If you’re an investor, then it’s important to know about how companies operate and come to decisions. In this process, AGMs play a central role. You may be surprised to learn that every meeting between shareholders serves different purposes.
In this blog post, we are going to explore the types of AGM. Also, we’ll be highlighting the importance of an AGM while delving into the purpose of each meeting type and the benefits they offer to shareholders.
So, it doesn’t matter whether you’re a seasoned investor or have just begun your journey, you’re going to explore how in-person or virtual annual general meetings contribute to overall corporate governance., inner workings, and more. Let’s start without further ado;
What Are Annual General Meetings(AGMs)?
Think of an AGM as an annual company review. It’s a big meeting where the company directors, the executives like a school principal, inform the shareholders about the health of the company. Shareholders are basically the people who own a stake in the company like you might own a stake in a candy bar with a friend.
At the annual general meeting, the directors share information on the company’s performance over the previous year. For example, how much money they’ve made, which products they’ve sold, and what exciting initiatives they’re now working on. It’s like a giant report card for the organization!
However, general meetings are not only about reporting but also about highlighting the importance of an AGM. Shareholders can also vote on key choices like who should serve on the company’s board of directors. The board functions as a mini-council, steering the corporation in the proper path, similar to how a student council might assist govern a school. By voting, shareholders have a voice in how the firm is operated!
Overall, AGMs provide firms with the chance to be transparent and accountable to those who own them. It’s a fair chance for everyone to stay updated and informed about the company’s success and they can work together without any disruption.
Types of AGM Annual Meetings
The following are the different types of AGMs that take place between shareholders in an organization;
1. Annual General Meeting (AGM):
Purpose: The AGM serves as a yearly forum for shareholders to engage with the company’s management. It’s a chance to:
- Review Performance: In order to gauge the financial health and performance of the company in the past years, shareholders begin by reviewing the annual report and audited financial statements. This gives a clear picture of the company’s overall financial performance
- Vote on Ordinary Business: To choose the electing directors and appoint auditors who’ll be assessing the financial statements, shareholders arrange AGM. They exercise their ownership rights by casting their votes over such matters. However, they also use their rights in approving dividend payouts(a portion of the company’s profit distributed to shareholders).
- Ask Questions & Raise Concerns: The annual general meeting serves as one of the platforms where shareholders can freely ask queries and doubts about the company’s performance, future goals, and plans or address any concerns with management if they have.
Benefits:
- Increased Transparency: Members of the AGM can evaluate the company’s financial performance and hold management accountable for its decision
- Shareholder Input: During the meeting, shareholders will be able to express their issues and ideas, which may influence the company’s direction.
- Transparency and Trust: Regular AGMs can increase investor trust by displaying effective company governance.
AGM Example:
“Think of it like a yearly school meeting for parents and teachers. Shareholders (like parents) get updates on the company’s performance (like student grades and activities) and choose representatives (like the PTA board) for the coming year.”
2. Extraordinary General Meeting (EGMs):
Purpose: An EGM differs from an AGM in that it is held on a “urgent” basis to address significant issues awaiting the next AGM Shareholders often vote on matters that could fundamentally change the direction of the company, such as:
- Mergers & Acquisitions: One of the main purposes behind EGMs is that it provides a platform where shareholders decide on whether to agree on a merger with another company or acquire another company entirely.
- Issuing New Shares: The company may need shareholders’ approval before issuing new shares, potentially diluting existing shareholder ownership, but raising capital for growth.
- Amending Articles of Association: The articles of association define the company’s purpose, rules, and structure. Shareholders may vote to change these articles, which affect how the company works.
- Removing a Director: Due to any misconduct, performance concern or in rare situations, shareholders can hold an EGM to cast a vote on the elimination of a director.
Benefits:
- Shareholder Control: EGMs serve as a platform which empowers shareholders to take part in major decisions that could impact on the company’s future and their investment value,
- Flexibility for Urgent Matters: Allows the organization/company to address critical issues outside the annual cycle which further ensures timely decision-making.
EGM Example:
“ Imagine a sports team calling a sudden meeting with players to discuss an urgent trade opportunity. An EGM is similar, where shareholders come together to vote on an unexpected issue that can’t wait for the next regular meeting, such as a major company merger.”
3. Class Meetings:
Purpose: This type of meeting is relevant for companies with different classes of shares. Each class might have varying voting rights or ownership privileges. A class meeting allows shareholders within a specific class to gather and discuss or vote on matters that particularly affect their class interests. For instance:
- Voting Rights: Imagine a company has Class A shares with full voting rights and Class B shares with limited voting rights on certain matters. A Class B shareholder meeting might address a proposal that restricts their voting rights further, allowing them to collectively express their concerns.
- Dividend Distribution: Another example could be a class meeting for shareholders with preferred shares, which guarantee a fixed dividend payout. The meeting could address a proposal to change the dividend structure for their class.
Benefits:
- Fair Representation: Class meetings ensure that all shareholder groups have a voice and can influence decisions that directly impact their class interests.
- Open Communication: Dedicated meetings allow for focused discussions and a deeper understanding of class-specific concerns.
Class Meeting Example:
“ Imagine an apartment building with different resident categories (owners vs. renters). A class meeting would be like a gathering solely for owners to discuss and vote on issues specifically affecting their ownership rights, such as building renovations funded through owner assessments.”
4. Statutory Meeting:
Purpose: There is typically one meeting held within the first few months of a company’s existence, usually after incorporation. It serves two key purposes:
- Formalize Documents: Shareholders formally adopt the company’s memorandum and articles of association. These documents define the company’s purpose, operational framework, and rules it must follow.
- Elect Initial Directors: The first board of directors is officially elected at this meeting. These directors will be responsible for overseeing the company’s management and strategic direction.
Benefits:
- Legal Responsibilities: In addition to fulfilling a legal obligation, the statutory meeting is also a legal requirement for newly formed companies. While not always mandatory for LLCs, it remains a good practice to formalize operations and protect legal standing. For instance, California LLC does not mandate annual meetings but recommends documenting key decisions to protect liability status, while Florida emphasizes maintaining accurate operating agreements and records, even without mandatory meeting requirements.
- Establishes Foundation: It sets the formal groundwork for the company’s governance structure and initial leadership.
Statutory Meeting Example:
“ Picture a club required by law to hold an annual meeting to elect new officers and present financial reports. This mandated meeting is similar to a statutory meeting, which is a legally required gathering for a specific purpose.“
Conclusion
Understanding the various types of Annual General Meetings (AGMs) is critical for investors looking to gain insight into how organizations operate and make decisions. However, AGMs provide an important venue for shareholders to connect with management, review corporate performance, and protect their ownership rights. Whether it’s a typical AGM or an urgent EGM, each serves a different function, allowing shareholders to influence decisions and maintain openness. Furthermore, class Meetings offer equal representation for shareholders with diverse interests, whereas Statutory Meetings lay the framework for new businesses. With amazing AGM assistance at your service according to your needs, Dreamcast can help you with your AGM tech solutions.
Lastly, AGMs promote transparency, credibility, and shareholder empowerment, hence strengthening corporate governance and investor confidence. With knowledge about AGMs, investors may actively determine the direction of their investments.
