Annual General Meeting (AGM): Definition and Purpose

An Annual General Meeting (AGM) is a gathering of a firm's board of directors and shareholders. The firm's annual report, which details its performance and strategy, is presented to the shareholders at an AGM by the board of directors. Typically, an AGM is where directors and shareholders may interact.

The Companies Act (2013) and its principles mandate that every Private Limited Company and Limited Company conduct an Annual General Meeting to update its shareholders on the top management operations, management, and decision-making processes.

The general public often holds most of the stock in private limited companies. They effectively own the business. The Acts ensure that every shareholder has a voice in how their firm is run. AGMs only have one goal: to ensure that shareholders' interests are properly represented.

What is Annual General Meeting (AGM)

An AGM is a meeting where directors and shareholders engage. It should be highlighted that any motion may be made at a meeting by any shareholder with voting rights. The meeting gives shareholders a chance to talk on issues of shared interest.

1. Appointment of Auditors

The meeting gives shareholders a chance to talk on issues of shared interest. These might include the Ministry of Corporate Affairs (MCA) values transparency highly, and that well-known businesses hire top-notch auditors to scrutinize their books. In these sessions, audited accounts are also authorized.

2. Composition of the Board of Directors

It is hard to obtain every viewpoint because India is home to several huge enterprises with thousands of stockholders. Instead, a small number of shareholders' representatives deal with the administration of their firm. If they have any grievances or are unhappy with the work of a particular director, they may ask for a modification in the BOD's makeup.

3. Compensation to the Management

A sluggish performance can signify that top managers will get paid less. Discussions about the pay received by the top leadership, such as the CFO, CTO, and others, may be started by shareholders with the right to vote. Shareholders may decide to give the C-Suite incentives if their company is operating profitably and its accounts are in order.

4. Dividend Payments

The amount of dividend that should be paid per share in the relevant FY must be agreed upon by shareholders and the company's directors. These emoluments are not given out by businesses with negative net worth. Only profitable businesses can distribute dividends.

Shareholders may request discussions and debates on topics other than these in addition to these. They fall under the category of "special businesses." A shareholder may also cast a proxy vote if they cannot attend an AGM in person. They have the option of casting a ballot by mail or email.

When is an AGM Conducted?

The way an AGM is handled has undergone several adjustments over time. For instance, the SEBI published a notification in 2018 that became effective on April 1, 2019. According to that document, the top 1000 listed companies must guarantee that a general meeting is held no later than five months following the end of a fiscal year (FY), depending on their market capitalization as of March 31.

Annual Meeting Agenda

An agenda govern the annual gathering. It serves as a compass for the general meeting to aid the chair in keeping everything on schedule, just like a board meeting agenda. For everyone to understand why they are attending the AGM and what they are expected to do, the agenda should have a clear purpose.

Agendas for annual meetings typically contain the following:

• Call to Order: The chairperson formally opens the meeting and establishes expectations. For instance, the chair might ask everyone present at a virtual AGM to keep their cameras on.
• Reading and Approving the Previous AGM Meeting Minutes: The participants review and accept the minutes from earlier meetings. At this point, any concerns raised by shareholders over the prior AGM will be addressed. Participants can study the minutes of past meetings before the current ones by sharing them in advance. As a result, the real meeting's time spent reviewing the preceding minutes is cut down. The board and shareholders can use that time for more important issues.
• Presentation of the Annual Financial Report: The annual financial report is presented to the shareholders by the board of directors to gain their approval. The presenter will disclose the company's annual profit and distribution in this conference section.
  In this phase, queries about accounting procedures, financial audit reports, and policies will also be addressed. Give this issue on the agenda enough time. This report should be distributed in advance so attendees can carefully analyze it before the meeting to promote more fruitful discussions.
  For approval, the board delivers a thorough account of the organization's operations, highlights, and board decisions for the previous year. Shareholders can ratify and approve the annual report following the presentation. Alternatively, they could voice their disapproval of the report.
  One of the key goals of the AGM is the election of new board members. In accordance with the company's bylaws, the election takes place.
• Changes to the Company's Charter: Shareholders and directors may propose amendments to the charter if they have reservations about a particular policy. Participants can evaluate materials and suggestions before voting on a change if the agenda is sent in time.
• Taking Resolutions: At this point, business issues requiring votes are handled. Before the meeting, attendees should receive these resolutions. Any issues that come up on the big day and can't be resolved right away might be tabled until a later meeting.
  The board of directors and shareholders can access any meeting materials ahead of the AGM using a digital board book, enabling them to be ready for discussions and votes. Additionally, real-time notes can be taken.

How to Run an Annual General Meeting

Adequate planning and adherence to established procedures are necessary for an efficient and legally compliant AGM. Essentially, the processes resemble director meetings. To hold an efficient AGM, heed this professional advice.

1. Plan and Prepare

Careful planning is required for an annual general meeting. Create a compelling agenda and make sure all report presentations are thorough. In order to prevent last-minute annoyances, test the voting and presentation devices as well.

Make sure the location you choose is accessible to all visitors. Additionally, guests' privacy and document security should be maintained. The preparation is slightly different if you are preparing for an online AGM. Keeping the following things in mind will help you choose the best virtual AGM software:

• Electoral abilities
• Cryptography and safety
• Syncing of conferencing and management software

Next, check the virtual capacity of the software. Make sure the meeting software can accommodate the estimated number of attendees by calculating it. Then, test out the virtual meeting equipment ahead of time to ensure everything goes without a hitch.

Select the virtual meeting setup and confirm that all meeting links are operational. Do you want all cameras on and all mics muted? Planning for possible issues is crucial. Have backup plans, for instance, if participants' connections to the virtual meeting break down.

2. Keep the Meeting Short

Reduce the length of meetings to keep participants interested throughout the AGM. You can reduce meeting waste by adhering to a pre-planned sequence of activities. Set a strict time limit for creating the AGM agenda. Divide the agenda into sessions with breaks if the meeting must last longer. This holds for both online and live AGMs.

3. Provide Meeting Materials in Advance

To provide shareholders and directors enough time to evaluate the materials and distribute the meeting materials, such as the board book, at least one week before the AGM. This guarantees that attendees arrive at the meeting ready for it to be as productive as possible.

Advantages of AGM

1. Annual General Meetings serve as a vehicle for accountability. The possibility of an upcoming meeting is essential to the efficient and productive operation of a firm, according to historical records and shared experiences of these gatherings.
2. A yearly gathering of all members of an organization fosters interaction and idea exchange, identifies areas for improvement, and generally advances the organization.
3. It is a crucial component of corporate governance since it highlights all the adjustments needed to improve performance. It provides a glimpse into the future while assessing current performance compared to the previous AGM.

Disadvantages of AGM

1. It could be challenging to appropriately direct the proceedings and stay on course, given the meeting's large number of attendees. It might not be as fruitful as it could have been in the end.
2. Even with breaks for refreshments, it takes a lot of time and requires a lot of concentration to keep people's attention for so long.

Qualifications for an Annual General Meeting (AGM)

The organizational bylaws of a business, with its authority, memos, and articles of organization, comprise the rules regulating an AGM. Some regulations outline how much notice shareholders must receive regarding an AGM's location and schedule and how to vote via proxy. In most jurisdictions, it is required that the following issues be discussed at an AGM:

• Minutes from the last meeting and the prior year's AGM minutes must be submitted and approved.
• Financial statements: The business submits its yearly financial accounts for approval to its shareholders.
• The shareholders approve and ratify (or do not) the choices made by the board of directors during the preceding fiscal year. This frequently involves the distribution of a dividend.
• The company's shareholders choose the board of directors for the forthcoming year.

What is the AGM Norm for Newly-Listed Companies?

Special provisions cover a limited company's first annual general meeting and subsequent ones. The fundamentals are covered below.

A Limited Company's first Annual General Meeting (AGM) must be held within 18 months of the date of incorporation. Even though there might not be many shareholders at the time, an AGM must still be planned.

The following days may be selected as the earliest possible time for the next annual meeting:

• Fifteen months after the initial general meeting.
• The last day of the year is December 31.
• Six months have passed since the end of an FY as of September 30 or earlier.

The requirements above still apply at subsequent meetings, with one addition. A company cannot schedule an AGM after six months have passed after its profit & loss accounts and balance sheets were published, and earnings were disclosed to shareholders.

Additional Topics Covered at an Annual General Meeting (AGM)

If the firm hasn't been functioning successfully, investors can ask the council of managers and directors at the AGM why the performance of the company has been poor. The shareholders are entitled to make requests, ask questions, and get additional information about how the company turnaround plan is being managed.

During the AGM, shareholders can vote on various business issues in addition to electing the board of directors. For instance, management may present a merger or acquisition plan to the shareholders, who might then determine whether or not the company should proceed.

Directors and executives usually use an AGM as an opportunity to convey their vision for the team's growth with shareholders. For instance, during Berkshire Hathaway's annual general meeting, Warren Buffett makes extensive speeches regarding his thoughts on the firm and the economy as a whole (AGM). An agenda for an AGM may also include several other items. Tens of thousands of individuals attend Berkshire Hathaway's annual event each year, which has earned the moniker "Woodstock for Capitalists."

Key Takeaways

• The annual gathering of interested shareholders is known as an annual general meeting (AGM).
• Directors of the firm report the company's financial performance, and shareholders vote on the pertinent topics at the annual general meeting (AGM).
• Voting by proxy, which can be done online or by mail, is typically allowed for shareholders who cannot attend the meeting in person.
• The firm's directors are frequently available for shareholder queries during the AGM.
• An AGM is a venue for activist shareholders to voice their objections.

Terms Related to an Annual General Meeting

The following are some key components of an annual meeting of directors and shareholders.

1. Annual General Meeting Notice

At least 21 days before the scheduled AGM, all shareholders, auditors, trustees, and related parties must be notified. A minimum of three weeks prior notification of the meeting, together with the corporation's annual report in question, is required.

Note that a company's notice time may be shortened if 95% of the shareholders consent.

2. Timing and Venue

Meetings can only be scheduled between 9 am and 6 pm, Monday through Saturday, excluding national holidays. If the company's registered office cannot be used, the Board of Directors will find a substitute location and notify all attendees.

3. Section 8 Companies

Last but not least, nonprofit or philanthropic organizations registered under Section 8 of The Company Law may amend the AGM requirements (2013). These organizations, which do not pay dividends, are mostly concerned with science, environmental concerns, the arts, sciences, and sports. They also encourage unique research in a range of fields.

Frequently Asked Questions

Q. Why is an AGM held?

Ans. An AGM enables the firm members to learn about reports from the Committee on the year's accomplishments. Additionally, choosing the Committee for the coming year is crucial.

Q. What is discussed during a general assembly yearly meeting?

Ans. An AGM is held to allow shareholders to vote on corporate concerns and the choice of the board of directors. This meeting is typically the sole opportunity for shareholders and executives to engage during the year in many major corporations.

Q. What steps must be taken to convene an annual general meeting?

Ans. The firm hosting the AGM must provide members with a clear 21-day notice. Such notification must include information regarding the meeting's location, date, day of the week, and hour.

Q. What conditions must be met for an Annual General Meeting (AGM)?

Ans. All businesses, except one Person Companies, are required to hold Annual General Meetings each year. A firm must have its first Annual General Meeting no later than nine months following the conclusion of the first Financial Year following formation.

Q. Can a business have its annual general meeting via video conferencing?

Ans. The Companies are not allowed to call and hold the meeting via video conferencing or other audio-visual methods under Section 96 of the Companies Act, 2013.

Conclusion

A general assembly is more than just a business meeting. There are instances when shareholders can learn a lot about a company's operations. Each year, the annual general meetings at Berkshire Hathaway, where legendary investor, philanthropist, and billionaire Warren Buffet presents his lessons and business advice, are jam-packed.

The annual general meetings of major Fortune 500 companies, including Apple, Samsung, Reliance India Limited, BAE Systems, Alibaba, and others, are typically well-attended. According to the Volkswagen Group's adage, an AGM starts only when it ends, which symbolizes German business and football fervour.

It is one factor contributing to thousands of people attending annual meetings of their businesses each year, big and small. This feeling of group ownership serves as a powerful motivator.