Annual General Meeting (AGM)

What is the Annual General Meeting (AGM)?

An AGM or an Annual General Meeting is a meeting between the shareholders and the Board of Directors. The board of directors and the shareholders generally meet at an AGM to discuss important matters of the company and its business. The directors present an annual report at the AGM to update the shareholders about the company’s performance, financial position, management, future strategy, and past yearly accomplishments. The Indian Companies Act 2013 makes it mandatory for Private limited and limited companies to hold an AGM to keep the shareholders updated.

AGM allows shareholders to discuss matters of mutual interest.

• Appointment of Auditors - Maintaining transparency in the appointment of auditors is a good business practice. Reputed companies often ensure that their auditors are top-notch and keep their appointments transparent.
• Composition of Board of Directors - The representatives chosen by the shareholders interact with the Board of Directors. In case of any grievances, they may demand a change in the composition of the Board of Directors.
• Compensation to the management - Shareholders having voting rights can also discuss the compensation that the top management, like the CEO, CFO, COO, and others, are receiving. They can demand a reduction or increase in compensation depending on the company’s performance.
• Dividend Payouts - The shareholders and company directors are required to agree on the dividend to be paid during the FY. If the company is making a profit, it can choose to pay dividends. However, in the case of a loss-making company, it is not necessary to pay the dividend.

What are the Objectives of an Annual General Meeting (AGM)?

Below are the major objectives of an Annual General Meeting -

• Shareholder Engagement: AGMs provide shareholders with an opportunity to participate in the company's decision-making process. Shareholders can ask questions, raise concerns, and vote on key matters such as electing board members, approving financial statements, and considering proposals for future actions. This direct engagement fosters a stronger relationship between the company and its shareholders.
• Decision Making - AGMs play a crucial role in shaping the company's future. Shareholders vote on key matters, including appointing auditors, declaring dividends, and electing directors. These decisions influence the company's direction and contribute to its long-term success.
• Financial Reporting - The AGM provides an opportunity for the company's leadership to present a comprehensive review of the past year’s financial performance, including income statements, balance sheets, and cash flow statements. This helps shareholders evaluate the company's financial health and make informed decisions.
• Corporate Governance - An AGM is essential for maintaining good corporate governance. It enables shareholders to hold the board of directors accountable for their decisions and actions. Through the election of directors and approval of key proposals, shareholders can shape the company’s strategic direction and safeguard their investments.

What Companies are Required to Hold an AGM?

Every company, except a One Person Company (OPC), must hold an Annual General Meeting (AGM) after the end of each financial year. The AGM should be conducted within six months from the financial year’s end, typically by September 30 each year. Additionally, the gap between two AGMs must not exceed 15 months.

The company can hold the first AGM within nine months after the end of the first financial year. If the first AGM is held within this timeframe, no AGM is required in the year of incorporation.

What is the Procedure to Hold an AGM?

The company must provide its members with a clear 21-day notice before calling an AGM. The notice should specify the meeting's location, date, day, time, and the business to be conducted. It must be sent to:

• All company members, including legal representatives of deceased members and assignees of insolvent members.
• The statutory auditor(s) of the company.
• All directors of the company.

The notice can be delivered in writing via speed post, registered post, or electronically. It should be sent to the member's address as recorded by the company. For electronic communication, the notice must be sent to the registered email address of the member, either as plain text or as an email attachment.

Additionally, the AGM notice must be published on the company's website or any other platform specified by the government.

An AGM may be called with less than 21 days' notice if at least 95% of members eligible to vote consent to the shorter notice. This consent can be given in writing or electronically.

What is the Agenda of an AGM?

The business transacted at an AGM typically includes:

• Approval of the audited financial statements.
• Review of the Director’s and auditor’s reports.
• Declaration of dividends to shareholders.
• Appointment of directors replacing those retiring.
• Appointment of auditors and determination of their remuneration.

In addition to these ordinary matters, any other business can be classified as special business. Ordinary business is approved by an ordinary resolution, which requires a majority of votes in favor. Special business may require either an ordinary resolution or a special resolution, depending on legal requirements. A special resolution must be passed with at least 75% of votes in favor.

AGMs must be conducted during business hours, between 9 a.m. and 6 p.m., on any day except national holidays, including those declared by the Central Government. The meeting must be held at a location within the city, town, or village where the company’s registered office is located.

Exceptions:

• A government company may hold its AGM at a location approved by the Central Government.
• An unlisted company can hold its AGM anywhere in India with prior consent from its members, either in writing or electronically.
• For a Section 8 company, the Board determines the date, time, and venue based on directions given in a general meeting.

Quorum for an AGM

For private companies, the quorum for an AGM is completed if two members are present at the meeting. However, in the case of a public company, the quorum will be as follows -

• 1000 members - 5 should be present at the meeting
• 1000-5000 members - 15 should be present at the meeting
• More than 5000 members - 30 members should be present in the meeting

If the required quorum is not met within 30 minutes of the scheduled time, the meeting will be adjourned to the same time, day, and place in the following week.

Member’s Rights in an AGM

The company’s members, including shareholders, have the right to attend and vote at the AGM. Voting can be done through a physical ballot, postal ballot, or e-voting.

Members may appoint proxies to attend the AGM and vote on their behalf, but only for poll votes. Proxies must be appointed in writing, and the proxy form must be signed by the member. If the proxy is appointed by a corporate shareholder, the form must be signed and sealed by an authorized signatory of the corporation.

Members can elect one of their peers as the meeting’s chairman. However, if the company’s Articles of Association specify a chairman, that individual will preside over the AGM.

Minutes of an Annual General Meeting (AGM)

Every company must prepare minutes of the AGM, which are a written record of the meeting's proceedings, including the events and resolutions passed.

The Company Secretary is responsible for recording the proceedings. If there is no Company Secretary, the Board or Chairman may designate another person to record the proceedings.

The minutes must be signed and entered into the minute book within 30 days of the AGM. The minute book should be kept at the company's registered office or another location approved by the Board. Members or shareholders can inspect the minute book upon request, subject to a prescribed fee.

The company must provide a copy of the AGM minutes to any member within seven days of the request. If the minutes are not provided within this period, the company will be fined ₹25,000, and any officer in default will face a fine of ₹5,000.

What are the Reasons for Seeking an Extension of AGM?

Here are reasons for seeking an extension of the AGM -

• Mergers and acquisitions.
• Delay in finalizing financial statements.
• Delay in audit reports due to the unavailability of auditors, such as in cases of death, resignation, incapacity to sign, or other valid reasons.
• Loss of information from a computer caused by viruses or system-related issues.
• Non-readiness of economic records due to natural disasters, loss of commercial data, or vacant director positions.
• Changes in the financial year.
• The absence of a quorum is due to the unavailability of shareholders.
• Unavailability of directors for valid reasons, such as the sudden death of a director, which causes the number of directors to fall below the minimum required.
• Confiscation of books of accounts by the Income Tax department, Serious Fraud Investigation Office, or other government authorities.

Penalty for Default in Holding an AGM

If a company fails to hold an AGM within the required time or any extended period granted, the Tribunal may order the company to conduct the AGM, either on its own or upon an application made by a director or member.

If the company further defaults in holding the AGM as per the Tribunal’s directions, both the company and any officer responsible for the default may be fined up to ₹1 lakh. For continuing defaults, an additional fine of ₹5,000 per day will be imposed for each day the default persists.

The Annual General Meeting (AGM) plays a crucial role in fostering transparency and communication between a company's management and its shareholders. It provides an opportunity for shareholders to stay informed, voice concerns, and influence key decisions that shape the company’s future. Adhering to the legal requirements and procedures ensures smooth and effective AGMs, which contribute to good governance and the overall success of the company.