

We prefer to let our prior clients say things like that about the legal services that we provide.


How the SEC Compliance and Securities Litigation Lawyers at Oberheiden P.C. Can Help

SEC Rule 14n-1 is an important piece of the regulatory framework that the SEC has developed over time. It is also an extremely controversial one, given how easily it can be abused by shareholders who want to wield it to get major corporations to do their bidding.

The securities lawyers at the national law firm Oberheiden P.C. have helped both shareholders and corporations in this sensitive situation. Our attorneys all have experience handling pressing legal issues in the securities field and in corporate governance, including serious concerns with proxy voting for the board of directors. With our legal guidance, shareholders have made use of their rights to be heard while corporations have been able to control the process and ensure that the best directors were chosen from a pool of those who had the company’s interests at heart.

Call Oberheiden P.C. today at (888) 680-1745 or contact us online to get started on your case today.

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