Annual General Meeting (AGM): Definition and Purpose

What Is an Annual General Meeting (AGM)?

An annual general meeting (AGM) is a yearly event sponsored by board members and executives to report information to shareholders about the company’s performance and strategy.

Shareholders with voting rights participate in voting on current issues, such as appointments to the company’s board of directors, executive compensation, dividend payments, and the selection of auditors.

How an Annual General Meeting (AGM) Works

An annual general meeting, also known as an annual shareholder meeting, is primarily held to allow shareholders to vote on both company issues and the election of the company’s board of directors. In large companies, this meeting is typically the only time during the year when shareholders and executives interact.

The exact rules governing an AGM vary according to jurisdiction. As outlined by many states in their laws of incorporation, both public and private companies must hold AGMs, although the rules tend to be more stringent for publicly traded companies.

Public companies must file annual proxy statements, known as Form DEF 14A, with the U.S. Securities and Exchange Commission (SEC). The filing will specify the date, time, and location of the annual meeting, as well as executive compensation and any material matters of the company concerning shareholder voting and nominated directors.

Annual general meetings (AGMs) are important for the transparency they provide and the ability to include shareholders, as well as bringing management to accountability.

Qualifications for an AGM

The corporate bylaws that govern a company, along with its jurisdiction, memorandum, and articles of association, contain the rules governing an AGM. For example, there are provisions detailing how far in advance shareholders must be notified of where and when an AGM will be held and how to vote by proxy. In most jurisdictions, the following items, by law, must be discussed at an AGM:

• Minutes of the previous meeting: The minutes of the previous year’s AGM must be presented and approved.
• Financial statements: The company presents its annual financial statements to its shareholders for approval.
• Ratification of the directors’ actions: The shareholders approve and ratify (or not) the decisions made by the board of directors over the previous year. This often includes the payment of a dividend.
• Election of the board of directors: The shareholders elect the board of directors for the upcoming year.

Additional Topics Covered at an AGM

If the company has not been performing well, the AGM is also an opportunity for shareholders to question the board of directors and management about the reasons for poor performance. The shareholders can demand satisfactory answers as well as inquire about the strategies that management plans to implement to turn the company around.

The AGM is also when shareholders can vote on company matters other than electing the board of directors. For example, if management is contemplating a merger or acquisition, the proposal can be presented to the shareholders, and they can vote on whether or not the company should proceed.

Several other elements may be added to an AGM agenda. Often, the company’s directors and executives use the AGM as an opportunity to share their vision of the company’s future with shareholders. For example, at the AGM for Berkshire Hathaway, Warren Buffett delivers long speeches on his views of the company and the economy as a whole.

Berkshire Hathaway’s annual gathering has become so popular that it is attended by tens of thousands of people each year, and it has been dubbed “Woodstock for Capitalists.”