Why AGMs are a must and how to make them matter
Global events may continue to change the way we work, but there will always be practices worth maintaining, like holding an annual general meeting (AGM). Apart from being a means for a company to share its financial results with its shareholders, an AGM is also an important platform for fulfilling two objectives: communication and compliance.
The common denominator underlining these two objectives is a sense of trust. With AGMs, shareholders can gain insights into a company’s performance and how transparent the management team are, so they can make discerning investment decisions. On top of having the opportunity to pose questions or engage directly with the board, they would be privy to the company’s strategies and outlook moving forward – straight from the source.
Through AGMs, companies can be held accountable for their actions, not only to put their shareholders’ minds at ease, but also in the eyes of the law. According to the Companies Ordinance, any Hong Kong company – listed or not – should hold an AGM; and none are exempted unless the company has yet to commence operations or became dormant during the year.
Although epidemic prevention measures could still impact a company’s ability to hold in-person meetings in Hong Kong, the good news is that virtual AGMs are allowed, providing all the shareholders can listen, speak, and vote in the meeting. While the circulation of written resolutions is a suitable alternative for compliance purposes, it does not tick the box for effective communication or shareholder engagement.
If you are a non-listed company planning to hold your first AGM or seeking ways to improve, this article offers practical guidance for preparing and conducting a meeting, as well as how to follow up for the year ahead so you can make the most out of it.
Preparing for an AGM
For any meeting to be successful, preparation is essential. In the case of an AGM, this should commence at the end of the company’s accounting period, so that management accounts are ready for the auditing process and directors’ reports can be prepared concurrently.
In Hong Kong, all companies must have their accounts audited. Although auditing standards will vary depending on the size of the company, in essence, the process ensures that the financial statements present a true and fair view of the company’s performance and are free from material error. Typically, it takes four to six weeks for an audit to be completed, assuming all bank confirmations can be obtained without delay and all supporting documents are available.
It is worth noting that the expectations of auditors when it comes to supporting documents may take company directors who are new to Hong Kong by surprise. Any line in a bank statement or entry in the books must be documented to be scrutinised, which is why it pays for a company to be diligent in book-keeping throughout the year, so as to avoid potential delays or issues.
Once the audit is complete, the board must approve the financial statements and arrange to call for the AGM. These board-approved financial statements must bear the signature of at least two directors (if the company has two or more of them), and thereafter, be signed off by the auditors themselves. To inform its shareholders about the AGM, the company must send them notice at least 21 days before the meeting itself, electronically or by mail. Along with the notice, they should also receive a copy of the board-approved, signed-off financial statements, as well as a form of proxy and a form for correspondence vote(s) for those unable to attend.
The following list contains the information typically expected in an AGM notice:
- Name of the company
- Date and time of the AGM
- Venue for the AGM (in person) and/or link for the video-/teleconference call
- A short meeting agenda, which may include the presentation of financial statements, (re)appointment of directors and the (re)appointment of auditors
- A more extensive agenda, which may include renewal of authorisations related to the company’s Employee Share Option Plan (ESOP), final dividends, and reserved matters for shareholders as per the company’s shareholders’ agreement (if any)
BONUS TIP: Since the AGM is for both compliance and communication, your company would do well to confirm in-person/online attendees and collect proxies/forms for correspondence votes in advance to engage with shareholders before the meeting.
Upon receiving their AGM notice, shareholders will be able to exercise the rights accorded to them by the Companies Ordinance before the meeting itself. These may include requesting the company to circulate a statement regarding a proposed resolution or other business to be dealt with during the AGM.
Conducting the AGM
Starting the meeting on time can set the tone for the day. After appointing a chairperson and secretary, as well as other roles if deemed necessary, the number of people in attendance should be checked against the quorum for the AGM (which is currently set at two, according to the Model Articles of Association for private companies). This protects the company by preventing a very small number of shareholders from making decisions on behalf of the entire organisation. If there is no quorum, the Model Articles of Association allows for the meeting to be adjourned until seven days later or another day that the directors see fit.
If the AGM proceeds, what follows is a presentation of the company’s business performance and financial results, typically in a slideshow format (PPT/PDF). Should there be a need to pass ordinary and/or special resolutions, which are categorised as such according to the Companies Ordinance and the company’s articles of association, shareholders will then be called to vote.
The voting process may take the form of a poll – where every shareholder present in person or by proxy has one vote for every voting right held – or a simple show of hands when voting results are not expected to be narrow. Typically, voters must choose between ‘Yes’ and ‘No’ answers, but some companies allow for the option to abstain. Depending on the resolution type or if a resolution is rejected, the chairperson may call for it to be amended and a fresh round of votes. Any amendment made should follow common law, which mainly requires that it be within the scope of the AGM notice and no more cumbersome to vote for/against than the existing resolution.
Once everything on the agenda has been addressed, the AGM can be formally drawn to a close and informal discussions or Q&As can ensue.
After the AGM, the company can set the wheels in motion for the next year by preparing the minutes for the meeting past and getting the signoffs needed, electronically or otherwise. The minutes are then typically sent to the company secretary for safe keeping.
Ultimately, AGMs are not just held for complying with the provisions of the Companies Ordinance and the company’s articles of association or meeting the contractual obligations set out in shareholders’ agreements. By enhancing the compliance aspect with the benefits of communication, companies would also be able to involve shareholders in their growth and avoid potential misunderstandings that could degenerate into disputes down the line.
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This article serves as a guide; therefore, its details may/do not apply to every AGM for any company. If you have any questions or feedback, please do not hesitate to reach out to us.