INTRODUCTION
Every company is required to call at least one meeting of its shareholders each year. This meeting is known as annual general meeting. Every company whether public or private, having share capital or not, limited or unlimited must hold this meeting. The first annual general meeting of a company must be held within eighteen months from the date of its incorporation, and then no meeting will be necessary for the year of incorporation and the following year. Like for example, if a company is incorporated in January 1960, its first annual general meeting should be held within eighteen months, i.e., up to June 1961 and then no meeting will be necessary either for 1960 or 1961. Therefore, one annual general meeting must be held every year. The gap of one meeting and the next should not be more than fifteen months. The Act provides no provision for the deferment of the first AGM.
If a company fails to hold this meeting, two consequences will follow. Firstly, any member can apply to the CLB and latter will order the calling of the meeting. An application can be made by any member under Section 167 of the Act. This means that a company is not competent to invoke the provisions of Section 167 because a company cannot seek directions against itself. The CLB can give any ancillary or consequential directions which it thinks expedient in relation to the calling and conducting of the meeting. A meeting held in pursuance of this order will be deemed an annual general meeting of the company. This power has been vested exclusively in the CLB. The court cannot exercise it even under its inherent powers.
Secondly, the failure to call this meeting either generally or in pursuance of the order of the CLB is an offence punishable with fine. The penalty is imposed upon the company as well as every officer “who is in default”.
The registrar has been given the power, for any special reason, to extend the time for holding an AGM for a period of only three months. But the time for holding the first AGM of a company is never extended.
Shareholder Protection
This Section reviews the role of four of the key organizations (NAPF, ABI, ISC and PIRC) involved in coordinating the policies and actions of investors, before discussing broader issues of shareholder rights.
Shareholder Organisations
i ) NAPF & ABI
The two leading organisations, representing the interests of institutional fund managers as investors, are the National Association of Pension Funds (NAPF) and the Association of British Insurers (ABI). The NAPF has amongst its members many of the UK’s largest companies and their pension funds (only some of which are managed in-house), but it is a smaller organization than the ABI, which represents and supports insurance companies in many aspects of their business, not just fund management. A number of the UK’s largest insurance companies, which
also have pension fund interests, belong to both organisations. Most companies included in my research had little or no contact with the ABI or NAPF. That
contact which had taken place had generally involved larger (FT-SE 100) companies and was restricted to seeking the approval of changes to, for example, the terms of preference or convertible shares or share option schemes. In most of these situations the `service’ provided by the ABI and NAPF, in coordinating the responses of their members, was seen as efficient and easy to deal with.
In a number of cases, all relating to share option schemes, matters had become more complicated because the companies concerned had proposed the use of performance measures other than share price (for example, eps growth). Many of these issues were subsequently dealt with in guidelines published towards the end of my programme of interviews.
ii) Institutional Shareholders’ Committee
In contrast to the company and fund manager-based membership of the ABI and NAPF, the Institutional Shareholders’ Committee (ISC) is an umbrella body for other organisations involved in investor protection, shareholder rights and related issues. There are no direct ‘corporate’ members of the ISC, but both fund managers and companies may be members of the organisations which comprise the ISC (and some fund managers may be members of several).
The membership of the ISC includes the ABI and NAPF, the Unit Trust Association (UTA), the Association of Investment Trust Companies (AITC), the Asset Management Committee of the British Merchant Banking and Securities Houses Association, and the Bank of England in an advisory/observer role. The ISC’s membership encompasses a very high proportion of the UK fund management industry, but did not (at the time of my research in 1993) include PIRC, which represents a number of public sector pension funds in the UK and USA, or any body specifically representing the interests of charities. The role of the ISC has changed significantly over the last few years, with the
coordination/spokesman role, particularly the publication of policy statements, becoming more complex and difficult as the less controversial and broader matters have been dealt with, and the interests of the different member bodies and those of their own memberships have diverged on more specific issues.
iii) Policy development
In terms of the creation of recommendations and policies for investors and codes of conduct for the management of shareholder relationships, the main roles of the ABI and NAPF, sometimes jointly, and on other occasions in conjunction with the ISC, have been to: produce general policy statements as guidance for their members and companies; coordinate the interests of their members when dealing with issues of shareholders rights and the negotiation of changes to these
rights; coordinate their members’ interests when dealing with more complex matters of corporate rescue, reconstruction and re-financing.
In support of these goals and to help introduce consistency in the application of their guidelines, the NAPF and ABI have produced a number of discussion papers and policy statements about shareholders’ rights and responsibilities. These have increasingly focused on ‘Cadbury’ type governance issues, for example:
• Directors’ remuneration, employment contracts and share schemes.
• The composition of boards and the re-appointment and selection of directors.
• Voting on shareholder resolutions.
Both the NAPF and ABI have a significant number of fund manager members which are themselves listed on the Stock Exchange. In the NAPF’s case there are also listed company members representing the interests of their pension funds.
iv) PIRC
Pensions & Investment Research Ltd (PIRC) is an independent company which represents a significant number of UK and overseas local authority public sector pension funds.
The NAPF, ABI and PIRC support their members with `corporate governance’ information services about major UK companies, identifying, for example, where shareholder resolutions do not meet their own guidelines or those of the Cadbury Code. PIRC is also focusing resource on identifying companies’ political and charitable contributions and environmental policies.
An additional dimension to this issue is that many local authority pension funds are managed by independent fund managers, which may themselves be quoted companies and members of the NAPF or ABI.
For many local authority pension funds, the voting power of their shareholdings will lie with their fund managers, as part of their investment management mandate, rather than with the fund’s trustees. As PIRC provides voting recommendations to its members as part of its information service, it is likely that the trustees of public sector funds will increasingly seek to use their voting power directly, on a company by company basis, rather than automatically leaving all voting decisions to their appointed fund managers.
Response of Companies
Amongst many of the companies that I interviewed there was a growing frustration with the growth of corporate governance `interest groups’ (of which PIRC is seen as one) and the demands that groups of shareholders and their representatives are putting on companies for additional information and meetings, in addition to sometimes seeking changes in corporate policies on issues as diverse as defence contracts, the employment of minorities and environmental issues.
Even in large companies the resources available to deal with these requests are limited and, in the current climate, further policy statements and standards produced by politically inspired shareholder groups are seen as providing diminishing returns, either through unnecessary repetition of principles which are already included in the Cadbury Code, or by making growing demands oncompanies, to which they are likely to become increasingly resistant.
The growth of `corporate governance’ and the demands it is making on management time was particularly strongly felt by Finance Directors, who are also responsible for the implementation of changes in financial reporting standards. The combination of the Cadbury Code and new accounting standards were seen by companies as making huge improvements in the accountability of their boards to shareholders and the accuracy of information provided to shareholders in financial statements. In contrast, fund managers and analysts are more sceptical that either the Code or the introduction of additional accounting standards will make that much of a difference to the quality of the information they receive:
Shareholder Meetings
Every listed company, in common with all other registered companies, is obliged to hold an AGM at which specified items of business must be transacted. All shareholders are entitled to attend the meeting, at which three of the most important activities are:
1. The board giving an account of its management of the business in the preceding financial year.
2. The right of shareholders to ask questions of the board.
3. Shareholders voting on resolutions put to them by the board. Section I of this Chapter reviewed the kinds of resolutions that boards put to shareholders at an
AGM. Similar resolutions may also be put to shareholders at additional Extraordinary General Meetings (EGMs) during the course of a year. For example, EGMs may be held to approve a rights issue or a takeover, when the timing does not coincide with that of the AGM. Two features of these meetings are that very few shareholders attend compared with the size of the share register and those that do so are overwhelmingly private shareholders and not institutional investors, particularly at AGMs. Normally EGMs are very sparsely attended by both types of shareholder, most votes being cast by proxy. Proxy votes are often described as being ‘in the Chairman’s pocket’, but in practice they are seldom needed by the board of the company to support the resolutions it has put before shareholders. This is because if, by a show of hands, the majority of shareholders present at the meeting support the resolution this is normally sufficient to pass the resolution.
Only if one or more of those shareholders present demand a formal poll will a vote take place weighted by size of shareholding. In these circumstances, proxy votes held by the Chairman and others, plus those votes cast by shareholders present, will be counted and determine the outcome.
Shareholder Protection is a policy or a number of policies set up to protect each shareholder in the event of another shareholder’s death or critical illness. The risk to a company without shareholder protection is very serious and can ruin a company very quickly. In a company without shareholder protection arranged. If a shareholder dies, their next of kin would normally become the new owner of the share’s and will therefore become the new director, this can cause a number of serious problems.
Firstly the shares inherited can be sold to an undesirable third party at a value not concurrent to the company value, in these circumstances the value of all company shares would decrease making the remaining director at financial risk, also the new director may not be someone welcome on the board.
Secondly, the family member could become a decision maker within the company having a say in the day to day running of a business they have no prior knowledge of or are not welcome on the board.
Thirdly, a common problem is where the deceased was a key person to the success of the company, therefore their death would impact the overall company value and decrease the remaining directors share value and ability to sell or continue.
A shareholder protection insurance can solve all these problems. It would insure against the first two problems by enabling a company to buy the shares of a deceased without impacting their cash flow in anyway. (This option would need a shareholder agreement between the director giving the company first refusal to buy any shares of a deceased, the insurance amount would cover the cost of them share making it a seamless transaction.
GENERAL PRINCIPLES-
When notice is necessary, the following general rules must be observed:–
1. Every person entitled to attend the meeting must be summoned, unless he is beyond reasonable summoning distance or is too ill to attend.
2. The notice must be frank, clear and free from trickiness, and if any special business is to be transacted, this must be clearly stated.
3. The notice must be strictly served in accordance with the regulations of the body on whose behalf it is given, and if any particular method is prescribed but the Act of Parliament this must also be observed.
4. The appropriate body at a subsequent meeting may ratify an irregular notice.
In case of meetings, it must be kept in mind that no business of an important nature is omitted from the notice. The notice must be definite as a contingent notice is not a sufficient notice.
Notices are not scrutinized with a view to criticising them excessively. The true test would appear to be the meaning, which they would convey to ordinary minds; the courts do not examine them to find defects in them.
The following illustration emphasizes the importance of this principle.
The notice convening an extraordinary meeting for the purpose of altering the articles of the company stated that such articles would be sent to any member on request. The new articles contained among other things, clauses confirming an agreement by the directors to pay one of the managing directors a pension, granting an indemnity to each director for loss of office and power for the directors to borrow up to 150,000 pounds. It was held that the notice was insufficient, because the nature of alterations was not specified therein, and that as the meetings weirregularly convened the resolutions thereat were invalid.
Another important thing is that no fresh notice is required for an adjourned meeting which in law is only continuation of the original meeting and which has the same agenda of previous meeting even though the time and place are changed, unless the adjournment was sine die where the fresh notice is necessary. However, if a meeting has once been properly conveyed, it cannot be postponed by a subsequent notice.
When no specific quorum is required by Statute or the regulations governing the particular meeting, the common law rule is that in the absence of special custom, a major part of the members must be present at the meeting and of that major part there must be a majority in favour of the act or resolution. This is obviously a wise and necessary precaution against inadequate representation, since all the members of an organised body are bound by the resolution of a meeting, even though they do not attend the meeting.
In case of companies, however, the growing practice of voting by proxy and of neglecting to attend the general meetings has resulted in a modification of the common law rule regarding quorum. The quorum is usually fixed at a number much smaller than the major part of the members.
For public meetings, there cannot be a fixed number to form a quorum, as there is no limit set to the number of persons who may attend such meetings. It is, therefore, desirable that a fairly large number of persons should be present before the proceedings are commenced.
Therefore, the basic and fundamental object of having a quorum is to permit a stated proportion of the members to transact the business of the organisation or body, recognising the impracticability of securing the attendance of all the members at any of its meetings.
ABSENCE OF QUORUM-
It is not competent in the absence of quorum for the members of a meeting which has previously been duly constituted to person’s ministerial acts, unless such acts have been previously authorized by the corporate or other body concerned.
Any business transacted at a meeting while a quorum is not present is invalid. However, if a company’s articles provide, inter alia, that no business shall be transacted at any general meeting unless a quorum is present “when the meeting proceeds to business” and there is in fact a quorum at that time, the subsequent departure of a member thereby reducing the number below the quorum does not invalidate the proceedings after his departure.
EFFECT OF FAILURE OF A QUORUM-
If no quorum is present, then there is no meeting and the proceedings are invalid. However, acts done creating rights in favour of third parties at a meeting without a quorum being present would not affect the rights of such third parties, provided they had no notice of the irregularity (e.g.- debentures issued at a meeting ofdirectors where there was an insufficient quorum. If a meeting has reached decisions which are acted upon and treated as valid by all concerned, it is not within the competence of a person not concerned at a time, to seek to invalidate the proceedings because of the lack of quoru
MINUTES-
Minutes are the records of what transpired at the meetings. It is compulsory and mandatory under the law that the Minutes Book should be maintained and should be kept open for inspection by every member or shareholder at the company’s office. Such Minutes Books are to be maintained not only of the meetings of the shareholders, but also of the meetings of the Board of Directors. It is stated by Talbot (Company Meetings) that only resolutions and decisions should normally be recorded in the Minutes. The minutes are an official record of what was done and is distinguishable from the report. Minutes should be concise, free from ambiguity, contain the exact wording of all resolutions passed and sufficiently detailed so that a number either of the Board or of the company could by reading them, fully understand as to what was done at the meeting.
Therefore, it can be said that a minute means a note to assist the memory and the minutes of a meeting are a record of the proceedings of the business gone through at the meeting. The minutes should be recorded following the order in which business was dealt with.
ESSENTIAL OF MINUTES-
There are various essentials of valid minutes. They are-
They must contain names of members present.
The members’ signature must be there as a token of their attendance either in the minute book or attendance registers with a mention of their presence in the minutes.
They must also be-
· Grammatically correct
· Accurate version of what happened at the meeting
· Concise
· Clear and unambiguous
· Essential or at least useful
· Capable of being understood by the successor of the officer writing the minutes
MINUTES ARE OBLIGATORY-
It has always been recognised as the duty of a company to keep minutes of what takes place at its general meetings. Since the validity of every transaction and decision by a company must depend ultimately on some meeting having been duly held and on some resolution having been duly passed, it is clearly necessary to keep an accurate permanent record of all meetings and resolutions of shareholders. A company can only speak, say to say, through its minutes.
The duty of keeping minutes is now made explicit in the Act, which prescribes that every company must cause minutes of all proceedings of every general meeting to be entered within thirty days of the conclusion of such meeting in the book kept for that purpose with its pages consecutively numbered as stated in Section 193 (1).
OBJECT-
The object of minutes is to keep a record of decisions of any business transacted at the meeting. The basic purpose of the minutes is to show beyond doubt as to what was done at a meeting or rather what was said and done at a meeting or what were the reasons which prompted a particular decision.
ROLE OF MINUTES-
Minutes should always be looked on as legal documents; they should contain no more, and no less, that what is really necessary. It is customary to record in the minute’s votes of thanks to the chairman, directors, staff, etc. This is unobjectionable on special occasions, but it too often becomes a routine, and the minutes become loaded with courtesies, which serve no purpose except to obscure the more important items.
PREPARATION OF MINUTES-
The characteristics of good minutes written by the person responsible are-
a) TITLE- Title should be self contained and explanatory, brief, suitably phrased, uniform and continuity maintained and can easily be indexed.
b) RECITAL– Before recording of any resolution a brief description of the subject matter that was discussed at the meeting be given. It should state the facts of the case that was considered by the members in the meeting.
c) THINKING- the recital or resolution should reflect the thinking that influenced the members at the meeting in arriving its decision.
d) DECISION- It ought to be embodied in a resolution or recommendation and must be framed in different terms.
e) OUTSIDE FACTORS- If any outside factors has been taken into consideration while arriving at a certain decision that must be duly reflected in the minutes.
There are two classes of minutes-
Minutes of narration
Minutes of resolution
The former give an explanatory account of the business brought before the meeting, and the latter records the resolutions passed.
ESSENTIALS OF GOOD MINUTE WRITING-
1. Accuracy
2. Free from ambiguity
3. Precision and conciseness
4. Completeness
5. Index
6. Use of past tense
ABSENCE OF MINUTES-
Absence of minutes is of two types-
Compete absence of the minutes of the meeting. Absence of minutes relating to a particular item. Where the omission relates to meeting itself, it is assumed that whatever ought to have been transacted was in fact transacted.
Where the omission related to a particular item, the onus is upon the persons alleging the omission to prove the item. Consequently where a resolution passed has not been entered in the minutes, other evidence to prove it will be admitted.
Accordingly, an unrecorded minute may be proved “ALINUDE”.
VOTING BY PROXY-
Section 176 of the Companies Act deals with voting by proxy. A member can vote either in person or by proxy. A proxy shall be allowed only if it is allowed by the Articles of the Company. A proxy shall not be allowed to vote except on a poll if it is not allowed by the company. This trend has become a trend nowadays, because of the unwillingness and inability of the shareholders to be personally at the meetings.
A proxy is a person who is a representative of a shareholder at the meetings held by a company and is known as his agent to carry out the course which the shareholder has himself decided upon. A proxy should carry out the work as instructed and directed by the shareholder. There is a relation of principal and master between them.
More importantly, accordingly to Section 176(1) of the Companies Act, a proxy has no right to speak.
The instrument appointing a proxy must be in writing and should be signed by the shareholder, and should be deposited with the company forty eight hours before the meeting. There is no provision of law requiring holidays to be excluded in computing 48 hours and, hence, forms filed on a Sunday would be valid. The proxy forms are provided along with the notice of the meeting to the members.
A proxy is always revocable. Revocation is subject to the provisions of the articles. When the revocation was communicated before the poll, but not before the meeting, it was held to be ineffective and the proxy’s vote stood. When however, there is no provision in the articles power of revocation would be unfettered.
CONCLUTION
In summary, shareholders can take steps to protect the value of their shareholding and obtain control over the running of the company shareholder protections are best dealt with in the articles of association of the company and/or the shareholder agreement. Shares can carry different rights such as voting or dividend rights and the rights attaching to transfer and disposal can vary between the different classes of shares held by majority or shareholders
Articles of association and shareholder agreements are necessary to protect shareholders rights since these agreements set out the terms on which the minority shares are held.
Issues connected to the taxation of shareholders and taxation on transfer of share should always be considered.
BIBLIOGRAPHY
# Singh Avtar, Company Law, (Lucknow: Eastern Book Company) 2007
# Kumar Niraj, Law of Meetings, (New Delhi: Bharat Law House) 2008
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