Good corporate governance hinges on how frequently and effectively the management and the shareholders of a company interact with each other. An Annual General Meeting (AGM) is one platform that allows the two sides to come face to face and discuss and debate the business decisions taken by the management over the past year and the long-term and short-term strategies that the company’s leadership intends to undertake. What is an annual general meeting?
AGM meaning
As the name suggests, an annual general meeting is a formal assembly or gathering of the board of directors and the shareholders of a company that takes place on a yearly basis. In an AGM, shareholders voice their concerns and appreciation about the decisions taken by the management to expand the company’s business and increase its profits. Key issues, such as the performance of the company in the preceding year or the appointment of auditors, are voted upon and decisions are finalised. The overarching aim of an AGM is to ensure that the shareholders are kept abreast of the company’s activities and their interests are taken care of.
Legal mandate
Several countries have formulated laws to regulate firms and their activities. One such legal requirement is the holding of an annual general meeting for the shareholders to question the management of the company they have invested in. In India, the Companies Act of 2013 governs the corporate space. Under this act, it is mandatory for every “private limited company” or a “limited company” to hold an annual general meeting so as to ensure that the shareholders are informed of the performance of the company, how the company is being internally administered, and what decision-making processes are being followed. According to a 2018 notification issued by the Securities and Exchange Board of India (SEBI), the top 1,000 listed organisations in the country have to hold an AGM within five months after a financial year (FY) has ended. On the other hand, the Companies Act mandates that a company must call for an AGM before the 30th of September every year, that is, no later than six months after a financial year is over. The only exception to this regulation are One Person Companies (OPCs).
Agenda of an AGM
What exactly takes place in an annual general meeting? Numerous matters of importance are discussed and voted upon in an AGM. Shareholders raise concerns if the performance of the company has been below expectations in the previous financial year, while at the same time discuss how the management needs to proceed in the upcoming year. In general, the following items are on the agenda of these meetings:
- Comprehensive discussion, thorough consideration, and the final adoption of the audited financial statements
- Discussion and debate over the reports submitted by the Director and the auditor
- Declaration of dividends to the shareholders
- Election and appointment of directors who will replace directors whose tenure is over or are retiring voluntarily
- Appointment of company auditors and decision on what the auditor’s remuneration will be
- Discussion over any other business that the company may be conducting as a special business
Procedure of an AGM
Under the Companies Act, 2013, once a company decides to hold an AGM, it must issue a notice to all the shareholders at least 21 days prior to the meeting. The notice must contain all the information necessary for the shareholder to attend the meeting, such as the time and place of the annual general meeting. Further, the meeting notice must be sent to the following persons:
- All members of the company
- Legal representative of a deceased member
- Assignee of an insolvent member
- The appointed auditors of the company
- All directors of the company
Decisions regarding the conduct of ordinary business of a company are taken through an “ordinary resolution”. In the case of special business activities, a “special resolution” must be passed, which requires approval of 75% of the voting members of the company.
Quorum of an AGM
In legal terms, a quorum is the minimum number of representatives that need to be present for an annual general meeting to take place. An AGM cannot begin in the absence of a quorum. In India, for a private limited company, two company members fulfil the requirement of a quorum. On the other hand, for a public company, the quorum requirement is as follows:
- If the number of members is below 1,000, five members constitute the quorum.
- If the number of members is between 1,000 and 5,000, the quorum requirement for an AGM is fifteen members.
- If the number of members is over 5,000, then thirty members comprise the quorum.
Rights of members
The law confers certain rights to the members of the company, thus ensuring that the stakeholders are adequately equipped to question the management and that their interests are safeguarded. All company members, including the shareholders, have the right to attend and vote in an annual general meeting. Members that are unable to attend for valid reasons can appoint proxies to vote on their behalf. Moreover, members can elect a chairman for the meeting from amongst themselves. These are the most important rights enjoyed by the members, along with other privileges that the company’s bylaws may offer them.
Importance
Bringing transparency to corporate decision-making processes and holding company management accountable for its actions are the two most important reasons that explain annual general meetings. These meetings are a window to assess the quality of leadership of a company, which can then help shareholders decide whether to stay with the organisation or liquidate their positions. Lastly, annual general meetings also influence the market, as the exchanges that occur at these meetings indicate the direction in which the company is likely to go in the future and investors can act accordingly, especially if the company has a sufficiently large presence in the market.
Conclusion
In summary, the Annual General Meeting (AGM) is a cornerstone of corporate governance, facilitating dialogue between management and shareholders. Mandated by legal frameworks like India's Companies Act of 2013, AGMs ensure transparency and accountability. With structured agendas covering financial statements, director reports, and appointment decisions.
