The Companies Act (2013) and its tenets mandate that every Private Limited Company or a Limited Company must hold an Annual General Meeting to ensure that their shareholders are updated about the management’s performance, administration and decision-making processes.
In most private limited entities, the general public holds a majority of the stock. They are de facto owners of the company. The Acts ensure that all shareholders get a say in the proceedings of their company.
An AGM has a one-point agenda – to ensure that shareholder’s interests are taken due care of.
In this article
When is an AGM Conducted?
Over the years, there have been numerous changes in how an AGM is conducted. The SEBI, for example, issued a notification in 2018 which came into effect on April 1st, 2019. It stated that the top 1000 listed organisations – based on their market capitalisation as calculated on March 31st – must ensure that a general meeting must be organised not later than 5 months post the end of an FY.
Understanding What is Annual General Meeting
An AGM is an interaction between a company’s shareholders and its directors. It must be noted that shareholders with voting rights may move any motion at a meeting.
The meeting provides shareholders with an opportunity to discuss matters of mutual interest. These may include –
- Discussions on appointments of auditors – The Ministry of Corporate Affairs (MCA) places a great deal of importance on a business’ transparency and reputed companies ensure that they have top-notch auditors poring over their affairs.
Also, audited accounts are approved in such meetings.
- Discussions on the composition of the Board of Directors – Since there are several enormous conglomerates in India with lakhs of shareholders, it is impossible to seek every view. Instead, a few representatives chosen by shareholders interact with their company’s management. If they have any grievances or are not satisfied with the performance of a particular director, they may demand a change in the BOD’s composition.
- Compensation to the management – Shareholders with voting rights may initiate a discussion over the compensation that the top management, including the CEO, CFO, CTO, CIO and others, are receiving. If their organisation is in good health and its books are in good shape, shareholders may choose to reward the C-Suite with bonuses. A lackadaisical performance may indicate that top managers will receive reduced pay.
- Dividend payments – Both shareholders and their company’s directors have to reach an accord on how much dividend should be paid per share in the concerned FY. Only profit-making entities are in a position to pay dividends. Companies whose books are in the red do not issue such emoluments.
Apart from these discussions, shareholders may ask for dialogue and debates on other issues. They are classified as ‘special businesses.’
Furthermore, if a shareholder is unable to attend an AGM, he or she can vote via proxy. They may send a vote either by post or via email.
What is the AGM Norm for Newly-Listed Companies?
There are separate provisions for the first Annual General Meeting of a Limited company and its subsequent ones. The basics are discussed below.
The maiden AGM of a Limited Company must be held within 18 months from the date it is incorporated. At that point, there may not be too many shareholders; still, an AGM must be organised.
The next yearly meeting may be held on the earliest possible instance of the following days –
- After 15 months from the first general meeting.
- December 31st, or the year’s last day.
- On or before September 30th; this marks 6 months from the end of an FY.
For subsequent meetings, the above-mentioned criteria hold with one addition. Once 6 months have passed since a company’s profit & loss accounts plus balance sheets have been published, and earnings declared to shareholders, it cannot arrange for an AGM.
Glossary of Terms Related to an Annual General Meeting
The following are some vital cogs of the wheels of a yearly meeting between the directors and shareholders.
All shareholders, auditors, trustees and associated parties must be informed at least 21 days before an AGM is to be held. A notice of this upcoming meeting plus the concerned company’s annual report must be sent at least 3 weeks in advance.
Note that if 95% of the shareholder’s agreement, a company’s notice period can be shortened.
It is a legal term which essentially mandates the minimum number of representatives from both sides without which a meeting cannot begin. Without a full quorum, an AGM cannot go ahead.
Section 103 of The Companies Act (2013) requires the following numbers.
|Only for Public companies|
|Total number of members (as on the day of meeting)||Quorum requirement|
|Above 1000 but below 5000||15|
|For private companies|
|Number of members does not matter||2 members|
If an Annual General Meeting does not have a full quorum, the meeting must be postponed by a week. The timing, venue and agenda will remain the same; however, the BoD may change these elements using their discretionary powers.
Note that shareholder proxies cannot be part of a quorum.
- Timing and venue
Meetings can be set only between 9 am and 6 pm on any day, including weekends, except on national holidays. The venue is mostly the company’s registered office, failing which the BoD will work on a replacement venue and convey it to all attendees.
- Section 8 companies
Lastly, AGM rules can be tweaked for charitable or non-profit companies which are registered under Section 8 of The Companies Act (2013). These organisations do not pay any dividend and deal mostly in science, environmental causes, arts, sciences and sports. They also encourage original research in diverse fields.
An Annual General Meeting is not just a business interaction. At times, shareholders can gain keen insights into corporate workings. Legendary investor, philanthropist and billionaire Warren Buffet’s AGMs at Berkshire Hathaway are packed tight each year as he shares his lessons and imparts business strategies.
Apple, Samsung, Reliance India Limited, BAE Systems, Alibaba and several other Fortune 500 giants generally have well-attended AGMs every year.
The Volkswagen Group’s axiom for AGMs – “An AGM starts only after it ends” – reflects German passion for business and football.
It is one of the reasons why thousands of people attend annual meetings of their companies- large and small- each year. This sense of collective ownership is a vital driving force.