In certain situations, NYSE and NASDAQ rules require a shareholder vote before a company can issue equity or convertible securities. The shareholder approval process — calling a shareholder meeting, preparing a proxy statement, clearing the proxy with the SEC — adds both time and expense that may not be compatible with the capital or strategic needs of the issuer. Understanding these rules is particularly important if a company seeks speedy access to the equity markets to fund a strategic acquisition or execute an opportunistic change in its capital structure.

The shareholder approval requirement may be triggered by securities issuances involving:

• 20 percent or more of the common stock or voting power of an issuer (especially since the exchanges may aggregate several separate issuances into a single transaction for the purpose of calculating the 20 percent threshold);

• Related parties (such as directors, officers, affiliates or significant shareholders);

• A change of control (often in the context of funding an acquisition); or

• Convertible securities, options or warrants (in which case determining whether shareholder approval is required is especially complicated).