Everything You Need to Know About AGMs: Rules, Steps, and Compliance

 

Are you confused about how to conduct and Annual General Meeting (AGM) or unsure about the legal rules under the companies Act, 2013? Whether you're a business owner, company secretary, understanding the AGM process is crucial. In this blog , we break down every step of an AGM- from its purpose, procedures, and legal requirements, to best practices- all explained in simple terms that anyone can follow. Ready to learn everything you need to know AGMs? Let's dive in!

Introduction to Annual General Meeting(AGM):

 An Annual General Meeting (AGM) is yearly gathering where a company's shareholders come together to discuss the company's financial performance, future plans , and important business decisions. Apart from this Its's also a legal requirement for companies under the Companies Act, 2013. The purpose of an AGM is simple to keep shareholders informed and involved in the company's operations, ensuring transparency and accountability.

During an AGM, the company has to presents its financial statements, such as balance sheets and profit and loss accounts , so shareholders can understand how company has performed over the past year. Key topics like the appointment of directors, approval of dividends, and the selection of auditors are also discussed. Shareholders can ask questions and voice their concerns during the meeting, making it a platform for open communication between the company and its owners.

AGMs play an important role in corporate governance, ensuring that companies are managed in the best interest of shareholders and remain compliant with legal requirements. By attending or participating in an AGM, shareholders can stay informed and contribute in the decision making process, helping to shape the company's future.

Legal Basis: AGM as per Companies Act, 2013

Relevant Sections:

Under the Companies Act, 2013, there are specific legal provisions that make it mandatory for companies to hold an Annual General Meeting (AGM) every year.

Section 96 outlines the basic requirement that every company, whether private or public, must hold an AGM within six months from the end of its financial year.(Before 30th September) The gap between two AGMs should not exceed 15 months. In the AGM, shareholders review financial statements, approve dividends, and make important decisions regarding the company’s leadership.

Section 97 gives the power to the Registrar of Companies (RoC) to intervene if a company fails to hold its AGM on time. If the company defaults, the RoC can direct the company to call an AGM as per the law.

Section 98 empowers the National Company Law Tribunal (NCLT) to call or order an AGM if it feels necessary, especially in cases where shareholders or directors are unable to hold one due to internal conflicts or other issues.

Applicability:

AGMs are compulsory for all public and private companies, except certain small companies and One Person Companies (OPC) that exempt from this requirement. These sections ensure that companies maintain accountability and transparency by regularly involving shareholders in major decisions.

Purpose of an AGM:

The purpose of an Annual General Meeting (AGM) is to ensure that shareholders are informed about the company's performance and have a say in key business decisions. It's a vital part of maintaining transparency and accountability in corporate governance

One of the main reasons for holding an AGM is the approval of financial statements. During the meeting, the company presents its balance sheet, profit and loss account, and other financial reports, allowing shareholders to assess the company's financial health

Another important purpose is the declaration of dividends. This is the portion of the company's profits that is distributed to shareholders, and the approval for this payout is sought during the AGM.

The appointment or reappointment of directors is also done during the AGM. Shareholders have the right to vote on who will manage and oversee the company's operations. Similarly, the appointment or reappointment of auditors, who are responsible for reviewing the company's finances, is decided by the shareholders during this meeting.

Finally, AGMs provide a platform for addressing shareholders queries. Shareholders can ask questions and raise concerns about the company's performance, management, and future plans, ensuring their voices are heard and their interests are protected.

When and Where to Hold an AGM:

An Annual General meeting (AGM) must be held within specific timeframes and at certain locations, as mandated by the companies Act, 2013.

Timeframe:

For a newly formed company, the first AGM must take place within 9 months from the end of its first financial year. For all subsequent AGMs, the company is require  to hold the meeting within 6 months after the end of each financial year. Importantly, the gap between two AGMs should never exceed the 15 months.

Place:

When it comes to the location of the AGM, the law requires that the meeting be held at the company's registered office or at any other place within the same city, town, or village where the registered office is located. The ensures that the venue is accessible to shareholders.

In recent years, due to the COVID-19 pandemic, the government allowed companies to conduct virtual AGMs. This means companies can now hold AGMs via video conferencing or other online platforms, making it more convenient for shareholders, especially those unable to attend in person. Virtual AGMs have been a positive change, as they allow broader participation while maintaining the legality and transparency of the meeting.

By following these rules, companies ensure timely and efficient shareholder engagement.

Key Rules to Follow When Conducting an AGM:

To ensure that an Annual General Meeting (AGM) is conducted properly, companies must follow several key rules as outlined in the Companies Act, 2013.

Notice of AGM:

First, a company must give shareholders 21 days’ clear notice before holding an AGM. This means that the notice must be sent 21 days in advance, excluding the day of sending and the day of the meeting. The notice should include important details such as the date, time, venue (or online platform), and agenda items, such as financial statements, director appointments, and dividends. The notice can be sent through email, post, or other recognized methods.

Quorum for AGM:

For an AGM to be valid, a quorum is required. In a public company, at least 5 members must be personally present, whereas in a private company, at least 2 members must attend in person.

Proxy Voting:

Shareholders who are unable to attend the meeting can appoint a proxy. A proxy is a person authorized to attend and vote on behalf of the shareholder. This ensures that even absent shareholders have their votes counted.

Chairperson of AGM:

Finally, the chairperson plays a crucial role in conducting the AGM. They preside over the meeting, ensure the agenda is followed, and manage discussions and voting. The chairperson ensures the meeting is conducted smoothly and that all legal requirements are met.

Step-by-Step Guide to Conducting an AGM:

Conducting an Annual General Meeting (AGM) involves several important steps to ensure everything goes smoothly and complies with the law.

Pre-Meeting Preparation:

Issuance of Notice: The company must send a clear notice to all shareholders at least 21 days before the AGM. This notice should include the date, time, venue, and agenda of the meeting.

Finalization of Agenda and Financial Statements: Before the meeting, prepare the agenda items and finalize the annual financial statements, which include balance sheets and profit and loss accounts.

Preparation of Statutory Registers and Documents: Gather all necessary documents, including statutory registers, the auditor’s report, and other relevant paperwork.

On the Day of the AGM:

Opening the Meeting: The chairperson opens the meeting, welcoming shareholders and introducing the agenda.

Reading Reports: The auditor’s report and director’s report are read aloud to keep everyone informed about the company’s performance.

Voting on Resolutions: Shareholders vote on important resolutions, either through a show of hands or electronic voting, ensuring their voices are heard.

Post-AGM Formalities:

After the meeting, the company must file the minutes and resolutions with the Registrar of Companies (RoC) within 30 days. It’s also essential to communicate the outcomes of the AGM to shareholders, keeping them informed about the decisions made. Following these steps ensures compliance and strengthens shareholder relations.

Penalties for Non-Compliance:

Failing to hold an Annual General Meeting (AGM) can lead to serious penalties for companies and their directors under Section 99 of the Companies Act, 2013. This section emphasizes the importance of holding AGMs and outlines the consequences for non-compliance.

If a company does not hold its AGM as required, it may face a fine of up to one lakh rupees. In addition, there can be an additional fine of five thousand rupees for each day of continuing default. This means the longer the company delays holding the AGM, the more it will have to pay.

Moreover, the responsibility does not only fall on the company; directors can also face penalties. If directors fail to call an AGM within the required timeframe, they can be held accountable and may incur a fine of up to one lakh rupees as well, along with additional fines for continued failure. This highlights the crucial role of directors in ensuring that AGMs are conducted on time.

Overall, these penalties underscore the importance of compliance with AGM regulations, encouraging companies to adhere to the law and maintain transparency and accountability to their shareholders.

Recent Amendments or Updates:

Recent amendments to the Companies Act, 2013 have brought significant changes, especially in response to the COVID-19 pandemic and advancements in technology. One of the most notable updates is the allowance for virtual Annual General Meetings (AGMs). This change was implemented to ensure that companies could continue to engage with their shareholders safely during the pandemic.

Under these amendments, companies are permitted to hold AGMs through video conferencing or other electronic means. This has made it easier for shareholders to attend meetings from anywhere, removing geographical barriers and increasing participation. Virtual AGMs also allow for real-time voting and questioning, making the process more efficient and transparent.

Additionally, the Ministry of Corporate Affairs (MCA) has streamlined compliance requirements for companies by allowing the use of digital signatures and e-forms. These changes aim to simplify the documentation process and reduce the burden on companies.

Overall, these amendments reflect a growing trend towards embracing technology in corporate governance, making it more accessible and adaptable to changing circumstances. As companies continue to navigate the post-pandemic landscape, these updates will play a crucial role in ensuring effective communication between companies and their shareholders.

Case Studies and Examples:

Several companies have faced penalties for failing to hold Annual General Meetings (AGMs) or for conducting them improperly. For instance, a well-known tech company in India was penalized when it did not hold its AGM within the stipulated timeframe. As a result, the company was fined for violating Section 99 of the Companies Act, reflecting the importance of compliance with AGM regulations.

On the other hand, there are positive examples of companies that have successfully conducted AGMs, emphasizing transparency and shareholder engagement. A leading FMCG company is recognized for its well-organized AGMs, where management presents clear financial statements and encourages open dialogue. Shareholders are invited to ask questions, and their feedback is actively considered in decision-making processes. This company has also embraced technology by offering hybrid AGMs, allowing both in-person and virtual participation, thereby increasing accessibility.

These case studies highlight the significance of conducting AGMs properly. Companies that prioritize transparency and engage their shareholders not only comply with the law but also build trust and strengthen their relationships with investors. Conversely, neglecting AGM obligations can lead to financial penalties and damage a company’s reputation.

Conclusion:

In conclusion, Annual General Meetings (AGMs) are vital for maintaining corporate transparency and good governance. They offer a platform where shareholders can review a company’s financial performance, participate in decision-making, and hold the management accountable. AGMs foster open communication between a company and its shareholders, which is crucial for building trust and long-term success.

Adhering to the legal requirements of AGMs under the Companies Act, 2013 is not only mandatory but also beneficial in avoiding penalties. Companies that fail to hold AGMs within the required timeframe or do not follow proper procedures risk facing fines and damaging their reputation.

To ensure smooth AGMs, companies should follow best practices such as:

• Providing clear and timely notices with all relevant details.

• Ensuring a proper quorum is present.

• Allowing shareholders the option to participate virtually if necessary.

• Engaging in transparent discussions and addressing shareholder queries.

• Accurately recording and filing the minutes and resolutions with the Registrar of Companies (RoC).

By following these practices, companies not only comply with the law but also strengthen their corporate governance, enhancing shareholder satisfaction and trust.