Extraordinary general meeting

From CEOpedia | Management online

Extraordinary general meeting (EGM) - also known as special general meeting or emergency general meeting. It's meeting different than annual general meeting, due to the nature of the matters discussed. EGM occurs company's most important persons, such as executives, shareholders and other management members. In difference than annual general meeting - EGM is mostly announced in short time before meeting, that's why it is called emergency meeting. Encounter undertakes most significant issues related to company, sometimes Extraordinary general meeting is convoked in order to modify company's system, its necessary procedure.

In order to convene EGM there must be one member, or more members together holding 50 or more percent of paid shared company capital, but it can be different for various company, and should be noticed in company's constitution. (Extraordinary General Meeting - EGM, Investopedia, 2018)

Procedures of the extraordinary general meeting

Extraordinary general meeting can take place in every capital company, so it is necessary to prepare rules of procedure pointing out how the meeting should look like. It may be different for miscellaneous companies, but in general those are similar, also procedures can be same for annual general meetings, and extraordinary general meetings, but both congregations have different character.

  • Terms should start of general provisions, saying that general meetings shall be held in accordance with commercial companies code, company's articles of association, and current rules of procedures.
  • Next article should point on how to convene general meetings, and also when annual general meetings takes place. For example, rules of procedure for meetings of ERGIS-EUROFILMS S.A. says that The Management Board shall convene Extraordinary Shareholders Meetings on its own initiative or at the request of a shareholder or a group of shareholders representing at least one tenth of the Company's share capital - (2018, p.1-2).
    Meeting must be announced to every person righted to participate in general meeting, form of notification is optional, but it has to be pointed in procedures. For example, it can be posted on company's website, sent via e-mail, text message, or announced in headquarters office. Management have to lay down what informations notification should contain. The most important and obvious informations are date, time and place of general meeting, but it also should include detailed descriptions of issues raised at the meeting, the possibility of engaging a proxy, different ways of attending in meeting (for example through electronic communications programmes).
  • Article about persons entitled to take part in General Meetings should be also included in terms. That rule says mostly that only shareholders can attend in meeting, it also says for how long they have to be shareholders in order to vote during meeting
  • Opening of general meeting. It shall be opened by chairperson (chairperson may be indicated before meeting, or be elected from among the persons attending meeting). There also must be person minuting course of meeting, called notary. Chairperson starts discussion about current issues.
  • Agenda of meeting. Announced agenda is accepted if none of persons works for purpose of changing it.
  • Conducting the general meeting chairperson have to initiate discussion, and talk through planned agenda. Also chairperson is managing the course of meeting, he shall allow every attendant to make a statement on a matter, and give reply to every statement used by shareholders.
  • Minutes of General Meetings shall record that the Extraordinary General Meeting was convoked validly, in harmony with terms allowing it to draw out resolutions. It also should have all resolutions recorded, and results of voting.

(Rules of procedure for the general shareholders meeting of ERGISEUROFILMS S.A. 2018)

Examples of Extraordinary general meeting

  • Modifying company's system - EGM is convoked in order to modify companys system, its necessary procedure, its business model or any other important changes. These changes are determined by the shareholders and discussed during the meeting.
  • Changing company's capital structure - In extraordinary general meeting, shareholders decide on the changes of the company's capital structure such as issuing additional shares, converting existing securities into new ones, buying back the company’s shares, or issuing bonus shares.
  • Merging with another company - An EGM is also convened when a company decides to merge with another company. It is necessary to approve the merger agreement and its terms.
  • Appointing new Directors - The shareholders of the company can appoint new directors to the board of directors. This decision is taken during the extraordinary general meeting.
  • Winding up the company - The shareholders can also decide to wind up the company and dissolve it. This decision is also taken during an extraordinary general meeting.

Advantages of Extraordinary general meeting

An Extraordinary general meeting (EGM) can be beneficial for a company in many ways. Below are some of the advantages of holding an EGM:

  • It helps to bring together key stakeholders and members of management in order to discuss and determine the most important issues and decisions facing the company.
  • It provides an opportunity to make decisions quickly and efficiently since all key parties are present in the same room.
  • It allows for more in-depth discussion and debate than is normally possible in an Annual General Meeting.
  • It allows for greater transparency and accountability as decisions can be made quickly and openly with all participants present.
  • It provides an opportunity for shareholders to exercise their rights and ensure their voices are heard.
  • It can help to create a strong sense of unity among the shareholders, board members, and other key stakeholders.

Limitations of Extraordinary general meeting

Extraordinary general meeting (EGM) has certain limitations and drawbacks. These include:

  • Lack of sufficient time for preparation: EGM is announced in short time before meeting, which means that participants have limited time to prepare for the meeting and discuss the topics effectively.
  • Limited agenda: EGM agenda is focused on the main issue, which means that other important matters which need to be discussed may be ignored.
  • Limited number of participants: due to the short time frame of the meeting, the number of participants is usually limited.
  • Limited decision-making power: due to the limited number of participants, the decision-making power of the meeting is limited.
  • Costly procedure: the process of organizing an EGM can be costly, as it requires additional resources and time.

Other approaches related to Extraordinary general meeting

In addition to discussing important matters related to company, there are also other approaches related to Extraordinary general meeting. These include:

  • Making changes to company’s constitution - which is the document that sets out the rules that govern the company’s operations and management. This can include changes to the company’s structure, name, share capital, and the roles and responsibilities of directors.
  • Approving financial transactions - such as mergers, acquisitions, or capital investments. The EGM is the ideal forum for shareholders to discuss and approve any major financial decisions.
  • Making decisions about corporate restructuring - when companies need to restructure, they may need to make changes to the board of directors, change the company’s name, or transfer assets. This can be discussed and voted on at an EGM.
  • Amending the company’s bylaws - the bylaws are the legal document that outlines the procedures for running the company. They can be amended at an EGM if needed.

In summary, Extraordinary general meetings are a forum for discussing and voting on important matters related to company. These can range from making changes to company’s constitution and approving financial transactions to making decisions about corporate restructuring and amending the company’s bylaws.


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References

Author: Michał Rogóż

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