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What is an Information Circular?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 11 August 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Information circulars are one of the several documents that are issued by a business and forwarded to company shareholders. The purpose of the circulars are to inform the investors of upcoming issues that will be discussed at the next regularly scheduled shareholders’ meeting. Depending on the nature of the business, an information circular may be accompanied by a proxy, allowing investors who cannot attend the meeting to still participate in the decision making process.

There are several reasons for the creation and distribution of an information circular. One very common reason has to do with upcoming elections to the Board of Directors. The circular not only serves as a reminder to shareholders of the impending election, but is often accompanied with important information about the background, qualifications, and credentials of all candidates for the open Board positions. This makes it possible for each shareholder to make an informed decision when the time arrives to cast his or her vote.

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An information circular can also be used as a means of addressing issues other than elections. For example, a circular may be distributed if a proposed merger has been put to the Board members. Depending on the by-laws and other founding documents of the company, there is often the need to have at least a majority of shareholders vote in favor of the merger before it can take place. The circular often includes information about the proposed terms of the merger, what a merger would mean for current investors, and other essential data that should be considered before the vote actually takes place.

The same general function can be employed when the company is facing the possibility of a buyout, or the threat of a hostile takeover. Once again, the information circular alerts investors to the situation, provides relevant data regarding possible actions that can be taken, and urges the shareholders to participate in the process of determining how the company should respond. This may include accepting the buyout offer, agreeing to sell the corporate raider a controlling number of shares, or choosing a solution that brings the hostile attempt to a halt.

Even in times when business is proceeding as usual, shareholders are likely to receive a basic information circular at some point prior to the annual general meeting of stockholders. The meeting may mainly consist of recapping events since the last meeting, and performing basic tasks that must be reviewed and completed each year. The circular may also include or be accompanied by documents that detail the general performance of the company over the last twelve months, including data on profits and losses.

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