Annual General Meeting (AGM)

It is an annual meeting by the directors of the company

AGM is the abbreviation for Annual General Meeting, also known as Annual Shareholder Meeting. An AGM is to be held annually where directors of the company present the financial performance and strategies of the company to the interested stakeholders/shareholders.

Shareholders utilize their rights to vote for key macro decisions such as the appointment of the board of director(s), compensation to the executives, selection of the auditor, and dividend payments.

They are significant in maintaining transparency in business, the ability to include shareholders' interests, and bringing management to accountability.

These meetings' one-point agenda is to ensure that the interest of the shareholders/stakeholders is taken care of-even other types of institutions.

For example, universities, schools, charities, and unions can also hold an AGM to discuss the organization's or institution's plans and goals.

For example, refer:

When is an Annual General Meeting conducted?

It usually needs to be conducted at a time specified by the state regulating authorities. Hence, the answer to the question "when" is subjective to the jurisdiction where the company essentially falls.

Conference Room

For example: In India, according to the SEBI's (Securities and Exchange Board of India) recent notification, which came out in 2018 and went into effect on April 1st, 2019.

It states that the top 1000 listed organizations (based on their market capitalization as calculated on March 31st) must ensure that an AGM is conducted no later than five months after the end of a financial year.

How does it Work?

It is a platform where the shareholders and directors of the organization get to interact, especially in the case of large companies.

This meeting is considered the best platform for the shareholders to question or request the desired information of interest from the management on a real-time basis.

People

These meetings essentially work in a way that the agendas of mutual interest are discussed and solved.

Although, the exact procedure of the general meeting is subjective to the jurisdiction in which the organization falls. But, typically, rules and regulations for publicly traded companies are more rigid than for private firms.

Public companies must file annual proxy statements, known as FORM DEF 14A, with the SEC (Securities and Exchange Commission). The filing will specify the annual meeting's date, time, and location.

Proxy statements essentially give reference to the proxy items. Proxy items are to be voted on by shareholders that are often related to the Election of a board member(s), Appointment of the auditor, compensation to the executives and dividend payments, etc.

In case of unavailability of shareholders, they can send their vote by the proxy method, which can be done by post or mail. In addition, it can be done by permitting another shareholder to vote on their behalf.

What is the Agenda?

The primary agendas are as follows:

1. Election of a board member(s)

Since a company, especially a public company, has a lot of shareholders, it becomes practically infeasible for the company owners to look at the issues and strategies from a nuanced and diverse perspective.

Hence, representatives of the shareholders are elected by the eligible shareholders (the ones having voting rights) to keep their best interests.

2. Compensation to the executives

Discussion on the compensation to executives essentially refers to the rewards which are to be received by the C-Suite, i.e., the Core team of the company, which includes the CEO, CFO, CTO, CMO, and CIO, etc.

Usually, the compensation in this context is decided based on the company's financial position at large; if the company's financial position after the financial year seems fair, then the C-Suite is awarded good compensation but vice versa in the other case.

3. Appointment of the auditor

For business transparency, stringent audit of accounts is essential, for which the management, along with the shareholders, try to appoint top-notch auditors for the company.

4. Dividend payments

Discussion on the dividend is needed for the management and shareholders to come to a rapport on how much dividend should be paid out, considering if the company is in profit.

Lastly, any other discussion or debate the shareholders bring forward is usually considered a special business.

Qualifications for an Annual General Meeting

Although the essential items that are discussed in an AGM are different under the bylaws of different government authorities, there are a few items that are most common in all the jurisdictions, such as:

  • Election of boards of directors (as previously discussed)
  • The management represents the financial statements of the company.
  • The management discusses and explains the decisions taken throughout the financial year.
  • Minutes of the meeting essentially refers to the recording of the topics that have been discussed in the meeting. It is usually done by the company secretary or any authorized entity the board has approved of directors.

Refer to a Sample

How is the meeting initiated?

The meeting process is different for different types of companies (Private, Public Government, etc.) and the jurisdiction where the company in question is based. On the other hand, the fundamental procedure for every company remains the same.

Almost all companies are supposed to send out invitation notices to their shareholders well before a certain time gap as notified by their concerned regulating authorities. Usually, the time frame can also be rejected or altered if the majority of the shareholders vote for it.

For example, in India, stakeholders must be sent the notice of invitation at least 21 days before the meeting. And the notice period can be shortened if 95% of shareholders agree to the same.

Notice for invitations is supposed to have certain items different for different jurisdictions.

For Example:

What are the Consequences and Penalty for Default in Holding an annual general meeting?

The meeting is an obligatory part of business, especially for a public company in almost all world regions. However, consequences and penalties are different for different regions.

Judgement

For example: In India, if a company fails to hold an AGM even after the last eligibility date, then the shareholders can reach out to the tribunal.

As a consequence, the tribunal itself or on an application made by any director or member orders an AGM to be conducted as per its directions.

However, suppose the default persists for some impractical reason or deliberate reason. In that case, the tribunal can punish the company and every officer of the company who commits the default with a fine of up to Rs 1 lakh.

In case of persisting default, a fine of Rs 5,000 per day is levied for each day during which the default continues.

In Singapore, Directors who fail to follow the general meeting requirements can be prosecuted in court and may also face disqualification or debarment from being a director.

In addition, Singapore's regulating authorities can impose composition fines on companies that do not hold the required AGMs. Separately, a late lodgment penalty will be imposed for each annual return that is lodged late. For more, please click the provided link

Ancillary benefits

An AGM not only impacts a particular business and its stakeholders but can also help add immense value to a fence sitter.

Analysis

One can gain intense knowledge of business and economics by merely attending these meetings.

Berkshire Hathaway holds one of the biggest general meetings, the world's biggest and most renowned investor.

Mr. Warren Buffet and Mr. Charlie Munger share their pragmatic and expert reviews on various dynamical changes in economics, the effect of geopolitical changes on companies/industries, etc.

Even Big tech giants like Apple, Samsung, Google, etc., share various technological advancements that are highly impactful in the world of technology.

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Researched and authored by Dhanraj JohariLinkedIn

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