Annual general meeting is an important institution for the protection of the shareholders of a company, which proves the ultimate control and destiny of a company is vested in the hands of its shareholders

“Annual general meeting is an important institution for the protection of the shareholders of a company, which proves the ultimate control and destiny of a company is vested in the hands of its shareholders.” Analyze.

Introduction:

A company is owned by its shareholders. Every shareholder has his/her own right in the company. A company cannot function properly without its shareholders. Every shareholder has to perform to run the company smoothly. For that reason knowing the rights of a shareholder in the company & proper balancing the majority & minority shareholders rights is essential for smooth functioning of the company. Shareholders are not liable for company actions. When a company is created, its founding shareholders determine how a company will be owned & managed. Companies must comply with the law. A shareholders agreement is confidential & its contents need not be filed or made public.

Annual General Meeting:[1]

An Annual General Meeting, commonly referred to as an AGM, is a formal meeting which is held once a year. It is a legal requirement for voluntary organizations that have company status. It is good practice for charities to have an AGM to act as a review of the year and deal with issues such as the election of committee/board members and reviewing the annual accounts. Each individual organization should have a section of its Constitution which deals with AGMs, and this gives guidance as to how the AGM should be run and what matters should be dealt with. Although it is a formal meeting, it can also be a good opportunity to communicate with members, clients, partners and other interested parties.

Shareholders should be sent the audited accounts of the company together with directors’ and auditors’ reports thereon, proposed to be laid before such Annual General Meeting together with the notice convening such meeting. Further, the Annual General Meeting of a listed company for a year is required to be held within six months of the company’s year end.

Running the AGM[2]

The AGM is normally conducted by the Chair of the organization. Minutes of the meeting should be taken by the Secretary. A typical AGM agenda will cover the following items:

  • Opening remarks/Welcome
  • Apologies
  • Minutes of previous AGM
  • Matters arising from the Minutes
  • Presentation of Annual Report (Chair/Secretary)
  • Adoption of Annual Report
  • Presentation of Accounts (Treasurer)
  • Adoption of Accounts
  • Appointment of Auditors/Independent Examiner
  • Election of Management Committee/Office Bearers
  • Motions to be put to the AGM
  • Any Other Competent Business
  • Closing remarks

IMPORTANCE OF AGM:

An importance mechanism of AGM is that it drives good corporate governance is the practice that shareholders exercise their rights in monitoring, inquiring, and voting in the shareholders’ meeting to ensure that management act for the best interest of the company. The AGM is a two-way communication for shareholders in discussing significant issues. The shareholder, therefore, should attend the shareholders’ meeting or appoint a person to vote on their behalf to protect their rights. Moreover, the company should facilitate all shareholders to vote on important matters and provide sufficient and timely information prior to the meeting for solicitation proxy from other shareholders.

AGM is an important institution for the protection of the shareholders of a company & the ultimate control and destiny of a company should be in the hands of its shareholders because its is an opportunity for shareholders to meet and talk with the top management and express his opinion about the company. Thus, shareholders should meet together at least once in a year to review the working of the company. This meeting affords that opportunity. It is in this meeting that directors will come up for re-election. Auditors retire at this meeting enabling the shareholders to consider whether they should be re-appointed or replaced. Dividends are declared at this meeting. Chairman delivers a speech listing the advances of the company during the year. Directors have to present annual accounts for the consideration of the shareholders. A failure to present the accounts is a punishable offence. The shareholders can ask any questions relating to the accounts or affairs of the company.

What is Shareholder?[3]

A shareholder or stockholder is an individual or institution (including a corporation) that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself (Fama 1980).

Stockholders are granted special privileges depending on the class of stock. These rights may include:

  • The right to sell their shares,
  • The right to vote on the directors nominated by the board,
  • The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions,
  • The right to dividends if they are declared,
  • The right to purchase new shares issued by the company, and
  • The right to what assets remains after a liquidation.

Stockholders or shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, labor, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value and/or are impacted by the corporation.

Shareholders in the primary market who buy IPOs provide capital to corporations; however, the vast majorities of shareholders are in the secondary market and provide no capital directly to the corporation.

Therefore, contrary to popular opinion, shareholders of American public corporations are NOT the (1) owners of the corporation, (2) the claimants of the profit, or (3) investors, as in the contributors of capital.

Shareholders Rights in context of Bangladesh:[4]

The following sets out a brief summary of the salient provisions of Bangladeshi company law and regulation relating to rights of shareholders of the Company. It is not, and is not intended to be, an exhaustive or definitive lists of such rights but is intended merely to provide brief details and information relating to such rights.

“The rights of the shareholders (including the holders of AIM Securities) of the Company are included in the Bangladesh Companies Act 1994, the Bangladesh Securities and Exchange Ordinance 1969 (together with the Bangladesh Securities and Exchange Commission Act 1993 and the rules made there under) and the rules of the Dhaka Stock Exchange (DSE), the Chittagong Stock Exchange (CSE) and the Company’s Articles of Association.

Shareholder’s Agreement:[5]

A shareholders’ agreement is an agreement amongst the shareholders of a company.

In strict legal theory, the relationships amongst the shareholders and those between the shareholders and the company are regulated by the constitutional documents of the company; however, where there are a relatively small number of shareholders it is quite common in practice for the shareholder to supplement the constitutional document. There are a number of reasons why the shareholders may wish to supplement (or supersede) the constitutional documents of the company in this way:

  • a company’s constitutional documents are normally available for public inspection, whereas the terms of a shareholders’ agreement, as a private law contract, are normally confidential between the parties.
  • Contractual arrangements are generally cheaper and less formal to form, administer, revise or terminate.
  • The shareholders might wish to provide for disputes to be resolved by arbitration, or in the courts of a foreign country (meaning a country other than the country in which the company is incorporated). In some countries, corporate law does not permit such dispute resolution clauses to be included in the constitutional documents.
  • Greater flexibility; the shareholders may anticipate that the company’s business requires regular changes to their arrangements, and it may be unwieldy to repeatedly amend the corporate constitution.
  • corporate law in the relevant company may not provide sufficient protection for minority shareholders, who may seek to better protect their position by using a shareholders’ agreement
  • to provide mechanisms for removing minority shareholders which preserve the company as a going concern

How an AGM protect shareholders interests?

By attending an AGM, shareholders can know the overall position of the company. It is also a platform for them to ask about the company’s wellbeing. It is an open and a rare opportunity for shareholders to meet the top management of a company they have invested in. This is the time when they get to go through the company’s financial performance and future prospects of the company with the people driving the company. As its part-owner, shareholders are entitled to know the company’s potentials to make sure that their investment is sound.

Some shareholders do not even know who the boards of directors are when buying shares of a company. When they attend a company’s AGM, they get to see the directors in person, understand their background and analyze whether these people have relevant expertise in the business of the company. Shareholders also get to know how much the company is paying them, and whether shareholders’ money is well spent on people who can actually drive the company to further success and growth. In AGM shareholders elect directors as they want by their voting power. So, thus it proves that the ultimate control and destiny of a company is vested in the hands of its shareholders.”

The declaration of dividend is one item on the agenda all shareholders are interested in, as this is the money going back into every shareholder’s pocket. They will get to know first-hand the dividend declared for the year and to check whether it is policy. During the AGM, shareholders are given the chance to ask questions.

So, to make an AGM effective, company should implicate its decision properly that have taken in AGM. For example, “Salvo Chemicals Industries ltd” in their AGM, they have announced 5% bonus share to its shareholders. But without giving this to shareholders they informed it to SEC that they have paid this. As a result, SEC move down their ranking category “B” to category “Z”. So, in this case this company does not implicate their decision which was taken in their AGM.

Conclusion:

At last it can be said that- Every shareholder of a company will be invited to the Annual General Meeting (AGM) of the company every year, regardless of whether one is a minority shareholder holding only one share or a major shareholder. A company is owned by its shareholders. Every shareholder has his/her own right in the company. A company cannot function properly without its shareholders. So the ultimate control & destiny of a company is truly vested in the hands of its shareholders.

BIBLIOGRAPHY

1. http://www.cvsfife.org/publications/agm.htm

2. http://en.wikipedia.org/wiki/Shareholder

3. http://en.wikipedia.org/wiki/Shareholders%27_agreement

4.http://www.beximco-pharma.com/share-information/rights-of-shareholders.html

5. 4th august, 2011, www.prothom-alo.com.

 


[1] http://www.cvsfife.org/publications/agm.htm

[2] http://www.cvsfife.org/publications/agm.htm

[3] http://en.wikipedia.org/wiki/Shareholder

[4] http://www.beximco-pharma.com/share-information/rights-of-shareholders.html

[5] http://en.wikipedia.org/wiki/Shareholders%27_agreement