Annual General Meeting (AGM) - Key Points under the Companies Act, 2013

 

Annual General Meeting (AGM) - Key Points under the Companies Act, 2013

The Annual General Meeting (AGM) is a mandatory yearly gathering of a company’s shareholders. During the AGM, the company’s financial performance, decisions on key matters, and future strategies are presented and discussed.

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1. Legal Requirement for Holding an AGM:

Section 96 of the Companies Act, 2013:

• Every company (except for One Person Companies) is required to hold an AGM every year.

• The first AGM must be held within 9 months from the end of the first financial year.

• Subsequent AGMs must be held within 15 months from the date of the last AGM.

Key Dates:

• First AGM: Must be held within 9 months from the end of the first financial year.

• Subsequent AGMs: Must be held within 15 months from the previous AGM.

• Gap between two AGMs: Should not exceed 15 months.

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2. Purpose of the AGM:

The AGM serves several important purposes for both the company and its shareholders:

• Approval of Financial Statements: Shareholders review and approve the company’s annual financial statements, including the balance sheet, profit and loss statement, and cash flow statement.

• Declaration of Dividends: Shareholders are given the opportunity to approve the dividend declaration (if applicable).

• Appointment or Reappointment of Directors: The company may propose the appointment or reappointment of directors, including any directors who are retiring by rotation.

• Appointment or Reappointment of Auditors: The AGM also involves the appointment or reappointment of auditors for the coming year.

• Other Business: Any special resolutions (such as changes to the company’s articles, mergers, etc.) are also passed during the AGM.

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3. Notice of the AGM:

Section 101 – Notice of Meeting:

• Minimum Notice: A clear 21-day notice must be given to shareholders before the AGM.

• Mode of Notice: The notice can be sent through hand delivery, post, electronic means, or newspapers.

• Contents of the Notice:

  • The date, time, and venue of the AGM.

  • Agenda of the meeting, including resolutions to be passed.

  • Financial statements and annual report for the shareholders to review.

Shorter Notice:

• The AGM can be held with shorter notice (less than 21 days) if consent is obtained from members holding at least 95% of the company’s voting shares.

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4. Quorum for the AGM:

Section 103 – Quorum:

• Quorum is the minimum number of shareholders required to be present for the AGM to be valid.

  • Private Companies: The quorum is usually 2 members.

  • Public Companies: The quorum is typically 2 members (for a public company with a private company structure).

• If quorum is not present within 30 minutes of the scheduled time, the meeting is adjourned.

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5. Proxies and Voting:

Section 105 – Proxy:

• Shareholders who cannot attend the AGM may appoint a proxy to attend and vote on their behalf.

• Proxy Forms must be submitted to the company before the meeting.

• A proxy cannot vote on certain matters (such as a resolution involving the remuneration of directors).

Voting Mechanisms:

• Poll Voting: Members may cast their votes either by a show of hands or electronically (via electronic voting systems).

• Resolution Types:

  • Ordinary Resolutions: Most decisions made at AGMs (like approval of accounts) are made by an ordinary resolution.

  • Special Resolutions: Require a three-fourths majority of votes in favor, usually for more significant decisions (like changing the company’s name or articles of association).

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6. Key Resolutions and Approvals at an AGM:

• Approval of Financial Statements: Shareholders review the company’s financial performance and approve the balance sheet, profit and loss statement, and the director’s report.

• Appointment of Directors:

  • Some directors are required to retire by rotation at each AGM, typically those who have been in office for three years.

  • Re-election: The retiring directors may be re-elected unless there is a proposal for a change.

• Appointment or Reappointment of Auditors:

  • The AGM will appoint an external auditor or reappoint the existing auditor for the following year. The auditor’s report is also presented.

• Declaration of Dividends:

  • The shareholders approve the dividend proposed by the company. If dividends are declared, a portion of the company’s profit is distributed to shareholders.

• Special Resolutions:

  • These resolutions are passed for major decisions, such as altering the company’s constitution, approving mergers, or making other substantial changes to the company.

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7. Penalties for Non-Compliance with AGM Requirements:

• Non-holding of AGM: If a company fails to hold an AGM within the prescribed time, it may be penalized under Section 99. The penalty could be a fine ranging from ₹1 lakh to ₹5 lakh.

• Penalty for Default in Filing AGM Minutes: Failing to file the minutes of AGM with the Registrar of Companies (RoC) can lead to fines.

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8. Annual Return and Filing with the Registrar of Companies (RoC):

Section 92 – Annual Return:

• After the AGM, companies must file an Annual Return (Form MGT-7) with the Registrar of Companies (RoC), which includes:

  • Details of directors.

  • Shareholding pattern.

  • CSR activities (if applicable).

  • Financial summary.

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9. AGM in Practice – Real-World Examples:

• Infosys Ltd.: Infosys’s AGM typically includes the approval of audited financial statements, declaration of dividends, and appointment of directors. It is one of the most transparent AGMs in the tech sector, with clear resolutions and shareholder engagement.

• Hindustan Unilever (HUL): HUL’s AGM is well-known for its detailed discussion of financial performance and corporate governance, with active participation from its stakeholders.

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Summary Checklist for AGM Compliance:

• Hold AGM on time (within 9 months for first AGM, and 15 months for subsequent AGMs).

• Ensure that 21-day notice is given to all shareholders with the agenda.

• Ensure the quorum is met for the meeting to be valid.

• Appoint a proxy if necessary and ensure all voting is conducted correctly.

• Ensure resolutions (both ordinary and special) are properly passed.

• File Annual Return (Form MGT-7) with the Registrar.