Why are General Meetings Important at a Company?
General meetings play a pivotal role in a company’s corporate governance, serving as vital decision-making forums that influence the organization’s operations and legal compliance. In this article, we will delve into the significance of general meetings, exploring their purpose, types, key driving forces, and the procedural aspects of convening and holding these meetings.
What is a general meeting?
General meeting is a formal gathering of company shareholders during which certain decisions are made. These decisions, commonly referred to as resolutions, hold legal significance and provide the foundation for the company’s actions and operations. Each shareholder’s voting power in these meetings is proportionate to their shareholding in the company’s authorized capital. General meetings encompass a wide array of essential matters, including amendments to the company’s articles of association, the appointment or removal of directors, approval of financial statements, distribution of dividends, issuance of company securities, and other critical corporate choices.
There are two types of general meetings under the laws of the Republic of Armenia:
- Annual General Meeting (AGM): Mandated by law to be held once a year, the AGM brings together all members or shareholders to review the results of the previous fiscal year, particularly concerning dividends and additions to retained earnings, among other matters.
- Extraordinary General Meeting (EGM): An Extraordinary General Meeting (EGM) is convened for important, time-sensitive matters that cannot wait for the next annual meeting. For example, if unforeseen regulatory changes or circumstances necessitate urgent amendments to the bylaws, an EGM is called. It can be initiated by the board of directors or the Company CEO, or it can be requested by just 10% of the company’s members or shareholders. Resolutions passed during an EGM are focused on addressing specific issues.
What are key driving forces of general meetings?
- Decision-Making: General meeting resolutions serve as the primary mechanism for making important decisions within a company. They provide a platform for shareholders to collectively deliberate on matters that impact the company’s future, for example authorizing M&A transactions. In a nutshell, they stand as a transparent and democratic way of decision-making within the company.
- Shareholder Participation: General meetings offer shareholders a platform to exercise their voting rights, express their views, address concerns, and actively contribute to the company’s governance. This fosters transparency, accountability, and a stronger sense of ownership among shareholders.
- Legal Compliance: General meetings are mandated by applicable laws and company bylaws. Compliance with these legal imperatives is essential for companies to hold general meetings, make resolutions on matters vested in them, and mitigate potential risks.
- Binding Nature: They legally binding on all shareholders and the company itself. They become integral components of the company’s governance framework and must be implemented accordingly. Dissatisfied parties may take legal action if their rights are infringed.
- Dispute Resolution: General meetings serve as internal dispute resolution bodies in the event of conflicts or disputes regarding strategic business affairs.
What is the procedure for convening and holding a general meeting?
- Notice of Meeting: Send an official notice to all shareholders at least 20 days before the meeting. The notice should include the date, time, and location of the meeting, along with the agenda items to be discussed.
- Quorum Requirement: Ensure that a minimum number of shareholders (quorum) are present before proceeding with the meeting. The meeting is valid if more than half of the total votes from the company’s shareholders attend.
- Conducting the Meeting: Follow the agenda during the general meeting, allowing shareholders to discuss and vote on the proposed items. Resolutions are usually adopted by a majority of the total votes of the company’s shareholders.
- Recording Minutes: Appoint a secretary to record minutes of the meeting. The minutes should summarize the discussions and the outcomes of the voting.
In conclusion, general meetings are the lifeblood of corporate governance, essential for maintaining transparency, shareholder participation, and legal compliance in the corporate world. Their significance cannot be overstated, as they serve as the foundation for decision-making, legal adherence, and conflict resolution within companies.
At Retrieve Legal & Tax, we are well-versed in corporate governance intricacies, including the pivotal role of general meetings. We offer support in ensuring legal compliance, preparing meeting documentation, resolving conflicts, optimizing corporate governance, and delivering tailored legal solutions.