Definition - What does Irrevocable Proxy mean?
An irrevocable proxy is a type of proxy that cannot be revoked for a specific period of time. Though most proxies are revocable, some can be made irrevocable with the addition of a clause that explicitly states it to be so. Also, when the proxy holder meets any of the below criteria then the proxy is irrevocable for a certain period, where the period depends on the state laws in which it is being exercised:
- The proxy holder has already purchased or has agreed to purchase the shares of a company.
- The proxy holder is a pledgee of the company's shares.
- The proxy holder has given some form of loan or credit to the organization.
- The proxy holder is a party to a voting agreement.
- The proxy holder is an employee of the company.
Divestopedia explains Irrevocable Proxy
Irrevocable proxies, as with normal proxies, are generally based on a principal-agent relationship, where the agent agrees to act in the principal's best interest and consents to act on behalf of the principal. The agent is subject to the control of the principal and the principal agrees to give representation rights to the agent. In this case, the proxy holder is the agent, and he/she acts on behalf of the principal.
However, if the agent has a proprietary interest in the organization, then his/her actions can have a big impact on the decisions of the company. This is why proxies given to those agents who have a stake in the organization are irrevocable. Alternately, proxies are also irrevocable if it is explicitly mentioned by the principal at the time of bestowing the proxy. The idea behind making a proxy irrevocable is that the agent will be absolved of his/her actions when he/she acts in the capacity of the principal. However, he/she is not absolved by law when he/she has a personal interest in the operations of the organization. Since the proxy holder can act in his/her personal interest, it is essential to make the proxy irrevocable.