The Companies Act imposes on every company the obligation to hold a general meeting yearly, but what does a general meeting really entail?
The general meeting of a company must be conducted once every year, hence why it is called the Annual General Meeting (“AGM”). While a company may call other meetings during the year, it must still hold an AGM because the law distinguishes between the AGM and other meetings.
Powers of the Board of Directors and of the AGM
While the Board of Directors may manage the company through the powers vested in them, there are some other powers which are reserved for the shareholders. The Annual General Meeting allows the shareholders to be more involved in the decisions of the Company.
In fact, there are certain matters which the Companies Act reserve to be exercised in the Annual General Meeting. Given the fact that the Companies Act reserves only a few powers for the AGM, the memorandum and articles of association may assign other powers to an AGM. Having said this, it is usually the case that the memorandum and articles of association do not list a lot more powers which are exclusively reserved for an AGM.
But then again, is it necessary to hold an AGM? Well, apart from the fact that the Companies Act holds every officer of the company liable to a penalty for not holding an AGM, one will also be able to understand better from this article why an AGM is essential for a company to function properly.
Delving deeper into the notion of an AGM
To start with, when scheduling an AGM, one must keep in mind that not more than fifteen months shall elapse between the date of one AGM and that of the next AGM. However, for a company that has just been incorporated, the law provides that such a company, if it holds its first AGM within eighteen months from the date of its registration, it will not need to hold another AGM in the year of its registration or in the following year.
The Directors of a Company are responsible to call the AGM and follow all the necessary formalities as per both the Companies Act and the Memorandum and Articles of the Company.
Business that may or may not be transacted at an AGM
While the Companies Act does not provide a list of business that shall be transacted at an AGM, the First Schedule of the Companies Act provides an indication of what business should be transacted at an AGM, by stating that all business that is transacted at an AGM shall be deemed ‘special’, except for the following:
- Declaring dividends;
- Elect or remove directors;
- Determine the remuneration of auditors; and
- Consider the accounts, balance sheets and the reports of the directors and the auditors.
One might immediately realise that through the above-mentioned powers, which are generally reserved for the AGM, the company is practically controlled by the Annual General Meeting. The shareholders, through the AGM, are given the opportunity to scrutinise the financial performance and the business of the company.
The Listing Rules issued in respect of listed companies cater for what business must be transacted at the AGM. This goes without saying that the regulations for listed companies are much more stringent.
It must be noted that a copy of the annual accounts must be provided to the parties eligible to attend for the AGM, at least, fourteen days before the scheduled AGM.
When the Directors call an AGM, they do so by issuing a Notice in writing to all the members of the company, the company’s auditors and the directors, and it must be issued at least fourteen days prior to the date of the meeting. The Notice must contain the date, time and place of the AGM which are determined by the Directors of the company.
Given that in this day and age everything revolves around the use of technology, certain companies are including a clause in the Articles of Association which states that the Notice can be sent by email rather than by mail. If a Company that is already incorporated wants to start issuing the Notice through email, and its’ Articles of Association do not provide for such issuing, the Company may introduce this method through a resolution of all the Shareholders of the Company.
It is of utmost importance that the Notice of an AGM defines the meeting as an AGM. This is due to the fact that, as aforesaid, a Company may hold other meetings throughout the year. Any other meeting held apart from the AGM is an Extraordinary General Meeting, we shall be dealing with Extraordinary General Meetings in another Article.
Ordinary and Extraordinary Business
Whenever there is the need to transact any business during the AGM which is not considered to be ‘ordinary business’ – as listed in the First Schedule of the Companies Act and/or the Articles of Association of the Company – such business shall be defined on the Notice of the AGM as ‘special business’.
In cases where the AGM will deal with special business, the Notice must also include the general nature of such special business and set out in verbatim the proposed extraordinary resolution. When only ordinary business will be transacted at an AGM, there is no need for details on the kind of ordinary business that is to be transacted. However, in practice, it is the norm that the Notice would include what kind of business is going to be transacted.
Members will be given time to discuss the resolution and once there is an understanding of such resolution, the meeting will resolve to bring the discussion to an end and take a vote on the proposed resolution.
The Notice must also advise the members of their right to appoint a Proxy. A member may appoint a Proxy if unavailable to attend the meeting in person. A proxy is a person who will attend the meeting and vote instead of the member who appoint him/her as the proxy.
Directors failing to convene an AGM
Up to this day, if the Directors fail to convene an AGM, it seems that the members of the company are unable to convene an AGM themselves. However, the Companies Act provides that any member may file a request to the Court to order the AGM to be held.
Two members present in person at an AGM shall form a quorum, however, the articles of association may prescribe a higher or lower number of persons that form a quorum. A quorum of members must be present at an AGM for the meeting to proceed to business.
The Model Articles which are found in the Companies Act state that the Chairman of the Board of Directors shall also preside as Chairman for the general meetings. However, the Directors may elect one of their numbers to act as Chairman of the meeting.
Voting at an AGM may take place through a show of hands, however, this means that each member is given one vote, and, therefore, if a vote is taken it would be, for example ‘2’ against ‘3’. Another possible way in which votes are taken is through a poll. A poll will reflect better the number of shares which are in favour and which are against. This is why after a vote through a show of hands is declared or even before the result of such vote is declared, any member who is present at the meeting in person and any proxy may demand that a poll be taken.
Holding an AGM is not only done to abide by the law, but, as can be understood better from the above sections, holding an AGM enables a company to function properly. It is through an AGM that any disputes that may arise with regards to the management or business of the company may be resolved through discussions.
Therefore, one must commit to holding a proper AGM which will help the company and not merely holding an AGM to get it over and done with. A proper AGM will enable the shareholders to have a wider participation within the company and the decision making and will, undoubtedly, improve the company’s foundations.
The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.