This article provides an overview of how and why different types of companies hold annual general meetings.
- What is an annual general meeting?
- What is the function of an annual general meeting?
- When does a general meeting need to be called?
- When should a general meeting be held?
- Differences between an annual general meeting and an extraordinary general meeting
- Giving notice of an annual general meeting
- Content of notice
- Method of notice
- Short notice
- Special notice
- Votes and the voting process
- Passing resolutions
- Amendments to resolutions
- The quorum requirements for an annual general meeting
- The chairing process for annual general meetings
- Adjourning an annual general meeting
- What happens after an annual general meeting?
What is an annual general meeting?
A general meeting is a meeting of the shareholders of a company that can be held at any time in order to pass decisions that the law requires shareholder approval for or where a meeting of the shareholders is desired by the company or its board, or the shareholders themselves. An annual general meeting (‘AGM’) is a general meeting that certain companies hold at a specific time depending on the type of company. The Companies Act 2006 sets out the following requirements:
|Type of company||Required to hold an AGM|
|Private, non-traded||Not required by Companies Act 2006 but may be required to by its own articles of association|
|Public||Yes – required by Companies Act 2006|
|Single member||No – the recording of decisions by single members has effect as if agreed by the company in a general meeting and this can be done by a resolution that is recorded and passed in writing|
|Traded (a company whose shares carry the right to vote at a general meeting and are admitted to trading on a regulated market in an EEA state by or with the consent of the company)||Yes|
|Listed (a company whose securities are admitted to the Official List maintained by the United Kingdom Listing Authority and that trade on a recognised investment exchange)||Yes|
|Quoted (a company whose shares have been included in the Official List or that is officially listed in an EEA state, or is admitted to dealing on either the New York Stock Exchange or Nasdaq)||Yes|
What is the function of an annual general meeting?
Companies legislation does not set out an exact agenda for an annual general meeting and the function of an annual general meeting will depend on the matters that the company and its members wish to consider. Often, the meeting will be used to pass decisions that the law requires shareholder approval for (annual approvals or renewals such as the approval of the company’s accounts and the various reports related to the accounts, approval of dividends and if necessary, matters such as the re-election of the company’s directors or appointment of the company’s auditors).
When does a general meeting need to be called?
A general meeting will need to be called in a variety of circumstances where the company’s members’ approval or consultation is required. Depending on which stakeholder requires the meeting, the way in which a general meeting will be called will depend on who is calling it. A general meeting can be called by:
- the company’s directors after passing a resolution at a directors’ board meeting to call a general meeting of the members;
- the company’s directors after a request to call a general meeting by at least 5% of the company’s shareholders holding fully paid up voting shares (or if there is not a share capital, 5% of the voting rights of the company). The shareholders also have the statutory right to request that a specific resolution is considered at a general meeting or annual general meeting;
- the court, in limited circumstances if an eligible shareholder applies to the court; and
- the company’s directors after a request to call a meeting by the company’s auditors for the purpose of discussing the circumstances surrounding the resignation of those auditors
When should a general meeting be held?
For public companies, a general meeting of its shareholders must be held within 6 months from the day after its accounting reference date (which is the date that a company’s financial accounts are prepared to).
For private traded companies, a general meeting of its shareholders must be held within 9 months from the day after its accounting reference date (the date that a company’s financial accounts are prepared to).
For private companies with non-traded shares, as there is no statutory requirement to hold an annual general meeting unless a company’s articles of association state that one should be held, a meeting should be called as required so that the company is not in breach of its articles.
Differences between an annual general meeting and an extraordinary general meeting
The obligation in the Companies Act 1985 to hold an ‘extraordinary general meeting’ or ‘EGM’ is no longer a statutory requirement under the Companies Act 2006 but the obligation to hold an EGM may often appear in a company’s articles of association if they have not been updated to reflect the changes of the Companies Act 2006. Following the changes imposed by the Companies Act 2006, a meeting that is not stated to be an EGM or an AGM should just be called a general meeting. If the company’s articles refer to an EGM then it is good practice for the company to continue to refer to that general meeting using the same terminology.
Giving notice of an annual general meeting
A company’s directors are required to give shareholders (including any proxies or nominated representatives), directors and auditors a clear and concise notice of any meeting that they are entitled to attend and vote at. For an annual general meeting, unless the company’s articles of association require a longer time frame to be put in place, the notice period required by the Companies Act 2006 is:
- for private companies: at least fourteen (14) clear days. Clear days are days that do not include the date that notice is given or the date of the meeting that is the subject of the notice;
- for public companies with non-traded shares: at least twenty-one (21) clear days;
- for public companies with traded shares: at least twenty-one (21) clear days and if the company has a premium listing of equity shares on the London Stock Exchange, at least 20 working days;
- for general meetings that have been requested by the company’s members: the meeting has to be called within 21 days from the date of the request and should be held no more than 28 days after notice of the meeting is given
Giving the correct notice is important, not only because it demonstrates good corporate governance, but because unless the giving of a statutory short notice period has been approved and given to the members, giving incorrect, inadequate or no notice can mean the meeting can be void. It is important to ensure that any notice periods for annual general meetings factor in any additional requirements in a company’s articles as well as any statutory rules on how documents or information should be given to members.
Content of notice
The Companies Act 2006 states that the notice of a general meeting has to include:
- the date, place and time of the meeting;
- whether a special resolution is proposed and the text of that resolution (often this same practice is followed for ordinary resolutions);
- the general nature of the business to be conducted at the meeting – for listed companies, if this is business that is out of the ordinary course then the Listing Rules (regulations applicable to any company listed on a United Kingdom stock exchange) require that an explanatory circular must be provided with the notice; and
- if the notice is for an AGM and the company is a public or a traded company, the notice has to specify that the type of meeting is an AGM
Notices often include explanatory notes on how to appoint a proxy to vote in a shareholder’s place and the process on how to vote at a meeting. It is good practice for the notice to be accompanied by any documents that will be considered or referred to at the meeting. For an AGM, this will usually include the company’s annual report, annual accounts and auditors’ report, and where required by the UK Corporate Governance code, a corporate governance report, as well as the usual attendance card and proxy appointment documentation.
Depending on the business to be conducted at the meeting, there may be additional requirements for listed, public or traded companies that are additional to the requirements set out in the Companies Act 2006 and may include requirements from the Listing Rules, the Disclosure Guidance and Transparency Rules, the UK Corporate Governance code and regulatory bodies such as The Investment Authority. As a general rationale, all of these requirements are designed to better enable shareholders to understand the nature of the business being discussed at the meeting to enable them to make an informed decision when asked to vote on a matter.
Method of notice
The Companies Act 2006 specifies that notice of a general meeting should be given in hard copy form, electronic form or published on a website, or partly by one of these ways and partly by another.
If directors of a private or non-traded public company want to call an annual general meeting on a shorter notice period than the period required in the Companies Act 2006, a certain amount of the shareholders that are entitled to attend and vote at the meeting have to agree to the shorter notice period. For a private company, directors have to have agreement from shareholders holding not less than 90% of the nominal value of the shares (this is the value allotted to shares at the time that they are issued) or a higher percentage of the nominal value if required by a company’s articles of association so long as it is not more than 95%. For a public company (but not a traded public company) the directors have to have agreement from all of the shareholders entitled to attend and vote at the AGM. Public traded companies can only hold general meetings on short notice where they have been adjourned.
The directors are required to provide what is called ‘special notice’ when the Companies Act 2006 states that a resolution requires special notice (which differs from the default notice periods for that type of company). It is important to comply with this requirement otherwise the resolution is not effective. Notice of the intention to pass the resolution has to have been given to the company at least 28 days before the meeting at which it is passed. For example, directors are required to give special notice of a meeting if the purpose of the meeting is to ask the company’s shareholders to approve the removal of a director by ordinary resolution (this is a decision passed by a simple majority (a majority in which the highest number of votes cast exceeds the second-highest number) of the votes cast by those shareholders that are entitled to vote), or to appoint a replacement director removed at the same meeting, to remove an auditor or to appoint auditors if the existing auditors have not been reappointed.
Votes and the voting process
Shareholders voting at an annual general meeting can vote on a decision in two ways – on a show of hands or by poll voting. The difference between the two methods of voting is the way that the votes are counted. If shareholders vote on a show of hands, the votes of the shareholders present at the meeting are counted. The result will be declared by the chairman of the meeting and this declaration will usually be considered final and binding. Shareholders can attend in person, or can appoint a proxy or corporate representative to represent them. A proxy is a person that a shareholder has formally appointed to represent them at the meeting and vote on their behalf and a corporate representative is a person representing a corporate shareholder and voting on its behalf. A proxy can represent more than one shareholder and will have one vote for each shareholder it represents.
When a decision is voted by a poll then the votes are counted based on the number of shares that each shareholder that is attending (whether themselves, or by proxy or corporate representative) the meeting owns. With poll voting, a member does not have to vote all their shares in the same way.
As discussed in this article, shareholders at an AGM can pass resolutions as special resolutions and as ordinary resolutions. Unless otherwise stated in a company’s articles of association, these resolutions can be passed by the percentage of shareholders eligible to vote at the meeting that is stated in the Companies Act 2006 (75% for special resolutions; a simple majority for ordinary resolutions). In some circumstances where resolutions can alter the constitution of the company or shift the balance of power of the shareholders, a company’s articles may require a resolution to be passed by a unanimous vote to protect the status quo or the interests of minority shareholders.
Amendments to resolutions
Amendments to resolutions are rare and for special resolutions, in general it is accepted that amendments cannot be made other than to correct a typographical mistake. Amendments to ordinary resolutions can be made if the amendments are contemplated by the notice of the meeting, do not place any additional obligations on the company than the original resolution(s) and do not change the substance of the original resolutions.
The quorum requirements for an annual general meeting
The quorum of a general meeting is the minimum number of shareholders that must be present at the general meeting to make the proceedings of that meeting valid. Once the threshold is met, the meeting is said to be ‘quorate’. The specific minimum number will depend on the type of company and what is written in the company’s articles of association (which often set out a number). If the meeting is not quorate, the business approved at the meeting and any decisions made or approved relating to the company are not valid and so the meeting will need to be adjourned until the correct attendees are available.
The Companies Act 2006 states that for a company limited by shares or guarantee and having only one member, one qualifying person present at a meeting is a quorum. For all other cases, unless the company’s articles of association state otherwise, two qualifying people must be present at a meeting for the meeting to be quorate. The two people have to represent different shareholders. A qualifying person is: an individual who is a member of the company; a person authorised to represent a corporation at a meeting; or a person appointed as proxy of a member in relation to the meeting.
The chairing process for annual general meetings
A company’s articles of association will usually set out the process for chairing a meeting which may include practicalities (such as location and timing) that are specific to the company. The Companies Act 2006 also sets out a process for the chair of a meeting to consider and this will differ depending on whether the company is a public listed company or not. The UK Corporate Governance Code emphasizes that in general at meetings a chairman’s role is to be an impartial facilitator of the meeting and to make sure that the agenda of the meeting is followed. For shareholder meetings, a shareholder or the proxy of a shareholder can be appointed chair but usually if the directors of the company have appointed a chairperson, that person will chair the meeting if they are present.
Adjourning an annual general meeting
If an annual general meeting does not have the required quorum or if there is a dispute that means the meeting cannot carry on, the meeting can be adjourned, usually by the chair of the meeting, or if the meeting resolves to adjourn, or by another way specified in the company’s articles of association.
What happens after an annual general meeting?
What happens after an annual general meeting will depend on the business discussed and the decisions made and approved at the meeting itself. The company will produce minutes that will be kept at the company’s office and will update or amend any registers that it needs to. The company secretary (if the company has one) or the company’s directors will send the requisite resolutions or supporting documentation to the necessary regulators (for example Companies House so that the Registrar of Companies can update the Companies’ Register). In the case of public, listed or trading companies, the company will update their website and if necessary, notify the relevant press or announce any updated information to the relevant markets if required.