Business Law - Company Meetings
A company is considered as a legal entity separate from its members in the eyes of law. All the affairs of the company are practically carried out by the board of directors. The board of directors of a company carries out these affairs within the limitations of their powers, as invoked by the articles of association of the company. The directors also exercise certain powers of their own with the consent of other members of the company.
The consent of the other members is ensured at the general meetings held by the company. Any mistakes committed by the board are rectified by the shareholders (who are also considered as owners of the company) at the meetings of the company.
The shareholders’ meetings are conducted for the shareholders to give their verdict on the decisions and steps taken by the board of directors.
Meetings are a crucial part of the management of a company as mentioned in the Companies Act, 1956.
Meetings enable the shareholders to know the ongoing proceedings of the company and allow the shareholders to deliberate on certain issues.
There are various types of meetings held by a company.
Various criteria must be fulfilled for the calling, convening and conduct of the meetings.
A statutory meeting is held once during the life of a company. Generally, it is held just after a company is incorporated. Every public company, limited either by shares or by guarantee, must positively hold a statutory meeting as soon as the company is incorporated.
A statutory meeting should be held between a minimum period of one month and a maximum period of six months after the commencement of business of the company.
A meeting before a period of one month cannot be considered as a statutory meeting of the company.
The notice for a statutory meeting should mention that a statutory meeting is going to be held on a specific date.
Private companies and government companies are not bound to hold any statutory meetings.
Only public limited companies are bound to hold statutory meetings within the specified period of time.
Procedure of the Statutory Meeting
The board of directors must forward a statutory report to every member of the company. This report must be sent at least 21 days before the meeting. Members attending the meeting may discuss topics regarding the formation of the company or topics related to the statutory report.
No resolutions can be taken in the statutory meeting of the company.
The main objective of the statutory meeting is to make the members familiar with the matters regarding the promotion and formation of the company.
The shareholders receive particulars related to shares taken up, moneys received, contracts entered into, preliminary expenses incurred, etc.
The shareholders also get a chance to discuss business ideas and methods and the future prospects of the company.
An adjourned meeting is called if the statutory meeting does not meet a conclusion.
According to section 433 of the Companies Act, 1956, a company may be subjected to winding up if it fails to submit a statutory report or fails to conduct a statutory meeting within the aforementioned period.
However, the court may order the company to submit the statutory report and to conduct the statutory meeting and impose a fine on the persons responsible for the default instead of directly winding up the company.
Adjournment of Statutory Meeting
According to section 165(8) of the Companies Act, a statutory meeting may be adjourned from time to time. Any resolution on which notice has been given according to the provision of the Companies Act may be passed whether the resolution was taken up before or after the last meeting.
The adjourning meeting has the same power as the original statutory meeting.
The power to adjourn depends on the decision of the meeting.
The meeting cannot be adjourned by the chairman without the consent of the members of the meeting.
The chairman is expected to adjourn the meeting if the members wish to do so, without invoking any discriminatory powers given to the chairman by the articles of association of the company.
Usually, the chairman is not bound to adjourn a meeting even if majority of the members wish for the adjournment.
The statuary meeting provides an exception in the rule that only unfinished business at the original meeting must be carried out at the adjourned meeting.
Members have the right to initiate new topics of discussion in the adjourned meeting.
The advantage of adjourned meetings over statutory meetings is that a resolution can be passed in an adjourned meeting, which is not possible in the case of the latter.
If any resolution is needed to be passed based on the topics discussed in the statutory meeting, it must be passed at an adjourning meeting to go in accordance with the law.
In case of any default made in filing the statutory report or in conduct of the statutory meeting, the members responsible will be liable to fine according to section 165(9) of the Companies Act. The fine may extend to INR 5000.
The court can also order compulsory winding up of the company in accordance to section 433(b) of the Companies Act if the statutory meeting is not held within the prescribed time.
The board of directors must forward a statutory report to every member of the company. This report must be sent at least 21 days before the meeting.
The particulars to be mentioned in the report are as follows −
The total number of allotted shares with the account of fully paid and partly paid shares and the reasons for considerations and extension of the partly paid shares
The net amount of cash collected after the allotment of shares
A brief insight, i.e., an abstract of receipts and payments made within 7 days of the date of the report, balance remaining in the hands of the company and an estimation of the preliminary expenses of the company
The names, addresses, and designations of the directors, managers, secretaries, and auditors along with the change log in case of any replacements made from the date of incorporation of the company
The details of any modifications or contracts to be submitted in the meeting for approval
The limit of non-carrying out of any underwriting contract along with justified reasons for the non-carrying out of the aforementioned contracts
The arrears due on the calls of every manager and director
Details on the context of commission or brokerage paid to any director or any manager for the issue of sale of shares or debentures
Annual General Meeting
An Annual General Meeting, as the name suggests, is a general meeting, which is held on a yearly basis. According to section 166 of the Companies Act, all companies must hold Annual General Meetings at stipulated time intervals. The notice for an Annual General Meeting must contain all the particulars of the meeting. However, the time to hold the first Annual General Meeting for a company is relaxed to 18 months from the date of incorporation.
As per section 166(1) of the Companies Act, a company is not bound to hold any general meetings till the first Annual General Meeting is held.
This relaxation is intended for the company to set up its final reports on the basis of a longer period of time.
One more relaxation provided by section 166(1) of the Companies Act is that with the registrar’s consent, the date of an Annual General Meeting can be postponed.
This date can be postponed to a maximum time period of three months.
However, this relaxation is not applicable for the first Annual General Meeting.
A company may not hold an Annual General Meeting in a year if the extension of the date of the meeting is made under the consent of the registrar.
However, the reasons for the extension of the meeting should be genuine and should be properly justified.
Interval between Two Annual General Meetings
As per section 166(1) of the Companies Act, the time gap between two Annual General Meetings must not exceed fifteen months. According to section 210 of the Companies Act, a company must present a report containing the accounts of all the profits and losses. In case the company is not trading for profit, an income and expenditure account report must be made.
The account shall state all the profits and losses earned and endured by the company from the day of its incorporation.
The account shall be updated for at least 9 months from the date of the last annual general meeting.
A balance sheet is also required to be attached along with the account.
The Annual General Meeting is subjected to three rules −
- The meeting must be held every year.
- A maximum gap of 15 months is allowed between two Annual General Meetings.
- The meeting must be held within six months from the preparation of the balance sheet.
Failure to comply with the above rules will be considered as an offence to the Companies Act by the law and will be treated as a default unless the registrar grants extension of time for holding a meeting.
Date, Time and Place
An Annual General Meeting can be held at any time during business hours. The day of the Annual General Meeting must not be a public holiday. The meeting can be held either at the registered office of the company or any preselected venue within the area of jurisdiction of the place where the registered office of the company is situated.
A public company or a private company, which acts as a subsidiary of a public company, may fix the time of the meeting according to the articles of association of the company.
A resolution may also be passed at a general meeting for the selection of time of the subsequent general meetings.
However, for a private company, the time and venue of the meetings is fixed by passing a resolution in any of the meeting.
The venue for the meeting of the private company may not be situated within the area of jurisdiction of the place where the registered office of the company is situated.
The section 25 of the Negotiable Instruments Act, 1881, defines a public holiday to be a Sunday or any other day as declared by the Central Government to be a public holiday. A day may be declared as a public holiday after the notice for a meeting has been issued. For avoiding difficulties that may be caused in the above mentioned scenario, section 2(38) of the Companies Act says that, “no day declared by the Central government to be a public holiday shall be a holiday in relation to such a meeting, unless the notice of declaration was issued before the declaration of the meeting.”
Default in Holding Annual General Meeting
Not holding an annual general meeting according to section 166 of the Companies Act is considered to be a serious offence in the eyes of the law. Every member of the company who is in default and the company will be rendered as defaulters.
A fine of up to INR 50,000 may be imposed on the defaulters.
According to section 168 of the Companies Act, if the default is found to be continuing, then a fine of INR 2,500 will be imposed on the defaulters on a daily basis till the default continues.
Extraordinary General Meeting
Any general meeting of a company is considered to be an extraordinary general meeting, except the statutory meeting, an Annual General Meeting or any adjournment meeting. Such types of meetings can be fixed by the directors at any time that seems appropriate to the directors. However, the meetings must be held in accordance with the guidelines mentioned in the articles of association of the company.
These meetings are held generally for the transaction of the business of a special character. Various administrative affairs of a company, which can be transacted only by resolutions passed in general meetings, are carried out in these meetings.
It is not possible for the members of the company to wait for the next Annual General Meeting for clearance of such issues. The articles of association of a company, therefore, provides freedom to conduct extraordinary general meetings to sort out such issues.
An extraordinary general meeting can be convened −
- By the board of directors or on the requisitions of members.
- By the requisitionists themselves on the failure of the board to call for a meeting.
- By the Company Law board.
By the Board of Directors
If some business of special importance requires an approval of the members of the company, the board of directors may call for an extraordinary general meeting of the company. Going in accordance with the articles of association of the company, the board of directors of a company may call for an extraordinary general meeting whenever they feel appropriate.
The power of a director to convene an extraordinary general meeting must be exercised at a board of directors’ meeting as in the case of all the powers exercised by the director.
According to the provision of the articles, if a resolution is signed by all the members of the board and is as effective as a passed resolution, a general meeting may be convened on the context of the resolution. The articles also provide the facility that there may not be sufficient number of directors to call for a general meeting.
Thus in case of insufficient number of directors, any director or any two members of the company can call for the general meeting in the same way as called by the board of directors.
On Requisition of Members
The members of the company may also request for an extraordinary general meeting to be conducted. A request for holding an extraordinary general meeting can be made by the members −
Holding at least 10% of the company’s paid up share capital and having the right to vote on the context of the matter to be discussed at the meeting.
Holding 10% of voting powers of the members in case the company has no capital.
Preference shareholders can also call for a general meeting if the proposed resolution is going to affect their interest.
If a member ceases to withdraw after the requisition is made, the withdrawal will not invalidate the requisition.
The appointment of shares does not affect the rights of a member to make requisitions or vote at a meeting.
By the Requisitionists Themselves
In case the directors fail to call for the meeting within 21 days of a requisition for a meeting to be held within 45 days after the submission of the requisition, the following consequences may be called −
In context of a company having a share capital, by the requisitionists who represent either a major value of the paid up share capital or not less than one tenth of the company’s total share capital.
For a company not having a share capital, by the requisitionists holding at least one-tenth of the total voting power
This kind of meetings must be called within three months from the date when the requisition is filed.
These kinds of meetings should be held similar to board meetings.
It is not necessary for the requisitionists to disclose the reasons for the resolution to be proposed at the meeting.
By the Company Law Board
If it is practically impossible to call a meeting other than an Annual General Meeting for any arbitrary reasons, the Company Law Board, under section 186, may order a meeting to be called, either of its own accord or by an application of any director of the company to the Company Law Board.
A petition needs to be filed under section 186 of the Companies Act for the Company Law Board to call for a meeting.
Meeting of BoD
The meeting held by the Board of Directors is an important aspect for the smooth functioning and working of a company. For ensuring that the actions approved by the board are in the interest of the company, the Companies Act, 1956, incorporates several statutory prescriptions.
Periodicity of the Board Meetings
According to section 285 of the Companies Act, the board meetings should be held every three months. The board of directors can meet any day between the 1st January and the 31st of March. Accordingly, the next meeting should be held between 1st April and 30th June. There is no scope in the section 285 of the companies act for backward calculation.
Notice of Board Meeting
According to section 286 of the Companies Act, appropriate notice should be given to all the directors about the meeting. The meeting can be held only after the notice is given. The notice should be delivered to every director of the board.
The notice should be delivered at least seven days before the meeting. It is not mandatory to give notice to a foreign director staying outside India. However, it is advised to deliver notices to all the directors whether inside India or outside.
Day of Holding Meeting
Generally, board meetings are held during the day within business hours. However, board meetings can also be held on a public holiday.
Time of Holding Board Meeting
The Companies Act, 1956, does not impose any restrictions on the timing of board meetings. They can be held during or outside business hours, as per the convenience of the board.
Place for Holding Board Meetings
Board meetings can be held anywhere as per the convenience of the board. The board is not bound to select a venue for the meeting in the same city where the company’s registered office is situated as in the case of general and statutory meetings. Board meetings can also be held abroad.
Quorum of the Board Meeting
According to the provisions given by the Companies Act, at least one-third of the directors or two directors (whichever is higher) must be present to conduct a board meeting. If a fraction arises during the counting of one-third, the fraction is counted as one. These rules also apply to a private company. According to section 287(2) of the Companies Act, the company can raise the number of quorum through its articles of association.