An Annual General Meeting (AGM) is a very important event in the life of any corporate entity, serving as a formal meeting of the shareholders of the company. It offers a venue for the presentation of financial statements, conversations about the business's performance, and important decisions like appointing directors and declaring dividends. AGMs are not just statutory requirements; they are essential tools for transparency, accountability, and shareholder engagement. They are required by corporate laws in the majority of jurisdictions.
Purpose and Importance of an AGM
The main goal of an AGM is to keep shareholders, who are the real owners of a company, up to date on the financial health and operational strategies of the business. It gives them a chance to use their rights in important situations and makes them feel like they have a say in how the company is run. Some important goals are:
Review of Financial Statements: The board of directors offers audited financial reports that show how profitable the business is, as well as its assets, debts, and cash flows.
Declaration of Dividends: Shareholders may be asked to approve proposed dividends based on profits made.
Election of Directors: Annual General Meetings (AGMs) offer shareholders the opportunity to elect or re-elect members of the board.
Appointment of Auditors: Shareholders can vote on whether to keep auditors on and agree to their pay.
Talking About Corporate Strategy: The company's top leaders may talk about its future business plans, which gives shareholders a sense of where the company is going.
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Section 96 of the Companies Act, 2013
Provisions for holding Annual General Meetings of a company in India are disclosed in Section 96 of the Companies Act, 2013. Transparency and accountability in corporate management can be established in this genuine mode.
Subsection (1): Mandatory Holding of AGMs
Application: All companies except One Person Companies are required to hold an AGM every year.
Time Frame:
First AGM: shall be held within nine months from the closure of the very first financial year.
Subsequent AGMs: These should be conducted within six months of the end of the financial year, so that no more than fifteen months should lapse between two AGMs.
Exemption for First Year: A company is exempt from conducting another AGM in the incorporation year if its first AGM is conducted within the allowed period of nine months.
Extension by Registrar: The Registrar of Companies (RoC) shall, on receiving a valid petition from the company, grant extension up to three months, excluding the first AGM, for holding an AGM.
Subsection (2): Time and Place of Holding AGMs
Business Hours: AGMs shall be held between 9 o'clock and 6 o'clock in the afternoon.
Non-National Holidays: No meetings shall be held on National Holidays declared by Central Government.
Place:
The Annual General Meetings shall be held at the registered office of the company or at any other place situated in the city, town, or village within the same limits.
The Central Government may grant exemption of such proviso subject to certain conditions.
Explanation: For the purposes of this subsection, the term "National Holiday" shall mean any day declared as National Holiday by the Central Government.
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Recent Amendments and Guidelines
The MCA agreed to let the companies hold their AGMs through Video Conferencing or Other Audio-Visual Means as part of the steps taken to fight COVID-19. AGMs, which are scheduled to take place in the calendar year 2024, will now be exempt from some restrictions. The Institute of Company Secretaries of India (ICSI) has published its revised Secretarial Standards on General Meetings, which will take effect on April 1, 2024. These standards relate to the Act's amended provisions. But these standards help with specific parts of running AGMs, like how to handle notice, quorum, proxies, and voting.
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Procedure and Conduct of an AGM
AGMs follow a structured protocol. The key steps include:
Notice of Meeting: A formal notice specifying the date, time, venue (or virtual platform), and agenda must be sent to all shareholders well in advance, typically at least 21 days before the meeting.
Quorum: A minimum number of members must be present to validate the meeting. The quorum requirements differ depending on company size and jurisdiction.
Chairing the Meeting: The Chairman of the Board usually presides over the meeting. In their absence, another director or an elected member chairs the session.
Presentation and Discussion: Directors present the annual report and shareholders can raise questions or provide feedback.
Voting: Resolutions on the agenda are passed based on a majority vote. This can be conducted by show of hands, electronically or by proxy.
Minutes of the Meeting: Proceedings must be documented in the minutes which serve as an official record of the decisions taken.
Shareholder Rights and Participation
AGMs empower shareholders with several important rights:
Right to Information: Shareholders are entitled to receive the company’s financial statements and other relevant reports before the meeting.
Right to Vote: Shareholders vote on crucial resolutions and proposals affecting the company’s direction.
Right to Ask Questions: They can question the board about operational matters, strategy, and financial decisions.
Right to Propose Resolutions: In some jurisdictions, a certain percentage of shareholders can propose additional agenda items.
These rights ensure that shareholders have a voice in corporate governance and help prevent misuse of authority by the board or executive management.
Challenges and Criticisms
Despite their significance, AGMs are not without challenges:
Low Attendance: Especially in large public companies, many retail shareholders do not attend AGMs, diminishing the intended participatory nature.
Limited Time for Discussion: Meetings may be rushed, with little time for detailed discussion on complex issues.
Information Asymmetry: Not all shareholders possess the financial literacy to interpret detailed reports, potentially affecting informed decision-making.
Formalism Over Substance: At times, AGMs can become ceremonial, focusing on formalities rather than meaningful dialogue.
Efforts to enhance shareholder education and encourage active participation are necessary to overcome these limitations.
In a nutshell,
A vital forum for promoting accountability, transparency, and corporate democracy, an Annual General Meeting is more than just a legal requirement. AGMs are one of the few chances for shareholders to directly affect a company's future in a world where corporate actions are having an increasing impact on economies, societies, and the environment.
To truly harness the power of AGMs, both companies and shareholders must commit to making them meaningful, open, and forward-thinking. Technology, rules, and more people knowing about AGMs are all making them better. This means that investors will be more involved and well-informed, which will lead to better corporate governance in the long run.
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FAQs on Annual General Meeting
Q1 Whether the company can hold its AGM outside the registered office itself?
A company can hold its AGM at any place within the city, town, or village where the registered office is situated. For unlisted companies, AGMs can be held at any place in India provided all members have given their consent in writing or through electronic mode in advance.
Q2. What is the penalty for not holding an AGM?
The company and every officer in default may be liable to a fine which may extend to one lakh rupees, and in case of continuing default, with a further fine which may extend to five thousand rupees for each day during which such default continues.
Q3. Can shareholders propose resolutions for the AGM?
Yes, shareholders holding at least one-twentieth of the total voting power or shares on which an aggregate sum of not less than five lakh rupees has been paid up can propose resolutions by giving a notice at least six weeks before the AGM.
Q4. Is it mandatory to appoint an auditor in every AGM?
Yes, the appointment or reappointment of auditors is a mandatory agenda item in every AGM.
Q5. Is there scope for a proxy to be appointed to attend and vote at the AGM?
A member who is entitled to attend and vote at the AGM may appoint a proxy to attend and vote for him. The instrument appointing a proxy should be lodged with the company at least 48 hours prior to the date of the meeting.
