As an existing shareholder of a company, you might have received a notice to attend an Extraordinary General Meeting (EGM). But do you know what an EGM is? You might have heard this term several times but may not know its meaning and why you should care about it.
To help you understand the term better, we have explained in this article what EGMs are, why they are held, and who can call for an EGM. We have also discussed how the EGM and the AGM are different from each other. Keep reading.
Open Your free Demat Account in just 5 minutes!
To understand what an extraordinary general meeting is, you must first know the meaning of the word “extraordinary”. We use this word for something unusual or out of the ordinary. Thus, the purpose of an EGM is to discuss certain unexpected circumstances related to the company or the business.
Usually, a company calls for an EGM to discuss or address specific emergency issues that require immediate intervention. All shareholders, board members, and directors can attend such a meeting.
In general terms, the EGMs are the shareholders’ meetings held by a company other than the scheduled AGMs.
If a company’s business is going on as usual, regular things like performance updates, new appointments, etc., are discussed in the AGM. However, for certain urgent matters, such as the company’s internal disputes, business policies, legal complications, etc., an EGM has to be called.
Below are some common reasons for companies to call an extraordinary general meeting:
Certain decisions in a company require the passing of a special resolution, which is possible only after approval from the majority of shareholders. Some common examples of matters that need a special resolution include the change of the company’s name, a merger or acquisition, an alteration of the company’s capital structure, and an amendment of the article of association. To discuss such matters, a company may call an urgent EGM to take its shareholders’ approval.
Sometimes, companies face urgent matters requiring immediate intervention. Examples of such issues include a sudden financial crisis, an unforeseen legal dispute, or an unwelcoming government notice. Calling an EGM becomes necessary under such circumstances to save the company from adverse effects.
Sometimes, an ongoing internal dispute within a company may become a reason to call for an EGM. For example, a dispute between a company’s Board of Directors, senior-level employees, or third-party suppliers may necessitate an EGM for a quick resolution. The EGM allows all shareholders of a company to put forward their opinions and help resolve a dispute.
Companies need to make certain business decisions within specific time frames. For example, the approval of a merger or acquisition, removal of an executive, issuance of new shares, etc. In such situations, calling an EGM becomes a routine procedure to take shareholders’ approval.
The following entities in a company are authorized to call EGMs:
Given its significance, strict guidelines and protocols should be followed while calling for an EGM. The notice for an EGM must contain an explanatory statement on why the meeting has been called and the issues that will be discussed in it.
As both the EGM and the AGM are shareholder meetings, you might get confused between the two. Here is a comparison between the EGM and the AGM for a better understanding:
|Reason for meeting||Urgent matters||Usual matters|
|Who can participate?||Directors, shareholders, and Board members||Directors and shareholders|
|Who can call?||Board members, Directors, and eligible shareholders||Directors|
|Time||Any day and at any time, including public holidays||On working days and during business hours|
|Frequency||No definite frequency||Annual|
|Notice period||Minimum 14 days for private companies and 21 days for public companies||21 days for all companies|
Hopefully, after reading this article, you have a better understanding of what extraordinary general meetings are and the reasons why they are called. As a shareholder, you must know your rights and responsibilities towards the company.
If you wish to invest in shares, you can open a free Demat account with Motilal Oswal and get started in just five minutes.