What is the Shareholders Meeting?
Shareholders Meeting means a meeting of the stockholders of the corporation wherein resolution are placed before the shareholders to discuss about the corporate matters and other matters required by the bylaws of the company (such as company’s performance over the relevant statutory period is reviewed and approved, Board of Directors (BOD) of the company are appointed, decisions regarding increase in share capital, major acquisitions, mergers are taken, etc.) and may be conducted at frequent intervals (like annually or six-monthly or quarter or in exceptional circumstances),
- The word “meeting” implies an act of coming face to face or coming together to have a discussion. The word “shareholders” means the actual persons who have taken a stake in the corporate, who are actually interested in the profits or loss of the business carried on by the company.
- Please note that the company is not managed by the shareholders. For the management of the affairs of the company, shareholders appoint a few experts, in the management field. All such experts are collectively termed as “Board of Directors” (BOD). BOD is also called as the management of the company. BOD takes decisions and seeks the approval of the shareholders of the company.
- These are popularly known as general meetings. The question here arises is why such a meeting is required? Can’t the company take the decisions on its own? For this, let’s recollect that a company is not a human being like you and me but it is an artificial person constituted by the members. Hence it makes decisions through passing a resolution at the meeting by its member.
- The purpose of the meeting is that the shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares. can know about the affairs of the company & thereby, they can decide upon the suggestions made by the management in the proposed resolution. This means that the shareholders get equal importance in the decision-making process.
Types of Shareholder’s Meeting
Before going into the details of the types of shareholders’ meetings, let’s have a bird’s eye view over the different types of company meetings:
#1 – Annual General Meeting (AGM)
- It is the most important meeting which is compulsorily held in every year. They are mandatory for both private companiesPrivate CompaniesA privately held company refers to the separate legal entity registered with SEC having a limited number of outstanding share capital and shareowners. as well as public companies.
- The gap between the two AGM should not exceed more than 15 months. In case of any difficulty arises in the conduct of an AGM within a prescribed time limit, the company may seek for extension of time from the Minister for special reasons only. However, such an extension shall be not more than three months.
- AGM should be held in business hours only.
- A notice period of a minimum of 21 days is required to be given before calling for an AGMAGMAGM stands for annual general meeting. It is an official gathering of the stockholders and directors of an incorporated company in every calendar year to ensure that there is 100 percent compliance concerning all the lawful requirements like preparation and presentation of its financial statements.. However, the notice period can be served by shorter notice if the consent of all the members who are entitled to attend and vote, is obtained.
#2 – Extra-Ordinary General Meeting (EGM)
- Extra-Ordinary meeting means a meeting which is called in extra-ordinary or exception circumstances of the company. The Board of directors has the power to call an extraordinary general meeting whenever they deem fit.
- The primary reason for calling an EGM is to discuss any urgent matters (i.e. to transact a special business) or any situation of crisis and it requires the special attention of the members. Thus, the management cannot wait for the time when AGM is called upon.
- An EGM can be held on any day including holidays unlikely like an AGM must be held on days other than national holidays. An EGM can be called on the request of shareholders, members or on the order of the tribunal.
#3 – Class Meetings
- Class meetings are also called as special shareholders’ meeting.
- Such meetings are required when the company is required to pass a resolution where such resolution affects only a particular class of shareholders.
- Let’s take an example. Say, the share capital structureCapital StructureCapital Structure is the composition of company’s sources of funds, which is a mix of owner’s capital (equity) and loan (debt) from outsiders and is used to finance its overall operations and investment activities. is as follow:
- 20,000 shares of $10 each, fully paid up
- 50,000 shares of $10 each, the party paid up $ 5 only
- 10,000 shares of $ 5 each, fully paid up
Here, the “20,000 shares of $10 each, fully paid up” is called a class of shareholders. Further, “50,000 shares of $10 each, the party paid up $ 5 only” is also a different class of shareholdersClass Of ShareholdersShare class is the company’s bifurcation of its shares into different classes on the basis of their voting rights, privileges, ownership restrictions. For example dividing the common stock into class A shares having the most privileged voting rights and class B shares which have less voting rights.. Hence, a meeting may be called only for a specific class of stockholders.
General Provision Applicable for All Meetings
- Specific Quorum required in case of any meeting: In the case of private limited companies, 2 members are required to form a quorum. In the case of other companies, at least 3 members are required to form a quorum
- In case of meetings other than annual general meetings, a notice period of a minimum of 14 days (in case of a company other than an unlimited company) or a minimum of 7 days (in case of an unlimited company), is required to be given before calling for the said meeting. However, the notice period can be served by a shorter notice than the specified period if the consent of at least 95% in value of the shares (in case of company having share capital) or at least 95% of total voting rights of all the members in that meeting (in case of company not having share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side.), is obtained.
How to Hold a Shareholders’ Meeting?
- The company is required to send notice to each and every member of the company. In the case of AGM, at least 21 days’ notice is required. In case of other meetings, at least 14 days’ notice is required (for other than unlimited companies) or at least 7 days’ notice is required (for unlimited companies). The meeting may be called at shorter notice as discussed in the previous point.
- The notice shall specify the matters to be discussed in the ensuing meeting, explained in a brief manner. Draft copies of the relevant documents are also circulated along with the notice. Notice shall specify the quorum requirements. If the required quorum is not fulfilled, the meeting may be adjourned.
- The notice shall specify the manner in which votes are to be cast upon. Nowadays, notices also give an option to vote electronically.
- Conduct the meeting on the day specified in the given notice. There is no specific hard-bound procedure to be followed. Some organizations follow Roberts’ Rules of Orders which requires the motions, seconds, discussion and then voting. Other organizations may follow simple procedures.
- After the meeting, a minute of the meeting is prepared which contains a summary of the discussions and decisions made in the said meeting. Such minutes are then circulated to all the members, including those who were present at the meeting.
All the decisions are made by the management of the company. However, management is required to take the approval of shareholders before implementing the key decisions of the organization. Hence, for taking the said approvals, the board is required to call the shareholder’s meeting. Now, which type of meeting is to be called, depends upon the matter to be discussed.
Generally, this meeting is called for the following matters:
- The consideration of financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels. and the reports of the Board of Directors and auditors report thereon;
- Appointment of board of directors of the company.
- Changes in the articles of incorporation of the company.
- Appointment of the directors in places of those retiring;
- Appointment and fixing of the remuneration of Auditors of the company;Auditors Of The Company;An auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.
- Decisions regarding mergersMergersA merger is a voluntary fusion of two existing entities equal in size, operations, and customers deciding to amalgamate to form a new entity, expand its reach into new territories, lower operational costs, increase revenues, and earn greater control over market share., acquisitionsAcquisitionsAn acquisition is defined as the act of taking over or gaining control of all or most of another entity's stocks by purchasing at least fifty percent of the target company's stock and other corporate assets. , split-off, spin-off, etc.
- Declaration of dividendDeclaration Of DividendDividend declared is that portion of profits earned that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of the company’s securities..
- Shareholder Resolution for winding of the company
- Appointment of liquidators of the company
- Issuance of bonds
- Increase in the share capital of the company
- Any other matter, as may be required by the bylaws of the company, that has to be decided in the general meetings only.
Each type of meeting has its relevance and importance. Every meeting cannot be an AGM and every meeting cannot be either EGM. Corporations are required to comply with all the requirements of the statute regarding calling and holding any shareholders’ meeting. Noncompliance thereof may cost the company to pay penalties to the government.
This has been a guide to the shareholder’s meeting and its definition. Here we discuss types, general provision of the shareholders meeting, and how to conduct it. You can learn more about financing from the following articles –